Keystone Electronics Corporation (KEC) is an eight-year-old company that has developed a process to produce highly reliable electronic components at a cost well below the established competition. In seeking to expand its overall components business KEC decided to enter the facsimile equipment business as there was a niche for lower-priced facsimile machines in a vigorously growing marketplace. The market KEC pursued consisted of small regional businesses not yet approached by the larger vendors. KEC sells their machines with a one-year warranty and has established a maintenance force to handle machine breakdowns. As KEC customers learned of the benefits of fax transmissions, some increased their usage significantly. After six months, some increased their usage significantly. After six months, large-volume users began experiencing breakdowns, and the field technicians’ portable test equipment was not sophisticated enough to detect hairline breaks in the electronic circuitry caused by the heavier-than expected usage. Consequently, field technicians were required to replace the damaged components and return the defective ones to the company for further testing. This situation caused an increase in maintenance costs, which added to the cost of the product. Unfortunately, there was no way to determine how many of the businesses would become heavy users and be subject to breakdowns. Some of the heavier volume users began switching to the more expensive machines available from the larger competitors. Although new sales orders masked the loss of heavier-volume customers, the increased maintenance costs had an unfavorable impact on earnings. In her recent report prepared for the quarterly meeting of the board of directors, Mary Stein, KEC’s assistant controller, summarized this situation and its anticipated affect on earnings. Jim March, vice president of manufacturing, is concerned that the report does not provide any solutions to the problem. He asked Maria Sanchez, the controller, to have the matter deferred so that his engineering staff could work on the problem. He believes that the electronic components can be redesigned. This redesigned model, while more costly, could be an appropriate solution for the heavier-volume users, who should not expect a low-cost model to serve their anticipated needs. March expects that the board could decide to discontinue the product line if no immediate solution is available, and the company could miss a potentially profitable opportunity. March further believes that the tone of the report places his organization in an unfavorable light. The controller called Stein into her office and asked her to suppress the part of the formal report related to the component failures. Sanchez asked Stein to just cover it orally at the meeting, noting that “engineering is working with marketing on the situation to reach a satisfactory solution.” Stein feels strongly that the board will be misinformed about a potentially serious impact on earnings if she follows the advice of Sanchez. Required: 1. Refer to the IMA’s Statement of Ethical Professional Practice (www.imanet.org/career-resources/ ethics-center). Explain why the request from Maria Sanchez to Mary Stein is unethical. Cite both actions and nonactions on the part of Sanchez that result in an unethical situation. 2. Identify steps that Mary Stein should follow to resolve the situation.
> Kate’s Kale Chips produces a healthy snack made primarily of kale. Each bag of the product sells for $5. The company computes the manufacturing overhead rate on a quarterly basis based upon the planned number of units to be produced that quarter. The fol
> Woodland Hotels Inc. operates four resorts in the heavily wooded areas of northern California. The resorts are named after the predominant trees at the resort: Pine Valley, Oak Glen, Mimosa, and Birch Glen. Woodland allocates its central office costs to
> Some states in the United States are encountering increased pressure from citizen groups and other organizations to increase efforts to reduce carbon emissions. One of the key producers of carbon emissions is the automobile, so some states have become mo
> Samentech Inc. operates in the highly competitive agribusiness industry. Recently, rising fuel costs have added a significant financial burden to day-to-day operations, and top management has become increasingly concerned about the financial performance
> Effective use of research and development (R&D) is an important part of any firm’s competitive strategy. Some firms take an “incrementalist” approach to R&D, continually striving to add value to their products and services. Other firms take a quite diffe
