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Article
Publication date: 1 October 2006

Jing Chen

The paper seeks to develop an analytical theory of project investment.

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Abstract

Purpose

The paper seeks to develop an analytical theory of project investment.

Design/methodology/approach

The authors derive a partial differential equation that the variable cost of a project should satisfy, determine a proper initial condition through a thought experiment, and solve the equation.

Findings

A formula of variable cost as an analytical function of fixed cost, uncertainty of the environment and the duration of a project is obtained.

Practical implications

The analytical formula enables systematic comparison of returns of different investment under different market conditions to be made. This refines the insights from real option theory in many ways. Since all production systems need fixed investment to lower variable costs, by providing an analytical theory about the relation among fixed costs, variable costs and uncertainty, this theory contributes a new foundation to investment theory and other different fields.

Originality/value

An analytical theory of project investment about the relation among fixed costs, variable costs, uncertainty of the environment and the duration of a project, which is the core concern in most business decisions, does not exist in the current literature.

Details

International Journal of Managerial Finance, vol. 2 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 1 May 1980

David Ray, John Gattorna and Mike Allen

Preface The functions of business divide into several areas and the general focus of this book is on one of the most important although least understood of…

1105

Abstract

Preface The functions of business divide into several areas and the general focus of this book is on one of the most important although least understood of these—DISTRIBUTION. The particular focus is on reviewing current practice in distribution costing and on attempting to push the frontiers back a little by suggesting some new approaches to overcome previously defined shortcomings.

Details

International Journal of Physical Distribution & Materials Management, vol. 10 no. 5/6
Type: Research Article
ISSN: 0269-8218

Article
Publication date: 1 April 2004

M. Oberholzer and J.E.E. Ziemerink

Cost behaviour classification and cost behaviour structures of manufacturing companies. The purpose of this paper is to determine the cost structures of companies that…

2396

Abstract

Cost behaviour classification and cost behaviour structures of manufacturing companies. The purpose of this paper is to determine the cost structures of companies that formed part of an empirical investigation. Further aspects were investigated to determine why manufacturing companies classify cost behaviour into fixed and variable components and to determine how these companies classify specific cost items. It was found that there is a significant negative relationship between the fixed cost of a company and its degree of technological development. This means that labour intensive companies have more fixed cost as part of total costs and therefore a higher operating risk than technologically developed companies. It was also found that manufacturing companies classify cost items differently and this study provides some guidelines how to manage cost behaviour.

Details

Meditari Accountancy Research, vol. 12 no. 1
Type: Research Article
ISSN: 1022-2529

Keywords

Article
Publication date: 1 February 1993

Richard Dobbins

Sees the objective of teaching financial management to be to helpmanagers and potential managers to make sensible investment andfinancing decisions. Acknowledges that…

5548

Abstract

Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.

Details

Management Decision, vol. 31 no. 2
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 1 January 1996

Joseph K. Cheung, Jeong‐Bon Kim and Danny Wong

The paper analyses the differential effect of alternative fixedcost allocations on managerial effort and risk sharing. In doing so, two alternative schemes are…

Abstract

The paper analyses the differential effect of alternative fixedcost allocations on managerial effort and risk sharing. In doing so, two alternative schemes are considered: (1) the lump‐sum allocation; and (2) the proportional allocation. Analyses are conducted in the context of a principal‐agent relationship where the principal retains the prerogative of fixed input decisions but delegates all other productive actions to the agent. The paper limits its focus to a simple class of linear sharing rules that guarantee the agent a fractional share of payoff and a fixed salary. The following summarises the major results of the paper. First, the lump‐sum allocation is neutral in that it has no impact on the agents' choice of effort and the allocation of risk between the principal and the agent. Second, the proportional allocation is distortionary in that it induces the agent to exert less effort given a sharing rule and causes a shift in risk from the principal to the agent.

Details

Asian Review of Accounting, vol. 4 no. 1
Type: Research Article
ISSN: 1321-7348

Article
Publication date: 1 March 1974

D.M.C. Jones

Information provided for managers by an accounting department can be divided into two broad categories: (a) information which will help managers to control future costs

Abstract

Information provided for managers by an accounting department can be divided into two broad categories: (a) information which will help managers to control future costs incurred, and (b) information which will enable managers to be well‐informed when making decisions involving a choice between alternative courses of action. Both accountants and managers need to understand the way in which costs respond to changes in the level or type of activity if appropriate information is to be presented and used effectively. Furthermore, the ability to employ techniques such as standard costing, budgetary control and marginal costing, which are commonly used in planning and controlling organisations' activities, must be based on an appreciation of the basic relationships between costs and volume.

