Abstract This case introduces students to Porter's (1980) three basic types of competitive advantage-cost leadership, differentiation and focus-and integrates these concepts with concepts taken from management and financial accounting. At the center of the case is CPA Terry Merton, who first identifies a target market segment, and then selects and implements one of these strategies for her business. The competitive strategy selected has implications for cost calculations (including opportunity costs) and financial reporting. In addition to introducing students to Porter's (1980) notions of competitive advantage, the case supports the achievement of three other specific educational goals. First, students acquire a basic knowledge of the economic consequences of accounting choice. Second, students achieve a greater appreciation of the ambiguities surrounding the calculation of product cost. Third, students will come to understand how conflicts can sometimes arise between income measurement concepts and liability measurement concepts. This case can be used in a senior-level accounting theory course. It requires students to move beyond a rule-based approach to solving accounting problems. Specifically, the case illustrates the fact that decisions about the amount of a liability are sometimes not clear cut. Lacking clear-cut guidelines for making such judgments, reasonable decision makers can arrive at widely different estimates of the amount of the liability. Students must integrate concepts from financial accounting, management accounting and strategic management. In doing this, they become a total business advisor to Terry. The Startup, Inc. case also illustrates the interrelationship between strategic management and external financial reporting. When managers select a strategic plan, they must take into account the financial reporting implications of the strategic plan. The Startup, Inc. case illustrates a situation in which the selection of a strategic plan will impact current financial results, which, in turn, may affect Startup's relationship with a lending institution. Students can assume the roles of different decision makers in completing the case which leads to more student interest and discussion. For instance, students can assume the role of Terry Merton, the owner of Startup, Inc., as she selects a strategy, or they can assume the role of Bill Andersen, the loan officer at the local bank which has granted Terry a business loan.
Ruhl et al. (Mon,) studied this question.