In January 1991, management of the Kansas City Works of Armco's Midwestern Steel Division began implementing a new performance measurement system. Bob Nenni, Director of Finance for the Midwestern Steel Division, explained:
With our old system, our managers spent more time explaining why changes in costs were caused by problems with our accounting system than they did fixing the problems. The new performance measurement system is designed to give us better management focus on the things that are most important for them to worry about, earlier warning of problems, and improved commitment to achieve objectives.
Questions
1. What was wrong with the old system?
2. If the old system was so bad, why did the operating managers seem to like it?
3. Evaluate the new system and the way in which it was being implemented. What changes would you recommend, if any? Why?
4. What are (were) these systems designed to do? Would you consider either (or both) of them cost accounting systems?
5. What should Rob Cushman do about the two items described in the Remaining Issues section of the case?