Cost Accounting

March 6th, 2008

I've recently be re-introduced to the world of fifth-grade math, thanks to my cost accounting class. When was the last time you looked at a story problem? My team member and I spent two hours last night poring over problem sets from our textbook. Here's a flavor of what my course offers in the way of accounting problems for the MBA student.

"Jane and John decide to start a lemonade stand. They offer three products: Products A, B, and C. Jane buys lemonade powder for 3 cents a pound. John buys pre-stirred lemonade at a dollar a liter. Jane buys lemonade on a cash basis, John on an accrual basis. Using the actual absorption cost system, calculate to the milligram Jane and John's sales and productivity given that weather is 10 degrees cooler than normal and the cost of lemonade increases based on the consumer price index, minus exchange rate adjustments for imports from Australia. Note that Jane speaks only pig Latin so all communications with John must be done via braille cards."

This kind of problem actually has a solution, and if you spend about two hours cooking up assumptions and allocating costs, you can come up with a defensible answer. It's just that my brain has been programmed by my Protestant capitalist ethic to recoil in horror every time I see work that adds zero value and takes an infinite amount of time to complete.

So I ended up doing something I've never done before. I looked at the syllabus and calculated how much my grade would go down if I didn't finish every problem. Turns out that a 1% grade hit to avoid 10 hours of work is just about right.