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Curriculum Center Browse Bibliography Build EPacket Pricing Structure Distribution Process Management Control in Nonprofit Organizations
Jefferson Multi Media, Inc.
Young, David W.
Functional Area(s):
   Management Accounting
   For Profit
Difficulty Level: Beginner
Pages: 6
Teaching Note: Available. 
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First Page and the Assignment Questions:
I'm sorry, but I'm having a very difficult time using the information on this cost report,” said Mr. Adam King, general manager of the Audio Division of Jefferson Multi Media, Inc. (JMMI). “I mean, salary totals and the average developmental cost per product may be useful to you and the people in the central office, but I need to know more detail. We have so many different types of activities in the Audio Division that I need to know the unit cost for each if I'm going to do anything about cost control.

    Mr. King was discussing JMMI’s cost accounting system with Mr. Michael Abbot, the company’s assistant controller. Mr. King had requested the meeting because he felt he needed more information than that contained on his division’s cost report, contained in Exhibit 1. Interested in improving cost control methods in the Audio Division, Mr. King argued that the average per-product cost calculation was not an accurate measure of the division’s costs because the type and content of a product varied greatly depending on the recording studio hours, the special effects used, the concept and design activities, and the amount of time and effort spent with the recording artist. According to Mr. King, JMMI’s cost accounting system needed to be revised to identify the specific unit costs of these various activities. During the discussion, Mr. Abbott became interested in Mr. King's approach, and agreed to help him design a cost accounting system that made these distinctions.


    In 1993, in conjunction with JMMI’s move toward decentralizing its media activities, a divisional cost accounting system had been developed. As one of the company’s largest divisions, the Audio Division was among the first to implement the new system, which required division general managers (DGMs) to monitor their division’s expenditures. By involving DGMs in the budgeting and expenditure review process, Ms. Nell Chamberlain, JMMI’s president, hoped to gain more control over divisional costs and to improve the company’s overall financial performance. . . .


1.     What is the cost for each of the three products Mr. King chose at random? What explains the differences?

2.     Which of the three systems is the best? Why?

3.     What other systems, if any, would you propose?

4.     What should Mr. King do?