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Saturday, April 27, 2013

A New Visit to Europe

At the risk of jinxing the trip, I am writing to let my European friends know of my upcoming trip to Germany, Romania, and Poland.  Exactly one month hence, I am scheduled to land in Stuttgart.  After one night's rest at the Hotel Alte Kelter in Fellbach,
Fellbach vineyards, from Hotel Alte Kelter.

Klaus and I shall drive east across Germany and Austria, stopping to meet Herr Hari S. at the Ural dealership in Marchtrenk, then probably stopping for the night in the Vienna area (likely, in Western Hungary).

The next day I shall traverse Hungary, enter Romania at Petea, just north of Satu Mare, then proceed to Ocna Şugatag for a couple of restful days in Maramureş.  I have booked a room at Popasul din Deal, a wonderful inn owned by my friend, Vasile Pop.

The next planned event is the wedding of my former student and adopted niece Dora, who, when she was a UBB undergraduate back in 2008, guided me through several of the monasteries of Moldavia.  That sacred event will take place in Bistriţa on 1 June.  From there, probably on 2 June, I hope to arrive in Cluj to move into the apartment that I have arranged for in Zorilor, a nice section of town on the hill above the Botanical Garden.

On June 7th and 8th, I shall participate in a management conference at the Faculty of Economics (FSEGA) at UBB, which will be a homecoming of sorts, for I have taught there for three of the past ten semesters.  I cannot wait to visit again with a number of respected colleagues and friends there.

The next ten days are a vacation!  I shall use them to revisit many people and places in Romania, and to meet, in person, a few new friends that I have been corresponding with on the Internet.  Hence, I expect to use Klaus a lot.  He and I will roam southward to visit my Fulbright Commission friends and former students in Bucharest, perhaps getting to see Father Sava at the monastery at Oaşa on the way.

From 20 to 22 June, I am scheduled to give a talk at the 2nd International Conference on Sustainable Business at Opole University in Opole, Poland.  It is not yet clear how I shall travel there, but if I (or we, for some Romanian colleagues may also be going) drive, I hope to detour on the way there or back via Prague, as I have never seen that city of legendary architectural grace.

At the end of June, as I head once again to the west to return Klaus to his home in Fellbach, I hope to visit once again my friends in Covasinţ, and in Timişoara.

Once back in Fellbach, Germany, early in July, I plan to stay for another day or two at the Alte Kelter in order to have a good visit with the Familie Schmid, our friends of 25 years, who are the generous keepers of Klaus.  

Please wish me well on this journey, and if you will be in Plymouth or Campton, New Hampshire, during June, please stop by our home, and see Shirl.  Shirl was invited on this adventure, but has chosen to "hold the fort" at "Hotel New Hampshire," along with the two Romanian graduate students who live with us.  I am quite sure Shirl would welcome some friendly company (provided you call her first, of course)!

Tuesday, April 23, 2013

On Lean Accounting

I thought it might interest a few of my dear readers to see what we academics talk about during our rare serious moments.  Here is an exchange of ideas from such a time.
The question:
  • Alexandra Mutiu  
  • Duncan McDougall

 Dear Professor,
 I remember you mentioned maybe two years ago about lean accounting and its potential. Do you remember it? If you did, can you tell me why you were so  thrilled about it?
Thank you
Here is my reply:

Dear Professor Muţiu,

As you know, my business background was largely in manufacturing, my doctorate is in production and operations management, and my academic interests have been largely focused on management accounting, specifically on the measurement of manufacturing performance.  These experiences combine to explain my belief in the importance of the (rather old) set of ideas that is now being called "lean accounting."

