Volume 4 Issue 4
IMA Educational Case Journal
The Western Cabinets case is designed to help students understand the relationship between strategy and strategy execution through the use of management control systems. Students explore the issues of a “real life” North American regional cabinet manufacturer and retailer. After exploring the issues, students are left to decide whether Western Cabinets should re-invent its strategy or continue with the current strategy and focus on better execution through management control systems. To analyze strategy, the teaching notes use Porter’s low cost/differentiation model as well as the value chain to rationalize Western Cabinets’ business model. For strategy execution, the teaching notes provide guidance for instructors wishing to use Simons’ levers of control framework or Kaplan and Norton’s balanced scorecard. The teaching notes offer two approaches: a 60- to 80-minute in-class discussion or an extended 3-hour version that allows instructors more time to teach and students to conduct group presentations.
Keywords: management control, business model, competitive strategy, and strategy implementation.
Don’t Leave Your Hand in the Cookie Jar
John Davies, assistant controller, was concerned about an upcoming meeting with his boss about year-end accounting adjustments. He had noticed over the past two years that the controller was adding to three reserve accounts: bad debt, product returns, and warranties. “Cookie jar” accounting came to mind as John thought through his arguments against the practice. Cookie-jar accounting sets aside reserves in good times to be dipped into in bad times when the firm needs a boost to earnings—a classic example of earnings management. John knew the controller would cite conservatism in accounting, industry practice, and materiality in his defense of the added reserves. John was concerned that an ulterior motive for the controller was to present earnings growth to the venture capital firms that had funded the start-up firm. There still is a gray area that allows differing interpretations of what should be recorded for these estimates. In this case, the student will balance off IMA Ethical Standards, SEC rulings on reserve accounting, conservatism in accounting, industry practice, and materiality to arrive at a solution of the proper accounting for the three accounts.
Keywords: IMA Ethical Standards and cookie jar reserves.