> Intangibles such as customer relationships can account for a massive amount of the total assets of firms in the United States, though such assets are not recorded on firms’ balance sheets under current U.S. accounting standards. The importance of nonfina
> Suppose there are three passengers sharing a single cab ride and that passenger A’s usual fare to his destination would be $12, passenger B’s usual fare to her destination would be $18, and passenger C’s fare would be $30. Because they are sharing the ca
> Some years ago, Walmart’s Sam’s Club outsourced 10,000 jobs (about 9% of its workforce) to independent marketing firms. The marketing firms provide in-store product demonstrations. Most of the 10,000 jobs were part-time jobs. Industry analysts suggested
> The management of office printing, duplicating, filing, and overall document storage is one of the most significant overhead costs in many companies, especially companies with large and complex product lines and/or a diverse customer base, such as the la
> For the current year BSJ Industries estimated overhead would be $1,400,000 and there would be 70,000 machine hours. Using machines hours as the allocation base, how much overhead would be assigned to each of the jobs listed below? Job ………………………………….. Ma
> Kristen Langdon, the sales manager at a large bicycle manufacturer, has secured an order from a major department store that is due to ship on November 1. She is eager to please the department store in the hope of getting more future business. She asks Br
> General Hospital leases its diagnostic equipment from Normed Leasing, which is also responsible for maintaining the equipment. Recently, the hospital’s MRI machine needed repair and physicians were required to order expensive nonemergency laboratory test
> Wical Rental Management Services manages four apartment buildings, each with a different owner. Wical’s CEO has observed that the apartment buildings with more expensive rental rates tend to require more of her time and also the time of
> Chilton Day School allocates marketing and administrative costs to its three schools on the basis of each school’s annual tuition revenue (as a percentage of the total). Last year the allocations (000s omitted) were as follows: In the
> Elvis Wilbur owns two restaurants, the Beef Barn and the Fish Bowl. Each restaurant is treated as a profit center for performance evaluation. Although the restaurants have separate kitchens, they share a central baking facility. The principal costs of th
> Training courses and other forms of professional development are commonly used by organizations to improve managers’ effectiveness in leading teams, providing the desired motivation to their employees, and leading their SBUs to success. Often these train
> When the economic outlook becomes uncertain, some managers look to cut costs in research and development to provide a short-term boost to profits. The problem with this strategy is that it reduces the opportunities for new products and product improvemen
> John Holt is the production supervisor for ITEXX, a manufacturer of plastic parts with customers in the automobile and consumer products industries. On a Tuesday morning, one of ITEXX’s sales managers asks John to reschedule his manufacturing jobs for th
> John Smith is the production manager of Elmo’s Glue Company. Because of limited capacity, the company can produce only one of two possible products. The two products are: a. A space-age bonding formula that has a 15% probability of making a profit of $1,
> Marshall Company is a large manufacturer of office furniture. The company has recently adopted lean accounting and has identified two value streams—office chairs and office tables. Total sales in the most recent period for the two strea
> Use the following information from BSJ Industries to determine the predetermined overhead rate based on direct labor costs. Direct labor hours ……………………………………… 50,000 Average hourly pay rate …………………………..…… $16.00 Manufacturing overhead ………………………. $1,400,
> Watlow Electric Manufacturing Company introduced lean principles in 2005 and reported a successful implementation in 2008. Watlow began with the implementation of lean principles and then adopted value-stream management (VSM) using the value-stream incom
> Much discussion at your organization recently has centered on the notion of lean. In preparation for an upcoming meeting of senior managers across business functions, you have been asked to prepare an explanatory memo. Your memo should address, at a mini
> All processes illustrate some variation (in quality, conformance to specification, etc.). One hallmark of a quality process is stability. As noted in the text, both control charts and run charts (as well as histograms) can be used to examine process stab