I attach my paper "Operating at the Rate of Consumption."   In its Exhibit 1-1, you will see graphs of the downward trend of Inventory Turnover (CGS/Average Inventory) in major American manufacturing companies between 1950 and 1975.  I believe that trend to have been caused in large part by the widespread use of standard costing with a full absorption costing approach.  The use of those approaches to inventory valuation provided a strong incentive to management to operate their factories at high levels of utilization.  Whenever demand for their products was less than their higher-than-demand operating rate, the result was increased inventory.  The role played by standard costing was seen in their income statements.  Operating at above planned (index, or standard) levels of capacity utilization under a standard costing system led to more fixed overhead cost being assigned to inventory than was actually being incurred during the relevant fiscal period.   Under the GAAPs, it was necessary to adjust income before taxes to recognize the fact that the company had, in its costs of goods sold at standard, overstated its fixed costs, thus understating its profits.   Hence, a period-end adjusting entry was necessary to reverse the error.  This entry affected the manufacturing overhead (a temporary account in which the incurred overheads are collected as debits, and to which overhead applied to inventory is credited), and the cost of goods sold, which is a debit-balance account.   When overhead has been over-applied to inventory, as in the case at hand, manufacturing overhead ends the period with a credit balance, so the adjusting entry is to debit manufacturing overhead for the amount of over-applied overhead, and to credit cost of goods sold, in the same amount.

Thus, a company (or manufacturing segment of a firm) that has operated at above-standard levels gets to decrease its reported cost of goods sold at year-end.  The happy surprise is that year-end profit proves greater than the sum of the quarterly profits, before this adjustment.

But, woe to the manager who comes to bat after that inventory-builder gets promoted, for if she chooses to reduce the operating rate below that of demand in order to get the inventory down to a reasonable level, she is required to expense not only that period's full amount of incurred fixed cost, but also the prior period's fixed costs that have been stored in the inventory values of the beginning inventory she inherited, and sold.

Old idea:

The concept of variable costing has long been taught by management accounting professors as an internal control system that removes from the score-keeping system the incentive to build inventory.  But, since it is in conflict with the accounting principle that holds all costs incurred in the manufacturing function to be part of "product cost," only a small percentage of American firms use it.

Lean movement:

The lean movement has been driven by the realization that, as some Japanese managers have said, "Inventory is the root of all evil."  Inventory has, since about 1980, come to be understood as wasteful.  It represents cash invested that is not earning anything.  Its existence as WIP slows the throughput of orders through factories.  It can hide process problems.  It is muda!  Working to reduce lot sizes by shortening set-up times, and by using a pull system to signal the need for more production at each successive stage of manufacturing, has been proven to facilitate process tuning to prevent defects, to speed the introduction of new products, etc.  Those principles of lean manufacturing, formerly called JIT or "world-class manufacturing," have proven both highly effective operationally, and highly problematic organizationally.  Why the latter?  Because the managers who implement the huge inventory reduction that these techniques bring about do not get the benefit of "the over-absorption fiddle."  (That is my nickname for the managerial game that I described above: using an inventory build-up to protect or expand reported margins.)

To the extent that the "lean accounting" concept can get public accountants and corporate managers at high levels to see the over-absorption fiddle as the unethical act of mismanagement that it is, then I am quite enthusiastic about it. 

In my opinion, the concepts of lean accouning must be included in our MBA course, Accounting for Managers.

Thank you for asking. 

With respect,

P.S. When we discussed this subject before, I believe that I was reading Solomon, Jerrold M. Who's Counting? A Lean Accounting Business Novel, and laughing about it.  It is not as powerful as The Goal, by Goldratt, but it does depict well the challenges facing an accountant who attempts to bring his company's accounting practices into line with its progressive operations.

Wasn't that fun?  Accounting always is!!!

Sunday, April 21, 2013

Spring Love

The simplest songs are often the most touching.  

For example, Bette Midler, God bless her, has always brought a tear to my eye with her rendition of The Rose. (At the link.)
Photo source:, Accessed through Google Images, 21 April, 2013.

Wednesday, April 10, 2013

Suzi Lives

Suzi, also known as "Big Red," is the 1983 Suzuki GS1100E that son Jamie rode to Florida last October, following his brother Alex's wedding in New Hampshire.  For the past few months, she has been sitting idle, due to a major malfunction of some sort, that Jamie had tried to sort out, without success.  Jamie reported that she would start on choke with the petcock set at "prime," but would die shortly after it was turned to the "on" position, and would refuse to respond to the throttle.  In other words, the problem appeared to be in the fuel system, and hence, he had removed the gas tank, tried to identify the problem, and was disappointed and frustrated that he couldn't do so.

