Appendices

Checklist ofTopics and

Related Problems

1 Standard Costing and Matrix Algebra

Primary Reference

Fully-worked ProblemProblem for Self-study

w. Franks and R. Manes , 'AStandard Cost Application ofMatrix Algebra' , Accounting Re­view, XLII 3 (July 1967) 516-25Radium Dyestuffs LtdArconate Ltd

2 Stochastic Process Costing

Primary Reference

Fully-worked ProblemProblem for Self-study

A. W. Corcoran and W. E .Leininger, 'Stochastic ProcessCosting Models' , Accounting Re­view, XLVIII 1 (January 1973)105-14Ottoline ElectronicsKleeford Distilled Compounds

339

340 Checklist of Topics

3 Credit Management and Markov Chains: PartialBalance Aging Method

Primary Reference

Fully-worked ProblemProblem for Self-study

A. W. Corcoran, 'The Use ofExponentially-Smoothed Transi­tion Matrices to Improve Fore­casting of Cash Flows fromAccounts Receivable' , Manage­ment Science, XXIV 7 (March1978) 732-9Stryford LtdLangdale Ltd

4 Credit Management and Markov Chains: ModifiedTotal Balance Aging Method

Primary References

Fully-worked ProblemProblem for Self-study

R . M. Cyert, H . J . Davidson andG. L. Thompson, 'Estimation ofthe Allowance for DoubtfulAccounts by Markov Chains',Management Science, VIII 3(April 1962) 287-303J . A. M. van Keulen, J . Spronkand A . W. Corcoran, 'On theCyert-Davidson-ThompsonDoubtful Accounts Model ',Management Science, XXVIII(January 1981) 108-12Michelsky LtdFirenza Associates

5 Linear Programming and Decisions on Internal v.External Purchases of Services

Primary Reference K. R. Baker and R. E. Taylor,'A Linear ProgrammingFramework for Cost Allocation

Fully-worked ProblemProblem for Self-study

Checklist of Topics 341

and External Acquisition WhenReciprocal Services Exist' ,Accounting Review , LIV 4(October 1979) 784-90Knockshinnock Mines LtdRemosense PLC

6 Linear Programming, Opportunity Losses and expost Budgeting

Primary Reference

Fully-worked ProblemProblem for Self-study

J . S. Demski, 'An AccountingSystem Structured on a LinearProgramming Model', Account­ing Review , XLII 4 (October1967) 701-12Araque Perfumes LtdShalmirane Ltd

7 Input-Output Analysis and Linear Programming

Primary Reference G. A. Feltham, 'Some Quantita­tive Approaches to Planning forMultiproduct Production Sys­terns ', Accounting Review , XLV1 (January 1970) 11-26

Fully-worked Problems Taumor IndustriesSalmedge Products

Problems for Self-study Kerruish TracersRa istrick Ltd

8 Use of Information Theory to Isolate SubstantialVariances

Primary Reference B. Lev, 'An Information TheoryAnalysis of Budget Variances' ,A ccounting Review , XLIV 4(October 1969) 704-10

342 Checklist of Topics

Fully-worked ProblemProblem for Self-study

Heversham Horticulture LtdDepartment of TransportationAnalytical Offices

9 The Single-period Cost Variance InvestigationDecision

Primary References

Fully-worked ProblemProblem for Self-study

R . Capettini and D. Collins,'The Investigation of Deviationsfrom Standard Costs in the Pre ­sence of Unequal StateVariances', Journal of BusinessFinance and Accounting, V 4(Winter 1978) 335-51T . R. Dyckman, 'The Investiga­tion of Cost Variances' , Journalof Accounting Research, VII 2(Autumn 1969) 215-44Alston GlassworksStar Chemical Company

10 The Multi-period Cost Variance InvestigationDecision

Primary Reference

Fully-worked ProblemProblem for Self-study

D . A . Dittman and P. Prakash ,'Cost Variance Investigation:Markovian Control of MarkovProcesses', Journal of Account­ing Research, XVI 1 (Spring1978) 14-25Fitzroy Paper ProductsMansfield Pressings