> Refer to the background information in Exercise 17-54 for the Destin Company. Based on customer requirements for on-time delivery, management has determined that the target performance level for manufacturing cycle time is 14.0 minutes with a tolerance o
> The following causes of absenteeism for a fellow student are for the year just completed: Cause of Absenteeism ………………………… Occurrences Personal illness ………………………………………………… 12 Child’s illness ………………………………………………….. 26 Car broke down ………………………………………………… 8 P
> Grey Company is evaluating two manufacturing process layout options, each of which has the following characteristics for producing a batch of output: Required: (Note: In responding to the following questions, it may be helpful to refer back to Exhibit
> Cope Farm Equipment has recently conducted market research regarding a number of issues, including customer loyalty and customer satisfaction. In regard to the latter, Cope obtained the following responses to the question, “How likely is it that you woul
> ABC Mfg. is evaluating the desirability of implementing process improvements and is seeking your help in determining whether it should proceed with the proposed improvements. One area of focus is how the improvements will affect processing time (manufact
> Assume that the company for which you are working is interested in implementing a comprehensive monitoring and control system regarding environmental performance. The company is convinced that improved performance in this area will lead to reduced costs,
> Destin Company produces water control valves, made of brass, that it sells primarily to builders for use in commercial real estate construction. These valves must meet rigid specifications (i.e., the quality tolerance is small). Valves that, upon inspect
> The Walden Manufacturing Corp. has office support salaries of $4,000, factory supplies of $1,000, indirect labor of $6,000, direct materials of $16,000, advertising expense of $2,500, office expense of $14,000, and direct labor of $20,000. What is the to
> CVI Inc. had November sales totaling $4,200,000 and incurred the following quality-related costs: Spoiled work-in-process inventory disposal ……………………………… $28,000 Downtime, due to quality problems ……………………………………………. 24,000 Field test of new computer …………
> Pack-and-Go, a new competitor to FedEx and UPS, does intra-city package deliveries in seven major metropolitan areas. The performance of Pack-and-Go is measured by management as (1) delivery time (relative to budgeted delivery time), (2) on-time delive
> As part of its commitment to quality, the J. J. Borden manufacturing company is proposing to introduce just-in-time (JIT) production methods. Managers of the company have an intuitive feel regarding the financial benefits associated with a change to JIT,
> PIM Industries Inc. manufactures electronics components. Each unit costs $30 before the final test. The final test rejects, on average, 5% of the 50,000 units manufactured per year. The average rejection rate of the industry is 3%. A consultant has deter
> You are given the following environmental quality-related costs: Employee training ………………………………………………………………… $100,000 Product design ……………………………………………………………………….. 140,000 Supplier certification ………………………………………………………………… 40,000 Process inspection ………………
> This chapter includes an overview of a COQ reporting system. Such a system has, in fact, been applied in practice by a number of companies. This exercise pertains to the application of a COQ reporting framework to environmental management. Required: 1.
> Classify each of the following costs into one of the four quality cost (i.e., COQ) categories: 1. Materials, labor, and overhead costs of scrapped units. 2. Engineering time spent to determine the causes of failures to meet product specification. 3. Wage
> Genova Company classifies its costs of quality into four categories. The costs of quality (COQ) as a percentage of cost of goods sold for the last three years are as follows: Required: 1. Use a spreadsheet to prepare a histogram that shows the COQ tren
> Some proponents of TQM assert that quality is free—that is, that quality is a never-ending quest and that improving product/service quality will reduce a firm’s total spending on quality. Others believe that after a point, there are diminishing returns t
> Duramold specializes in manufacturing molded plastic panels to be fitted on car doors. The blueprint specification for the thickness of a high-demand model calls for 0.1875 ± 0.0025 inch. It costs $120 to manufacture and $150 to scrap a part that does no
> If a merchandising company has a beginning inventory of $400,000 and an ending inventory of $200,000, and the company purchased $1,600,000 of inventory during the month, what is the company’s cost of goods sold?
