Accounting for Decision Making: Three Case Study Analysis
This paper examines accounting for decision making through three distinct case studies: Shelter Partnership (a non-profit organization), Prestige Telephone Company and its subsidiary Prestige Data Services, and Body Glove, a wetsuit manufacturer. For Shelter Partnership, the paper evaluates cost objects, critiques the accuracy of the existing financial statements, and addresses concerns about in-kind contributions and insurance accounting. For Prestige Telephone Company, it identifies accounting irregularities in quarterly reporting, calculates a monthly breakeven point, and models the impact of four pricing and demand scenarios. For Body Glove, it discusses the purposes of the budgeting system, key events in the budgeting cycle, and recommends changes to accommodate growth.
- Purposes of Cost Information and Cost Objects: Cost information goals and identified cost objects
- Accuracy of Ruth Schwartz's Financial Estimates: Critique of Schwartz's single-stage accounting approach
- Addressing Warehouse Space and Insurance Concerns: In-kind warehouse space and insurance allocation issues
- Prestige Telephone Company: Results of Operations: Depreciation errors, rent, and service hours accounting
- Monthly Breakeven Analysis and Impact on Operations: Breakeven formula and four pricing scenario outcomes
- Body Glove: Budgeting System and Key Events: Seasonal production cycles and budget monitoring process
- Recommended Changes and Accommodating Growth: Budget improvements and product-line cost tracking
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What makes this paper effective
- The paper applies accounting concepts concretely across three distinct organizational contexts — a non-profit, a telecom subsidiary, and a manufacturing firm — demonstrating breadth of analytical application.
- Critiques of existing accounting practices are specific and actionable, pointing to exact line items (e.g., personnel groupings, depreciation reporting, insurance allocations) rather than making vague generalizations.
- The breakeven analysis section includes explicit formulas and calculated figures, grounding the argument in quantitative evidence rather than relying solely on qualitative reasoning.
Key academic technique demonstrated
The paper demonstrates comparative case analysis: it uses a consistent evaluative framework — cost objects, overhead allocation, accuracy of financial reporting, and budgeting utility — applied sequentially across three organizations. This allows the reader to see how the same accounting principles manifest differently depending on organizational type and structure.
Structure breakdown
The paper is organized by organization (Shelter Partnership → Prestige Telephone Company → Body Glove), with each section subdivided by accounting topic. Shelter Partnership receives the most detailed treatment, covering cost information purposes, cost objects, financial statement critique, and specific line-item concerns. The Prestige section shifts toward quantitative analysis with breakeven calculations and scenario modeling. The Body Glove section is more strategic, focusing on budgeting process design and growth accommodation. The paper concludes with forward-looking recommendations rather than a formal summary.
Purposes of Cost Information and Cost Objects
Purposes of Cost Information
The intended purpose of cost information is to provide a basis for determining the expenses and revenues associated with a particular activity or cost object. Generally, cost and income are measured in order to determine net income or profit margins. However, as Shelter Partnership is a non-profit, the cost information forms a basis for the allocation of resources and assists with decisions about scaling. The cost information of Shelter Partnership can also be used to address any cycles in the stream of donations and contributions that can impact the overall ability of the non-profit to meet its mission.
In addition, since Shelter Partnership regularly applies for grant funding, it is essential that their accounting system be readily interpretable to grant-reviewing bodies. Fund development cannot be sustained for long in an environment that is only loosely accountable for revenue — in fact, this is one of the public's most common criticisms of not-for-profit organizations, and it is often their undoing (or at least that of their executive directors). Shelter Partnership must ensure that their books provide an accurate accounting of all operational expenditures and all funds received, regardless of the source (including in-kind contributions).
Cost Objects
Shelter Partnership cost objects. The cost objects for Shelter Partnership include the technical assistance work, the program development work, and the public policy support work. Each of these cost objects has a discrete focus, and costs should be separately measured for each object (Averkamp, 2011).
Shelter Resource Bank cost objects. The cost object for the Shelter Resource Bank consists of the direct material assistance provided to the homeless shelters.
Where overhead and administrative costs are shared, the percentage of costs should be allocated to the objects according to use or consumption (Averkamp, 2011).
Accuracy of Ruth Schwartz's Financial Estimates
Schwartz did not organize the financial accounts separately for the Shelter Partnership and the Resource Bank, though they are essentially two distinct business units. The single-stage cost accounting system that Schwartz used creates distortions because more than a single activity is occurring under that accounting system, and the percentages of overhead costs attributed to the different activities are not reflected when a single enterprise-wide accounting system is used. The Shelter Partnership has four distinct activities divided across two business units (Shelter Partnership, 2011). A traditional two-stage cost allocation system of accounting would provide greater accuracy and detail, better suiting the needs of a non-profit that is active in fund development.
Issues about accounting for revenues were addressed in the section on the purposes of cost information. Schwartz's method of consolidating all revenue into one category does not serve the agency well (Martin, 2010).
Schwartz's financial statement, as categorically expressed, is an amalgamation of a budget and a financial statement. With personnel as the largest line item, Schwartz should break down that account in more detail, particularly since personnel are shared across the two main business units. She has carefully delineated costs for office expenses — which are quite minor compared to personnel costs — but has lumped all costs for all regular employees together. Schwartz has identified specific personnel costs by role for the independent contractor positions, and this should also be done for the regular employees, if not on the financial statement, then on the annual budget.
Schwartz's approach is not internally consistent on the financial statement: if personnel salaries are grouped, then independent contractor wages should also be grouped. Furthermore, costs of benefits and payroll tax expenses (PTE) should not be rolled into the salaries line on the budget, as the case study narrative indicates. Benefits are often renegotiated and PTE can vary across fiscal periods, so both items should be segregated, as they have been on Schwartz's statement — at least for some of the staff.
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