Knowledge that Transforms

Forecasting, Firm performance

Standards for evaluating the performance of outlet managers in companies with numerous outlets are difficult to formulate because. of the differences in the profit potentials of the various outlets. Differences in measured contribution margins among outlets may be explained by differences in the characteristics of the locations and facilities of the outlets as well as the differences in the performance of the outlet managers. Since the location and facilities of an outlet are not controllable by the outlet manager, the effects of these environmental factors should be extracted before evaluating the performance of the manager. For a small number of outlets, central marketing officials can be familiar with the potentials of the outlets and can subjectively adjust for the potential differences. However, for a larger number of outlets, subjective adjustments for potential differences are not feasible. The performance measurement and evaluation system proposed here extends responsibility accounting to make objective intraperiod performance standards valid and operational. The extended system incorporates statistical techniques to provide a means for estimating the effects upon an outlet's measured performance' of the nonmanagerial environmental factors associated with an outlet. Since these environmental factors are not controllable by the outlet manager, they can be eliminated and the manager held responsible only for the effects of those factors controllable by him.

Internal reporting, Business unit reporting

Asset valuation, Linear Programming, Opportunity value

Financial ratios, Industry average financial ratios, Earnings smoothing

The Institute's Accounting Principles Board has just added a third Opinion to its output for this year. The first Opinion dealt with reporting net income of commercial banks, the second with accounting for convertible debt and debt issued with stock purchase warrants, and the third with computing earnings per share. Although there were some delays in getting each of these Opinions out, as compared to original time schedules, the fact that they were finalized is cause for satisfaction, because each of the opinions faced strong opposition from various groups. This is not new or surprising, for every subject tackled by the Board is controversial and strong opposition may be expected from some quarter for any position taken. While some financiers and business conglomerators complain about what the Board is doing, many observers are commenting favorably about its work. One syndicated columnist recently wrote an article about the APB entitled, They Act as Management's Conscience. In it he said:

John Leslie Livingstone, Accelerated Depreciation, Tax Allocation, and Cyclical Asset Expenditures of Large Manufacturing Companies, Journal of Accounting Research, Vol. 7, No. 2 (Autumn, 1969), pp. 245-256

Depreciation, Time-adjusted Depreciation, Cost allocation, Cost accounting