> The desired distance for Flextronchip customers is 0.2 mm between two adjacent pins. Any deviation from this value causes interference. The process of handling complaints costs the firm at approximately $40.00 per chip. The engineers of the firm expect t
> Flextronchip, an OEM manufacturer, has a fifth-generation chip for cell phones, with chip specification of 0.2 ± 0.0002 mm for the distance between two adjacent pins. The loss due to a defective chip has been estimated as $20. Required: 1. Compute (to t
> In an article by P. C. Brewer and F. A. Kennedy (“Putting Accountants on a ‘Lean Diet,’” Strategic Finance, February 2013, pp. 27–34, accessible at http://sfmagazine.com/wp-content/uploads/sfarchive/2013/02/Putting-Accountants-on-a-Lean-Diet.pdf), the a
> This chapter contains an overview of the Six Sigma process that many organizations are using today to improve the quality of their services and products. One could get the impression from the discussion that this topic is more properly a management or an
> To what (one-tailed) probabilities does each of the following sigma levels correspond, based on a standard normal curve: 3 sigma, 4 sigma, 5 sigma, and 6 sigma? (Hint: Use the NORM.DIST function in Excel. Note that this function returns the standard norm
> North Platt Machinery Company manufactures a shaft that must fit inside a sleeve. The firm has just received an order of 50,000 units from Southernstar Exploration Company for $80 per unit. North Platt can manufacture the shaft at $50 per unit. Southerns
> Hathaway Products Inc. produces an innovative lighting system used in restaurants and high-end retail stores to provide a pleasing, warm atmosphere. Hathaway produces two versions of the product, called Starlight and Moonlight. Sales management at Hathaw
> The Greensboro Performing Arts Center (GPAC) has a total capacity of 7,500 seats: 2,000 center seats, 2,500 side seats, and 3,000 balcony seats. The budgeted and actual tickets sold for a Broadway musical show are as follows: The actual ticket prices w
> Our examples in the chapter have focused on manufacturing, where the output is units of product and the inputs are manufacturing activities or costs. The concept of productivity can be applied in a variety of settings, wherever there are inputs and outpu
> Lucas Diving Supplies Company, in its first year of business, had labor costs of $66,000, overhead costs of $98,000, materials purchases of $22,000, and ending Materials and Work-in-Process Inventories of $1,000 and $2,000, respectively. What is the amou
> A common measure of productivity, as explained in this chapter and as used by many business and trade organizations, including the U.S. Bureau of Labor Statistics, is the ratio of output to input, where input is typically measured in units of materials,
> The U.S. Bureau of Labor Statistics (https://data.bls.gov/timeseries/PRS85006092) provides quarterly data for labor productivity in business, nonfarm business, and manufacturing industries. The Bureau of Labor Statistics also breaks down these data into
> Each summer, the Harbour Report (www.oliverwyman.com/index.html) rates the productivity of the major automakers, including the “Detroit Big Three,” Toyota, Honda, and many other brands. The report is closely watched as a barometer of the future profitabi
> Lean manufacturing is what a lot of manufacturing firms are after these days. This requires a renewed focus on productivity and profitability, particularly for firms that compete using a cost leadership strategy and are facing increased global low-cost c
> Software Solution (SOS) helps subscribers solve software problems. All transactions are made over the telephone. For the year 2021, 10 engineers, most of whom are recent graduates, handled 100,000 calls. The average yearly salary for software engineers w
> ABC Corporation makes small parts from steel alloy sheets. Management has the flexibility to substitute direct materials for direct manufacturing labor and vice versa. If workers cut the steel carefully, more parts can be manufactured from a metal sheet,