Checklist of Topics 343

11 Stochastic Cost-Volume-Profit Analysis andDecision Theory

Primary Reference

Fully-worked ProblemProblem for Self-study

J . E. Jarrett, 'An Approach toCost-Volume-Profit AnalysisUnder Uncertainty', DecisionSciences, IV 3 (July 1973) 405-20William Lehman Timber LtdBulk Powder Producers Ltd

12 Stochastic Cost-Volume-Profit Analysis: Satisficingwith Short Product Lives

Primary Reference

Fully-worked ProblemProblem for Self-study

B. E. Ismail and J. G. Louder­back , 'Optimizing and Satisficingin Stochastic Cost-Volume­Profit Analysis', Decision Scien­ces, X 2 (April 1979) 205-17Knowsley Medical ProductsBridgegate Foods

13 Stochastic Cost-Volume-Profit Analysis:ChoiceAmong Combinations of Products

Primary Reference

Fully-worked ProblemProblem for Self-study

J . P. Dickinson, 'Cost-Volume­Profit Analysis Under Uncertain­ty', Journal of Accounting Re­search, XII 1 (Spring 1974) 182-7Barrow Gurney Orchards LtdGalpen Cleansing Products

14 Short-term Investment of Cash Balances

Primary References J . C. T. Mao and C. E . Sarndal ,'Cash Management: Theory andPractice', Journal of Business

344 Checklist of Topics

Fully-worked ProblemProblem for Self-study

Finance and Accounting, V 3(Autumn 1978) 329-38A. Punter, 'Optimal Cash Man­agement Under Conditions ofUncertainty', Journal ofBusinessFinance and Accounting, IX 3(Autumn 1982) 329-40Alvor DevelopmentsMaselia Ltd

15 Payments Netting in Multinational CashManagement

Primary Reference

Fully-worked ProblemProblem for Self-study

A. C. Shapiro, 'Payments Net­ting in International Cash Man­agement', Journal of Internation­al Business Studies, IX 2 (Fall1978) 51-8Lintock CorporationThornend Communication Sys­tems PLC

16 The Learning Curve and Financial Planning

Primary References

Fully-worked ProblemProblem for Self-study

D . W. Harvey, 'Financial Plan­ning Information for ProductionStart-ups', Accounting Review,LI 4 (October 1976) 83~5E . V. McIntyre, 'Cost- Volume­Profit Analysis Adjusted forLearning', Management Science,XXIV 2 (October 1977) 149--{j0Holt Electronics PLCClaygill Holdings

Checklist of Topics 345

17 Joint Product Decisions

Primary Reference

Fully-worked ProblemProblem for Self-study

L. R. Arney, 'Joint Product De­cisions: The Fixed ProportionsCase' , Journal of Business Fi­nance and Accounting, XI 3 (Au­tumn 1984) 295-300Cydilla Separators LtdKwisant Oils

DetailedReferences by

Topic

1 Standard Costing and Matrix Algebra

A. D. Bailey, 'Analysis of a Standard Cost Application ofMatrix Algebra ' , in J. L. Livingstone (ed .) , ManagementPlanning and Control: Mathematical Models (New York :McGraw-Hill, 197..0) 207-30.A. W. Corcoran and W. E . Leininger, 'Isolating AccountingVariances Via Partitioned Matrices ', Accounting Review, L 1(January 1975) 184-8.W. Franks and R. Manes , 'A Standard Cost Application ofMatrix Algebra', Accounting Review, XLII 3 (July 1967)516-25.

2 Stochastic Process Costing

A. W. Corcoran and W. E. Leininger, 'Stochastic ProcessCosting Models' , Accounting Review , XLVIII 1 (January1973) 105-14.J. G. Kemeny and J. L. Snell, Finite Markov Chains (NewYork: Springer-Verlag, 1983) 24-68 .W. E. Leininger, Quantitative Methods in Accounting (NewYork: D. Van Nostrand Co., 1980) 302-10.