Details

Management Decision, vol. 12 no. 3
Type: Research Article
ISSN: 0025-1747

Article
Publication date: 11 March 2009

Leslie Monplaisir, Christopher Malikane and Kalu Ojah

We study the performance attributes of an international production form that is designed for success in an increasingly global marketplace‐global product design and…

Abstract

We study the performance attributes of an international production form that is designed for success in an increasingly global marketplace‐global product design and development. We find that firms elicit higher returns from their global product development when they compete in strategic complements than when they compete in strategic substitutes. These firms are most likely to compete in strategic complements if they have higher free cash flows, but are most likely to compete in strategic substitutes if they are more dominant in their industry. Importantly, global product development reduces cost largely via variable cost reduction. Moreover, we find that global product development contributes to the firm’s growth potential when pursued in conjunction with high multinationalism, aggressive competitive strategy, and high cost saving.

Details

Multinational Business Review, vol. 17 no. 1
Type: Research Article
ISSN: 1525-383X

Keywords

Article
Publication date: 10 October 2016

Eddie W.L. Cheng

The epistemology of project management has been considered imperfect because the gap between theory and practice has not become closer due to unsatisfactory project…

Abstract

Purpose

The epistemology of project management has been considered imperfect because the gap between theory and practice has not become closer due to unsatisfactory project performance. Without effective learning, the transfer of learning to the workplace would be uncertain. Therefore, the purpose of this paper is to use the learning study approach, exploring the value of Variation Theory in comparing two typologies of the cost concept for project management teaching.

Design/methodology/approach

To illustrate the application of the theory of variation, a case of teaching the two major cost typologies was demonstrated. A pedagogical setting was designed from the theory for helping students discern the object of learning.

Findings

Students of the target cohort had much fewer errors than previous cohorts in transforming the costs of the first typology used in project management textbooks to those of the second typology used in Microsoft Project.

Originality/value

This is perhaps the first case study to appreciate the use of Variation Theory in project management teaching. Apparently, thinking of how to induce learning and facilitate the transfer of learning should be a productive way for creating excellence in practice.

Details

International Journal for Lesson and Learning Studies, vol. 5 no. 4
Type: Research Article
ISSN: 2046-8253

Keywords

Article
Publication date: 1 August 1995

Leigh Drake and David T. Llewellyn

Analyses alternative forms of pricing and pricing strategies ofbank payments services and reports the results of an internationalsurvey of pricing practices in 11…

2214

Abstract

Analyses alternative forms of pricing and pricing strategies of bank payments services and reports the results of an international survey of pricing practices in 11 countries. Makes a distinction between implicit and explicit pricing and, in the context of British banks′ policy of implicit pricing for personal accounts maintained in credit, compares the pricing practice of British banks and those in other countries. Considers how each compares with optimal strategies indicated by the theoretical analysis. Finds that British banks are alone in not making explicit charges for payments services which is sub‐optimal: there is no incentive for customers to economize on their use of current account; this induces behaviour which raises the costs of banks, and there is no incentive for consumers to use cheaper forms of payment media. Implies a structure of cross‐subsidies which is unlikely to be sustainable in a more competitive market environment.

Details

International Journal of Bank Marketing, vol. 13 no. 5
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 1 April 2004

J.H. de Wet and J.H. Hall

It is generally believed that in order to maximise value for shareholders, companies should strive towards maximising MVA (and not necessarily their total market value)…

1274

Abstract

It is generally believed that in order to maximise value for shareholders, companies should strive towards maximising MVA (and not necessarily their total market value). The best way to do so is to maximise the EVA, which reflects an organisation’s ability to earn returns above the cost of capital. The leverage available to companies that incur fixed costs and use borrowed capital with a fixed interest charge has been known and quantified by financial managers for some time. The popularisation of EVA and MVA has opened up new possibilities for investigating the leverage effect of fixed costs (operational leverage) and interest (financial leverage) in conjunction with EVA and MVA, and for determining what effect changes in sales would have through leverage, not only on profits, but also on EVA and MVA. Combining a variable costing approach with leverage analysis and value analysis opens up new opportunities to investigate the effect of certain decisions on the MVA and the share price of a company. A spreadsheet model is used to illustrate how financial managers can use the leverage effects of fixed costs and the (fixed) cost of capital to maximise profits and also to determine what impact changes in any variable like sales or costs will have on the wealth of shareholders.

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