> Most manufacturers have long adopted quality improvement techniques to reduce or eliminate errors, defects, and waste and speed the flow of product to the consumer. Many retailers are now following the lead. For example, Best Buy was able to save approxi
> Telematics is a system of sensors installed on cars and trucks that provides current information on the status and operation of many of the vehicle’s parts. It can be used to show the location of the vehicle, the oil level, the condition of the brake pad
> To maintain profit growth, several manufacturing companies have responded to the recession by cutting jobs. After the 2008–2010 recession, for example, Harley-Davidson reduced its workforce by 1,400 in one year and 1,600 more in the next year. As sales d
> As Noted in the text, identifying and reporting standard cost variances (such as those covered in Chapters 14 and 15) is the first step in one strategy for controlling costs and improving short-term financial performance. Required: What guidelines can y
> Jordan Sports Inc. has labor costs and overhead totaling $2.6 million during a given period. The company purchased $10.5 million of materials during the period and used $10 million of this amount. What is the amount of total manufacturing cost for the pe
> The XYZ Manufacturing Company produces two products, S-101 and C-110. You have obtained the following information regarding the annual manufacturing support (i.e., factory overhead) costs associated with the manufacturing process used to produce these tw
> Alden Company uses a three-variance analysis for factory overhead variances. Practical capacity is defined as 32 setups and 32,000 machine hours to manufacture 6,400 units for the year. Selected data for 2022 follow: Required: 1. Compute (a) the total
> Refer to the information for Johnny Lee, Inc., in Exercise 15-24. Assume that in a given month (December) the standard allowed machine hours for output produced was 5,500. Also, assume that the denominator activity level for setting the predetermined ove
> Walkenhorst Company’s machining department prepared its 2022 budget based on the following data: Practical capacity ……………………………………….. 40,000 units Standard machine hours per unit ………………………………….. 2 Standard variable factory overhead . $3.00 per machine h
> (Continuation of Exercises 15-29 and 15-30) The Platter Valley factory of Bybee Industries uses a two-variance analysis of the total factory overhead variance. Required: 1. Use the data given in Exercises 15-29 and 15-30 to compute the total flexible bu
> (Continuation of Exercises 15-29 and 15-30) The Platter Valley factory of Bybee Industries currently uses a four-variance analysis of the total factory overhead cost variance but is thinking of changing to a three-variance analysis. Required: 1. Use the
> For March, the Platter Valley factory of Bybee Industries budgeted $90,000 for fixed factory overhead cost. Its practical capacity is 2,500 direct labor hours per month (to manufacture 5,000 pairs of boots). The factory used 2,700 direct labor hours in M
> The Platter Valley factory of Bybee Industries manufactures field boots. The cost of each boot includes direct materials, direct labor, and manufacturing (factory) overhead. The firm traces all direct costs to products, and it assigns overhead cost to pr
> Clark Company’s master budget includes $360,000 for equipment depreciation. The master budget was prepared for an annual volume of 120,000 chargeable hours. This volume is expected to occur uniformly throughout the year. During September, Clark performed
> Overhead information for Cran-Mar Company for October follows: Total factory overhead cost incurred ………………………………….. $30,000 Budgeted fixed factory overhead cost …………………………………… $ 7,125 Total standard overhead rate per machine hour (MH) …………… $ 4.90 Stand
> Womble Inc. has beginning inventory of $200 and an ending inventory of $400 for a given period in which it purchased $13,400 worth of materials. What is the dollar amount of materials used in this period?