346

References 347

3 Credit Management and Markov Chains: PartialBalance Aging Method

A. W. Corcoran , 'The Use of Exponentially-SmoothedTransition Matrices to Improve Forecasting of Cash Flowsfrom Accounts Receivable' , Management Science, XXIV 7(March 1978) 732-9.A. W. Corcoran , Costs: Accounting, Analysis and Control(New York: John Wiley and Sons, 1978) 101-8.

4 Credit Management and Markov Chains: ModifiedTotal Balance Aging Method

A. I. Barkman, 'Testing the Markov Chain Approach onAccounts Receivable ', Management Accounting (NAA)(January 1981) 48-50.R. M. Cyert, H. J. Davidson and G. L. Thompson, 'Estima­tion of the Allowance for Doubtful Accounts by MarkovChains' , Management Science, VIII 3 (April 1962) 287-303.J. A. M. van Kuelen , J. Spronk and A. W. Corcoran , 'Onthe Cyert-Davidson-Thompson Doubtful Accounts Model' ,Management Science , XXVII 1 (January 1981) 108-12.Leininger , Quantitative Methods, 55-79.

5 Linear Programming and Decisions on Internal v.External Purchases of Services

K. R. Baker and R. E . Taylor, 'A Linear ProgrammingFramework for Cost Allocation and External AcquisitionWhen Reciprocal Services Exist' , Accounting Review , LIV 4(October 1979) 784-90.R. Capettini and G. L. Salamon, 'Internal Versus ExternalAcquisition of Services When Reciprocal Services Exist',Accounting Review, LII 3 (July 1977) 690-6.Joyce T. Chen, 'Cost Allocation and External Acquisition of

348 References

Services When Self-Services Exist', Accounting Review,LVIII 3 (July 1983) 600-5.R. P. Manes, S. H. Park and R. Jensen, 'Relevant Costs ofIntermediate Goods and Services' , Accounting Review , LVII3 (July 1982) 594-606.

6 LinearProgramming, Opportunity Losses and expostBudgeting

L. R. Arney, 'Hindsight v. Expectations in PerformanceMeasurement', in L. R. Arney (ed.), Readings in Manage­ment Decision (London: Longman, 1973) ch. 12,258-72.B. E. Cushing, 'Some Observations on Demski's Ex PostAccounting System' , and J . S. Demski, 'A Reply', Account­ing Review, XLIII 4 (October 1968) 668-74.J . S. Demski, 'An Accounting System Structured on a LinearProgramming Model', Accounting Review, XLII 4 (October1967) 701-12.V. Jaaskelainen, Linear Programming and Budgeting (Lund,Sweden: Studentlitteratur, 1975) 119-31.G. L. Salamon 'Analysis of an Accounting System Struc­tured on a Linear Programming Model', in Livingstone(ed.) , Management Planning, 267-78 .

7 Input-output Analysis and Linear Programming

A. W. Corcoran and W. E. Leininger, 'In-Process Inventor­ies and Multiproduct Production Systems', Accounting Re­view, XLVIII 2 (April 1973) 373-6.G. A. Feltham, 'Some Quantitative Approaches to Planningfor Multiproduct Production Systems', Accounting Review,XLV 1 (January 1970) 11-26.Y. Ijiri, 'An Application of Input-Output Analysis to SomeProblems in Cost Accounting', Management Accounting(NAA) (April 1968) 49-61.Leininger, Quantitative Methods, 187-220.

References 349

8 Use of Information Theory to Isolate SubstantialVariances

B. Lev , 'An Information Theory Analysis of BudgetVariances' , Accounting Review, XLIV 4 (October 1969)704-10.B. Lev, 'Testing a Prediction Method for MultivariateBudgets', Journal of Accounting Research, VII (1969), sup­plement entitled Empirical Research in Accounting: SelectedStudies, 182-97 .H . Theil, 'How to Worry About Increased Expenditures' ,Accounting Review, XLIV 1 (January 1969) 27-37.

