Commodification of academic accounting labour: an illustration from a professional examination paper
Rob GrayUniversity of Glasgow, Glasgow, Scotland
Keywords: Research, Accounting, Universities, Funding AbstractPosed as an exam question, this humorous piece takes a sideways glance at the commercialisation and exploitation of higher education, in particular at the questionable rationale behind ranking exercises such as RAE. Leaving readers to draw their own conclusions about the true value of academic endeavour, the author raises interesting questions about the direction in which government and corporate policies are driving the university sector.
Management accounting and control: paper 2Q3.You have recently been appointed as management accountant to the University of Western Ruritania – a large manufacturing organisation. The University has its principal manufacturing site and head offices in a major city in Ruritania but, as its products do not require specialist capital equipment and such capital is generally widely available, the University also manufactures overseas in either joint ventures or as sole manufacturer. Its products are sold primarily in the countries where it manufactures but a proportion – approximately 15percent – is sold in other overseas markets. Although the University uses a very specialised labour which is in short supply, this is not considered to be a constraint on developments, as the labourforce has shown itself to be significantly under-utilised and, to all intents and purposes, capable of infinite production. The University produces five main products, A, B, C, D, and E, which are manufactured in small, specialised units.
The Chief Executive has approached you to help him prepare data, financial plans and a strategy for the flotation of the University. As, following flotation, the University will be subject to the much more intense demands of efficiency and focus that market discipline requires, the CEO wants you to provide an analysis of product mix and contribution. You decide to begin your investigations in one manufacturing unit known as The Department of Accounting and Finance.
You collate the following data (all financial figures are expressed in Ruritanian dollars):
- 1.
All capital and labour costs can be considered as fixed costs of $1,000,000 per annum. Variable costs are small and can, it transpires, normally be recovered directly through product pricing, directly from customers or, if either of these strategies fails, it is normal that labour will pay for them themselves.
- 2.
Product A (still referred to by the Department by its archaic name of Bachelor of Accountancy Degree) is the principal volume product of the Department. The Department currently produces 120 such products per annum with wastage accounting for about 8 per cent of that number. Each product A takes three years to produce – although it is still not clear why it should take so long. The University prefers to think (and the Government's policy supports and encourages this thinking) that the market for product A is infinite but fairly price-elastic. The current selling price of each unit of product is$15,000 payable in three equal installments over the production period. You also discover that the product is graded into five categories (from, in the language of the unit, "1st class" to "Fail" or, to use normal English,"Excellent" to "Poor") but that – astonishingly – the price charged for each category of product is the same. As you are an MBA graduate yourself, it comes as no surprise to discover that there is some doubt as to whether customers will be willing to continue paying the same amount of $for a "Poor" Product A as they pay for an "Excellent" Product A.
- 3.
Product B (known as the Master's of Accountancy) takes one year to manufacture. The Department sells 30 of Product B each year (wastage of 5 per cent) at a price of $5,000. The University believes that this market is relatively small but price-inelastic.
- 4.
Product C (known colloquially as a "Doctorate") is a specialised product taking between three and four years to manufacture. The manufacture of Product C is not, it would seem, subject to tight quality control as over 30 per cent of manufacturing never makes it to market. There is a small but growing demand for the product. The Department currently sells four of these per annum at a price of $20,000 payable in three installments over the life of the manufacturing process.
- 5.
Product D (known obliquely as Contract Research) is a specialised product made to customer specifications. It is the University's view that there is a virtually infinite market for this product. The Department has only sold two units of this product in the last year (one at $10,000 and one at $25,000). Reading industry publications on the issue, you are informed that the volume of such sales and the price at which they are sold is a direct function of three factors: reputation, research and development, and marketing. The Department spent nothing on marketing in the last accounting period.
- 6.
Product E[1] is a complex product sold into a variety of discriminated markets. Known as "Publication" by the labourforce, each member of the labourforce can sell up to four units of the product in each accounting period but, if any member of the labourforce manufactures more than four units, these must given away free – there is no market price for them. There are many different forms that Product E can take and there does appear to be confusion amongst the labourforce about these different forms of the Product. Why this confusion should obtain is far from clear as it is obvious that Product E:Variant X (known for some reason by senior members of the manufacturing team as"refereed journals") is the only one that attracts a price in the market place. Yet, your enquiries reveal that not only have some members of the labour force produced fewer than four variant X in the accounting period, they have frequently been producing (often large quantities of) other Variants of Product E – which clearly have no market price! The pricing of Product E: Variant X is complex but follows a simple set of rules. Each Variant X is graded according to a list which the Powerful Elders prepare every accounting period – this list, however, is secret. The pricing of product is not and follows the following rules:
Each 5* graded product (up to a maximum of four) carries a price of $10,000;
Each 5 graded Variant X carries a price of $8,000.
Each 4 graded Variant X carries a price of $4,000.
Each 3 graded Variant X carries a price of $1,000 if and only if the member of the labourforce producing the product has also produced a Grade 4 product. Otherwise the price is $zero.
Each 2 graded product carries an effective price of –$1,000, i.e. the member of the labourforce must pay for it to be taken away.
Each 1-grade Variant X is to be treated in much the same way as toxic waste– the Department would be better off not letting anyone know it existed. The price in the marketplace is effectively –$5,000 and should be treated under the IASC's liability rules.
Required
- 1.
Provide a report to your CEO – showing full calculations – on the financial circumstances and potential of the Department of Accountancy and Business Finance (35 marks).
- 2.
Provide a detailed strategy on the Department's best options for maximising returns from Product E (5 marks).
- 3.
Drawing from your study of both management and behavioural accounting research, explain why the Department is so clearly undertaking financially irrational actions and what steps you would take to correct this situation (5 marks).
Footnote on Variant E
- 1.
This section is based on the UK's Research Assessment Exercise (RAE) which is quite different from, for example, the Australian DEET point system. Under the RAE each research active staff member submits their "best" "n"papers (where "n" is determined by the length of the assessment period and is typically 4) for the assessment period. These are collectively assessed to produce the departmental ranking. This ranking from 1 (lowest) to 5*(highest) is applied to the department as a whole and is the basis of the allocation of central research funding for the next assessment period.