> The controller is satisfied with the graphical representation you prepared in conjunction with Exercise 15-25. She thinks that this graphical representation of variable overhead standard cost variances will be well received by operating managers of the c
> You are in charge of making a presentation to operating managers regarding the meaning of the total overhead variance that appears each month on their performance reports. The controller suggested that a graphical presentation might be an effective way t
> Johnny Lee, Inc., produces a line of small gasoline-powered engines that can be used in a variety of residential machines, ranging from different types of lawnmowers, to snowblowers, to garden tools (such as tillers and weed-wackers). The basic product l
> Zodiac Sound Co. manufactures audio systems, both made-to-order and mass-produced systems, that are typically sold to large-scale manufacturers of electronics equipment. For competitive reasons, the company is trying to increase its manufacturing cycle e
> This chapter deals with the design of effective control systems associated with business processes, including operating processes. As indicated in the text, a comprehensive management accounting and control system will have both financial indicators and
> Chen Inc. produces a line of soy-based products, including a premium soy milk that comes in different flavors. This company, founded by Alan Chen, has been doing business in the United States for the past 15 years. In the face of competition associated w
> As indicated in the text, both financial and nonfinancial performance indicators play important roles in an organization’s overall operational control system. Explain, concisely, the relative advantage of each type of performance indicator. That is, what
> Steinberg Company had the following direct materials costs for the manufacturing of product T in March: Actual purchase price per pound of direct materials …………………………………………… $7.50 Standard direct materials allowed for units of product T produced …………… 2
> Boron Chemical Company produces a synthetic resin that is used in the automotive industry. The company uses a standard cost system. For each gallon of output, the following direct manufacturing costs are anticipated: Direct labor: 2 hours at $25.00 per
> Use the data in Exhibit 14.5. On October 7, Schmidt Machinery Company purchased 720 pounds of PVC at $41.00 per pound. On October 9, Schmidt’s production department used 720 pounds of PVC for the 780 units of XV-1 it manufactured. Requ
> Which of the following is the correct sequence in which cost management information is developed and used? a. Business events, data, information, analysis, decisions b. Business events, data, analysis, information, decisions c. Business events, informati
> You have been assigned to a strategic leadership committee that has been charged by the CEO with developing and implementing a comprehensive management accounting and control system. At the first planning session that you attended, the subject of financi
> Ohio Apple Orchards Inc. (OAO) produces an organic, super-premium apple juice that it markets to specialty food outlets. OAO purchases its apples from a select group of farmers located in the Midwest. Recently, a graduate of the local university, Susanna
> A number of ethical issues arise in the design of management control systems. For example, such issues might arise when an individual’s performance relative to budget or standard cost affects the individual’s compensation or reward. Assume you are the ma
> Agrichem manufactures Insect-Be-Gone. Each bag of the product contains 60 pounds of direct materials. Twenty-five percent of the materials evaporate during manufacturing. The budget allows the direct materials to be purchased at $2.50 per pound (gross co
> Portfolio management is a powerful concept in finance and marketing. The marketing application of the concept is to develop and manage a balanced portfolio of products. Market share and market growth can be used to classify products for portfolio purpose
> RTI Company’s master budget calls for production and sale of 18,000 units for $81,000, variable costs of $30,600, and fixed costs of $20,000. During the most recent period, the company incurred $32,000 of variable costs to produce and sell 20,000 units f
> At a recent seminar you attended, the invited speaker was discussing some of the advantages and disadvantages of standard costs in terms of evaluating performance and motivating goal-congruent behavior on the part of employees. One criticism of standard
> Crane Corporation’s master budget for the year is shown below: Required: 1. During the year, the company manufactured and sold 55,000 units of product. Prepare an Excel spreadsheet that contains a flexible budget for this level of out
> Information regarding Maxwell’s direct labor cost for the month of January follows: Direct labor hourly rate paid ……………………………………………………………….. $28.50 Total standard direct labor hours for units produced this period ……………… 11,000 Direct labor hours actuall
> DES Company manufactures folding chairs. Direct materials include hard plastic for the seat and back and metal beams for the legs. The standard cost sheet for a single chair includes the following direct materials information: Last month, DES purchased
> The IMA definition of management accounting states that a. management accounting is the process of gathering, reporting, and analyzing information for management decision making. b. management accounting is a profession that involves preparation and anal
> List the four functions of management. Explain what type of cost management information is appropriate for each.
> Assume that Schmidt Machinery Company had the standard costs reflected in Exhibit 14.5. In a given month, the company used 3,450 pounds of aluminum to manufacture 920 units. The company paid $28.50 per pound during the month to purchase aluminum. At the
> Assume that in October 2022 the Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 950 units for $835 each. During this month, the company incurred $475,000 total variable costs and $180,000 total fixed costs. The master budget data for the m