9 The Single-period Cost Variance InvestigationDecision

R. Capettini and D. Collins, 'The Investigation of Deviationsfrom Standard Costs in the Presence of Unequal StateVariances' , Journal of Business Financeand Accounting , V 4(Winter 1978) 335-51.T. R. Dyckman, 'The Investigation of Cost Variances',Journal of Accounting Research, VII 2 (Autumn 1969)215-44.

10 The Multi-period Cost Variance InvestigationDecision

D . A . Dittman and P. Prakash, 'Cost Variance Investigation:Markovian Control of Markov Processes', Journal ofAccounting Research , XVI 1 (Spring 1978) 14-25.D . A. Dittman and P. Prakash, 'Cost Variance Investigation:Markovian Control Versus Optimal Control', AccountingReview, LIV 2 (April 1979) 358-73.R . S. Kaplan, 'Optimal Investigation Strategies with Imper­fect Information', Journal of Accounting Research, VII 1(Spring 1969) 32-43 .

350 References

11,12 and 13 Stochastic Cost-Volume-Profit Analysis

The papers relating to this group of topics have such closeinterrelationships that a separate classification by individualtopic would be unhelpful. They are :J . P. Dickinson , 'Cost- Volume- Profit Analysis Under Un­certainty ' , Journal of Accounting Research, XII 1 (Spring1974) 182-7.Donna A. Driscoll, W. T. Lin and P. R . Watkins, 'Cost­Volume-Profit Analysis Under Uncertainty: A Synthesis andFramework for Evaluation', Journal of Accounting Litera­ture, III (Spring 1984) 85-115.B. E . Ismail and J. G. Louderback, 'Optimizing and Satisfic­ing in Stochastic Cost-Volume-Profit Analysis', DecisionSciences, X 2 (April 1979) 205-17 .J. E. Jarrett , 'An Approach to Cost-Volume-Profit AnalysisUnder Uncertainty', Decision Sciences, IV 3 (July 1973)405-20.G. L. Johnson and S. S. Simik, 'Multiproduct C-V-PAnalysis Under Uncertainty' , Journal of Accounting Re­search, IX 2 (Autumn 1971) 278-86 .H. S. Lau, 'Some Extensions of Ismail-Louderback'sStochastic CVP Model Under Optimizing and SatisficingCriteria ' , Decision Sciences, XI 3 (July 1980) 557-6l.R. E. Norland, 'Refinements in the Ismail-LouderbackStochastic CVP Model', Decision Sciences, XI 3 (July 1980)562-72 .

14 Short-termInvestment of Cash Balances

J. C. T. Mao, Corporate Financial Decisions (Palo Alto,California: Pavan Publishers, 1976) 209-3l.J. C. T. Mao and C. E . Sarndal, 'Cash Management: Theoryand Practice' , Journal of Business Finance and Accounting,V 3 (Autumn 1978) 329-38.A. Punter, 'Optimal Cash Management Under Conditions ofUncertainty' , Journal of Business Finance and Accounting,IX 3 (Autumn 1982) 329-40.

References 351

15 Payments Netting in Multinational CashManagement

A. C. Shapiro, 'Payments Netting in International CashManagement', Journal of International Business Studies, IX 2(Fall 1978) 51-8.A. C. Shapiro, Multinational Financial Management (Bos­ton , Massachusetts: Allyn and Bacon, 1982) 235-245.D. Wood and J. Byrne, International Business Finance(London: Macmillan, 1981) 112-30.

16 The Learning Curve and Financial Planning

D. W. Harvey, 'Financial Planning Information for Produc­tion Start-ups', Accounting Review, LI 4 (October 1976)838-45.E. V. McIntyre, 'Cost-Volume-Profit Analysis Adjusted forLearning', Management Science, XXIV 2 (October 1977)149-60.L. E. Yelle, 'The Learning Curve: Historical Review andComprehensive Survey', Decision Sciences, X 2 (April 1979)302-28.