Of course, Suzi and I are much more intimately related than are she and Jamie, since our partnership goes back to 1991, when I bought her off the roadside for $600, with only 15,900 miles on her odometer.  Since joining my stable of mounts, she has taken me from Campton to Colorado in 1992, with son Jesse on the pillion, then to California and back in 1995, in the company of Jamie and Jesse on their pair of Suzuki GS550s, and to Newfoundand in 1998 with Alex aboard, not to mention a couple of rides to visit my Dad when he lived in Florida, one in the company of daughter Piper and her friend Kelly (Drew) Dolling as pillion passengers, one on Suzi and the other on brother-in-law Dick Cichowski's Gold Wing.

So, I was confident that I could get Suzi running again, and today I did so.  Yesterday, I replaced her battery, which was refusing to accept charge, with a Motobatt permanently sealed unit. That enabled her to crank strongly, but still not to keep running.  Last night Jamie and I pulled the tank again, and I identified that upon reconnecting the fuel line when last reinstalling the tank, Jamie had not noticed that a smaller hose from the tank's petcock remained unconnected at its lower end.  This time, we found its male connector on the intake manifold, connected it, and remounted the tank.  It was now quite dark, so we left Suzi in the garage for the night, and I told Jamie I'd continue to work on her while he was at his office today.

As I'd mentioned to Jamie, another likely contributor was stale gasoline, for today's ethanol-blend fuels are notorious for causing problems after a machine has been in storage, as over a winter.  So, today, I stopped by the Advance Auto Parts store in their neighborhood, and added a little Sea Foam to the gas tank, along with fresh gasoline.  Voila, she started right up, revved when asked to rev, and behaved like a new bike.  The Sea Foam and fresh gas may have helped, but I am sure it was the reconnecting of the fuel valve's vacuum tube to the intake manifold that did the trick.  After a test ride, I texted Jamie, "Big Red Lives."

Today, with her odometer showing over 55,000 miles, Suzi is again running strong.

Jamie is a natural motorcyclist.  He was the one with the lowest "tilt" angle in the corners on our cross-country ride of '95.  As a new father, I know Jamie will ride carefully.  I trust him with Suzi, and I know that they will make as fine a pair as she and I have made for the past twenty-two years.  By twenty-two years hence, about the time that Bam-Bam is graduating from college, I know that Jamie will be able to sort out such minor problems with ease, and that Suzi will be for him a reminder of good times had with his Dad.

By the way, I intend to attend Bam-Bam's graduation ceremony, preferably arriving there on a classic bike of my own.  Why not?  I'll only be 91 in May of 2035.

Thursday, April 4, 2013

The Eagle Cried

Saturday, March 30, 2013, was the official Welcome Home Vietnam Veterans Day in New Hampshire.  The NH Patriot Guard Riders participated with a Motorcade, and then by forming a flag line for the one-hour ceremony.  We stood across the back of the hanger of the New Hampshire National Guard at Concord Airport.  We listened as a series of politicians gave speeches of regret about the way the veterans of the Vietnam War were treated upon their return from their tours of duty.  Most of those who spoke were left-of-center in their politics.  I could not help but suspect that they, or their parents, were among the protestors who derided our soldiers as they returned from battle in the late 1960s and early 1970s.  Their words rang hollow for me.  The one point that many made that did make sense, was that it was those very same slighted, disrespected veterans who have led the movement to see to the honoring of American soldiers returning from foreign soil, under the watchwords, "Never Again!"

This song says well what they were trying to say:

 As Thomas P.M. Barnett has so ably argued in The Pentagon's New Map, the number one export of the United States over the past six decades has been security.  A 64 year-old Norwegian businessman said to me in 2011 following a dinner cruise on the Danube in Budapest, Hungary, that "Every European should get down on his knees and say a prayer of thanks to America."  I was touched by his remark.  Shouldering the security of the Free World has been costly to us Americans, and our Vietnam and Korean War soldiers and sailors, as well as those who've defended Kuwait, and fought in Iraq and Afghanistan, are those who've paid the highest price in their time, in their health, and in their blood, during that era.  I, for one, thank God for the loyalty and bravery of our military.