17 Joint Product Decisions

L. R. Arney, 'Joint Product Decisions: The Fixed Propor­tions Case' , Journal of Business Finance and Accounting, XI3 (Autumn 1984) 295-300 .D . L. Jensen, 'The Role of Cost in Pricing Joint Products: ACase of Production in Fixed Proportions', Accounting Re­view, XLIX 3 (July 1974) 465-76.R. S. Kaplan, Advanced Management Accounting (Engle­wood Cliffs, New Jersey: Prentice-Hall, 1982) 395-409.R. L. Weil, 'Allocating Joint Costs', American EconomicReview, LVIII 5 Part 1 (December 1968) 1342-5.

Guides toFurther Study

To locate expositions of other techniques related to those de­scribed in this book , reference may be made to the followingsurveys covering the quantitative aspects of management account­ing. Taken together, these surveys provide a broad critique of thisarea of study. Where a comment on the content of a survey hasbeen provided by a discussant , the discussant's contribution is notseparately referenced, but the page numbers given for the surveyare inclusive of those occupied by his contribution.

K. N. Bhaskar, 'Quantitative Aspects of ManagementAccounting ' , in M. Bromwich and A. G . Hopwood (eds) ,Essays in British Accounting Research (London: Pitman,1981) ch. 10, 229-78.Committee on Concepts and Standards-Management Plan­ning and Control, Managerial Accounting Literature Ab­stracts (Sarasota , Florida: American Accounting Associa­tion, 1976).J. S. Demski and D. M. Kreps , 'Models in ManagerialAccounting' , Journal of Accounting Research, XX (1982)supplement entitled Studies on Current Research Methodolo­gies in Accounting: A Critical Evaluation, 117-60.E. Dorner and J . Kloock, 'A survey of ManagementAccounting Research from a German View', in A. G.Hopwood and H. Schreuder (eds) , European Contributionsto Accounting Research: The Achievements of the Last De­cade (Amsterdam: Free University Press, 1984) ch. 5, 83­102.

352

Guides to Further Study 353

H. Hart, 'A Review of Some Recent Major Developments inthe Management Accounting Field ', Accounting and Busi­ness Research , XI 42 (Spring 1981) 99-115.R. E . Jensen, 'Some Thoughts on, and a Partial Bibliographyof, Quantitative Models - Applications in Selected Manage­rial Accounting Topics', The Accounting Journal, (Winter1977-8) 244-76.R. S. Kaplan, 'Application of Quantitative Models in Man­agerial Accounting: A State of the Art Survey', TheAccounting Journal, (Winter 1977-8) 218-42.R . S. Kaplan, 'The Evolution of Management Accounting',Accounting Review, LIX 3 (July 1984) 390-418.C. F. Klemstine and M. W. Maher, Management AccountingResearch: 1926-1983 (Sarasota, Florida: ManagementAccounting Section, American Accounting Association,1984).J . Kriens, J . T . van Lieshout, J . Roemen and P. Verheyen,'Management Accounting and Operational Research', Euro­pean Journal of Operational Research XIII 4 (August 1982)339-52.R . W. Scapens, 'Management Accounting - A Survey Pap­er' , in R. W. Scapens, D. T . Otley and R. J. Lister (eds) ,Management Accounting, Organizational Theory and CapitalBudgeting: Three Surveys (London: Macmillan/ESRC, 1984)15-95 .

Suppliers ofSoftware Packages

Package

OPTIMIZER

MINITAB

TK!SOLVER 86

354

Supplier

Supersoft51/53 The PantilesTunbridge WellsKent TN2 5TE England

CleoCom LtdKings Court92 High StreetKings HeathBirmingham B14 7JZ England

Digital Equipment Co. LtdJays CloseBasingstoke RG21 4BS England

Age categorisation of debt, 37-8, 27(}"'1Alston Glassworks

analysis , 99-108problem, 97-8

Alvor Developmentsanalysis , 155-68problem, 153-4

Araque Perfumesanalysis , 55-68problem, 52-4

Arconate Ltdanalysis, 257-61problem, 205-7

Average demand assumption, instochastic cost-volume-profitanalysis , 136

Bad debtsexpected value , 39-40, 272-3standard deviation, 41,273

Barkman, A .I., 43Barrow Gurney Orchards

analysis, 147-52problem, 145-6

Bayes' Theorem, in variance investiga­tion decisions, 101-4 ,296-8

Bit , measure in.information theory, 88Break-even probabilities

cost-volume-profit analysis, combina­tionsofproducts ,147-50,31(}"'12

cost-volume-profit analysis,confidence limits, 15(}"'2, 312-13

cost-volume-profit analysis, perishableproduct, 14(}"'3, 307-8

in variance investigation decisions,10(}...1 ,296

Index

Bridgegate Foodsanalysis, 306-9problem, 238-40

Budgetingexpost, 52-68,218-21,278-82flexible, 56

Bulk Powder Producers Ltdanalysis, 303-5problem, 236-7

Capettini-Collins decision rule, 105-7,298-9

Cash management in multinationals,payments netting. 169-76,247.;...8,322-5

Cash needs , and short-term investment,153-68,243-6,314-21

Central Limit Theorem, 126Chi-squared distribution, 151,312Claygill Holdings

analysis , 326-32problem, 249-51

Coefficientsinput, 72, 82, 283,288-9net input--output, 73,82,284,288-9output. 72, 82,283 , 288-9technological, 48-9,275

Complementary slackness conditions,198,335-6

Costfixed, 143-4,309offailing to correct out-of-control

state, 112opportunity. seeopportunity costvariable, seevariable cost

355

356 Index

variance investigation decision, 97­122,231-5,296-302

Cost-volume-profit analysisand decision theory, 123--31, 236-7 ,

303--5choice among combinations of pro­

ducts , 145-52,241-2,310-13satisficingwith short product lives,

132-44,238-40,306-9Credit management, 27-43 , 211-15 ,

266-74CydillaSeparators Ltd

analysis, 193--202problem , 190-2

Debt aging methodmodified total balance , 35-43 , 213­

15,270-4partial balance , 27-34 , 211-15, 266-9

Debtorsexpected value of receipts , 39-40,

272-3investment level in steady-state, 42-3 ,

274present value of receipts , 42, 273-4standard deviat ion of receipts, 41, 273

Decision theoryposterior analysis, 126-8,304preposterior analysis , 128-31,305sensitivity analysis, 131two-action problem, 125-6

Decisions on joint products, 190-202,252-4,333--8

Department of Transportation Analy­tical Offices

analysis, 293--5problem, 229-30

Disjoint region, 106-8,299-300Dittman, D. A ., 122Dynamic programming

in short-term investment decisions,164-7,317-21

in variance investigation decisions,122

Ex postbudgetingeffect on motivation, 67-8intra-period relationships, 61-6, 280­

2variance analysis, 58-61 ,279-80

Expectedcost of satisficing strategy, 143,308

net gain from sampling, 130-1,305net return on short-term investment ,

161-4 ,316-17value of sample information, 128-31 ,

305

Financial planning-learning curves ,177-89,249-51 ,326-32

Firenza Associatesanalysis , 270-4problem, 213-15

Fitzroy Paper Productsanalysis , 112-22problem, 109-11

Forecast variances, 58-61, 64-5, 68

Galpen Cleansing Productsanalysis, 310-13problem, 241-2

Heversham Horticulture Ltdanalysis, 87-96problem,86

Holt Electronics PLCanalysis , 179-89problem, 177-8

Information expectationand cost forecasts, 295of an area's sales by product, 92-3of a product's sales by area, 91-2for individual areas and products,

94-5total ,90-1univariate, 93

Information theorymeasuring forecast accuracy, 95-6probabilistic foundations, 87-9probabilities and proportions, 89-91

In-process inventoriessteady-state mean volumes, 16-17 ,

262-3steady-state standard deviations, 17­

18,263-4Input, requirements generated by pro ­

duction, 74-5, 77-8, 84-5, 285, 287,298-92

Input-output analysisequal numbers of products and pro­

cesses ,69-78,222-5 ,283--7purchasable intermediate products,joint final products, 79-85, 226-8 ,

288-92

Interior solutions, 199-200,336Intermediate products , purchase deci­

sions in input-output analy sis, 84­5,289-92

Investigation of variancesmulti-period decision, 109-22,234-5,

301-2single-period decision , 97-10 8, 231-3 ,

296-300Investment in short-term securities

cash-layer delimitation , 155-7cumulative demand for cash, 157-9,

314-15dynamic programming as optimising

technique , 164-7 ,317-21expected net return computations ,

161-4 ,316-17time of use of layers-probabilities,

159-61 ,315-16transaction costs and interest , 155,

167-8,321

Joint product decisionsconstraint formulation , 195-6 ,335demand function specificat ion , 193,

333input supply restriction , 337-8Lagrangean multipliers as allocated

joint costs , 200-2 , 336-8marginal revenue specification , 201,

336objective function formulation, 193­

5,334solution by Langrangean multipliers,

196-200 ,335-6

Kaplan, R . 5 . , 122Kerruish Tracers

analysis , 283-7problem, 222-5

Kleeford Distilled Compoundsanalysis , 262-5problem, 208--10

Knockshinnock Mines Ltdanalysis, 47-51problem, 45-6

Knowsley Medical Productsanalysis, 136-44problem, 132-5

Kuhn-Tucker conditions, 196-7Kwisant Oils

analysis , 333-8problem, 252-4

Index 357

Lagrangean multipliers, 196-202,335--8Langdale Ltd

analysis , 266-9problem, 211-12

Lau , H. 5., 142Learning curve

forecast output, first year, 184-5,329­32

forecast output, subsequent years,185-6,329-32

one-line break -even output, first year ,181-3,327-8

sensitivity analysis, output forecasts,186-7,33 2

specification , 179-80,326steady-state conditions, 187-9two-line break-even output, first year ,

183-4,327-8Learning rate , 179,326Linear programming

dual real variable value, 277input-output analysis, 69-85, 222-8,

283-92internal v. external purchase of ser­

vices, 45--51,216-17, 275--7multinational cash management­

payments netting , 169-76,247-8,322-5

opportunity losses and expost budget ­ing,52-68,218-21 ,278--82

opt imal mixproblem , 55Lintock Corporation

analysis , 171-6problem, 169-70

'Make-or-buy' decisions for services ,45--51,216-17 ,275--7

Mansfield Pressingsanalysis , 301-2problem, 234-5

Markovchains , 14,27-43,211-15,266-74process , 13, 113-16

MaseliaLtdanalysis, 314-21problem, 243-6

Matrixcombination by exponential weight-

ing, 32-3 , 268conditional, 23-4conditional fundamental , 25conditional stochastic , 24control transition, 115

358 Index

controlled process tran sition , 115-16diagonal , 24fundamental , 15-16,39 ,262,272gross internal coefficient , 74, 284identity, 72of transit ion probabilities, 103-5 , 297partitioned, 4-5 ,14-15,258--9process transition , 113stochastic, 12-14,28--32,39,262,266­

8,272variance-covariance , 147-8,310-11

Maximisationof expected value of profit , 136-9 ,

306-7of probability of earning acceptable

profit, 141-3,308--9Message

information content, 87-8information expectation, 88--9

Michelsky Ltdanalysis, 37-43problem, 35-7

Mixoptimisation by linear program­ming

exante,55-7 , 278--9ex post, 56, 61-3 , 280-2

Newton-Raphson method , 182-3Nit, measure in information theory, 89Normal

density function, 101, 139,307distribution, 108, 127-31, 137-42,

147-9,303-5,307-8lossintegral, 130sampling distribution , 126

Opportunity costsin decision theory, 126, 131of frustrated order, 137variances , 58-61 ,64-5

Opportunity loss function , 130,305Optimising, conditions precluding

model construction, 66Ottoline Electronics

analysis, 12-26problem, 10-12

Outputexpected, 18--19,264gross requirement of net production ,

74,77,84-5,286-7,289-92standard deviation , 21-22, 264-5

Payments nettingbilateral , 171-3,324-5

minimisation of transaction costs , 171multilateral , 173transportation problem in linear prog-

ramming , 173-6 , 322-4Posterior analysis , 126-8,304Prakash, Po,122Preposterior analysis, 128--31 ,305Prior distribution, 127,303Probability tree , 155-8Process costing , stochastic, 10-26,208-­

10,262-5

Radium Dyestuffs Ltdanalysis, 3-9problem, 1-2

Raistrick Ltdanalysis, 288--92problem, 226-8

Recurrence relation, backwardsolution, 165

Remosense PLCanalysis, 275-7problem, 216-17

Riskaversion , 143-4of earning unacceptably low profit,

139-41

Salmedge Productsanalysis, 82-5problem, 79-81

Satisficingas against optimising behaviour, 136­

43decisions and fixed cost changes, 143­

4,309Service purchases- internal v. external

one service offered, 47-50two services offered together , 50-1 ,

275-7Shalmirane Ltd

analysis, 278--82problem, 218--21

Softwarefor Newton-Raphson method, 183required for problems, xv-xvi , 354

Standard costing, and matrix algebra,1-9,205-7,257-61

Star Chemical Companyanalysis, 296-300problem, 231-3

Statesabsorbing, 13-14 ,28,39-40limiting , 30

transient , 13-14 ,28Steady-state probabilities in variance

investigation decisions, 116-17Stochastic

cost-volume-profit analysis, 123-52 ,236-42,303-13

matrix , 12-14,28--32,39,262,266-8,272

process costing, 10-26 ,208--10,262-5Stryford Ltd

analysis, 28--34problem, 27-8

Student r-distribution, 150-1, 312Subrnatrices, 15,29

Taumor Industriesanalysis, 72-8problem 69-71

Teaching, use of problems, xiii-xvTest, simplification , 22-3Thornend Communication Systems

PLCanalysis , 322-5problem, 69-71

Transitionprobabilities, 13,29-31,33,39, 103­

5,113-14,266-7,297process, 13

Utility funct ion, with increasing riskaversion, 143-4

Variable costcomputation in input-output analysis,

72-6,82-3,283-5expected value per period, 19-20 ,264expected value per unit , 20-1

Variancemix, 6-9, 259-61mixed (price-quantity), 3-6, 258-9price , 3-6, 257price and efficiency, 57-8price and efficiency forecast, 59-61 ,

64-5 ,280,282

Index 359

price and efficiencyopportunity cost ,59-61,64-5 ,280 ,282

quantity (efficiency), 3-6 , 257-9rate of pay, 6, 258-9volume and mix, 57-8volume and mix forecast , 58-61,64-5.

280,282volume and mixopportunity cost,

59-61,64-5 ,280,282yield, 6-9 , 259-61

Variance investigation decisionsbreak-even probabilities, 100-1, 296controlled Markov process, 113-16costs with extremal policies, 118,302costs with perfect information, 118,

302critique of Bayesian approach, 112-13expected cost for a decision rule ,

107-8,299-300long-term average cost per period ,

117-18,302multi-period solution technique, 119­

21optimality and fixeddecision rules ,

121-2quadratic equation approach, 104-7,

298-9revision of prior probabilities, 101-4,

296-8steady-state probabilities, 116-17terminology, 99-100

Variancesand information theory, 86-96, 229­

30,293-5decision to investigate, 97-122, 231­

5,2%-302

William Lehman Timber Ltdanalysis, 125-31problem, 123-4

'Zero defects' approach , computation ofcostsavings,23-6