Question: Spencer and Loveland, LLP is a medium-
Spencer and Loveland, LLP is a medium-sized, regional accounting firm based in the western part of the United States. A new client of the firm, K&K, Inc., which manufactures a variety of picture frames, recently contracted with Spencer and Loveland to perform an audit of the company’s financial statements for the year ended December 31, 2018. K&K, which is privately owned, expects to use the audited financial statements to obtain a more favorable line of credit with its bank.
Spencer and Loveland has a reputation for providing value to its clients above and beyond the high- quality auditing services the firm provides. The firm successfully looks for opportunities to leverage insights obtained during the audit as a basis for offering advice to its clients as a business advisor. K&K management is eager to receive Spencer and Loveland’s financial advice, which is especially needed because the company’s current accounting personnel primarily have clerical backgrounds. Thus, the audit engagement team has been instructed to generate suggestions that might help improve the growth and profitability of K&K, which have taken a turn for the worse during the past year.
K&K’s original, labor-intensive custom-frame line appears to be struggling. Given rising costs for skilled labor over the past several years, K&K’s production manager has long believed that it was only a matter of time before the company’s older custom-frame line would begin to lose the long-term profitability it had enjoyed. He believes the custom line’s declining profitability over the past year confirms the decision to expand the company’s product line into new areas. At the beginning of last year, K&K invested in the RX-1000 system to mass-produce plastic frames. Internal cost accounting reports indicate that the new plastic-frame line has been quite profitable, despite operating at low volume levels relative to its capacity.The production manager recently recommended to K&K’s president that the company consider discontinuing the labor-intensive custom-frame line to focus on expanding the less labor-intensive, higher-volume, higher-margin line of plastic frames.
You are a second-year audit senior at Spencer and Loveland. You and your audit staff are currently auditing the inventory and production costing systems at K&K. You and the junior staff auditor on the team have performed most of the audit procedures outlined on the audit program and have documented your findings in the audit papers.
As audit senior, you are responsible for reviewing the audit schedules and reporting to the audit engagement manager any areas of concern with respect to the audit. In addition, the manager asked you to analyze the client’s inventory and production situation to indicate any areas where you believe the firm can provide value-added constructive suggestions to the client.
BACKGROUND
K&K, Inc. was founded 25 years ago when brothers Kent and Kevin Shaw started manufacturing custom-made picture frames for local artists using their father’s workshop. They soon realized there was profit to be made in building large frames for use by painting and portrait studios. Over the years, K&K has become a well-known picture frame manufacturer in the western part of the United States, and has distinguished itself as a company that produces and sells high-quality picture frames. K&K manufactures and sells three basic sizes of frames, which are relatively large and ornate. K&K sells wholesale to portrait studios, retailers, and other users of large hardwood picture frames.
Due to the nature of the frames produced, the production process for custom frames at K&K is labor intensive. Most of the work is done essentially by hand, with the aid of specialized carving and shaping tools. Skilled workers use these tools to craft the wood pieces used in making the picture frames. K&K uses a traditional job-order costing system and allocates overhead costs to the frames on the basis of direct labor hours. While the company makes all sizes of frames, K&K’s custom frames generally can be categorized into three basic sizes (small, medium, and large) that use a variety of designs and materials.
K&K has grown slowly over the past 25 years, generating reasonable profits along the way. Early last year, management decided to accelerate its growth by entering the market for smaller, mass-produced picture frames of the type sold in most craft and discount retail stores. The company first experimented with inexpensive metal frames. They purchased two used machines to produce these frames, which manufactured a large quantity of metal frames in a relatively short time. However, the frames produced were of varying quality and did not sell well. Thus, the machines remained idle through the second half of last year, and the company does not plan to produce any more of this type of frame.
K&K currently produces around 4,000 custom hardwood frames a month, or 48,000 a year. After the failed experiment with mass-produced metal frames, K&K invested in new machinery called the RX-1000 system. This new system is capable of producing standard-sized (5x7, 8x10, and 11x14 inch) plastic picture frames at a rate of up to 60,000 frames a month, with little variation in quality. The new machinery fit easily into K&K’s existing plant facilities.
Even though the machinery was quite expensive, the plastic frame line is much less labor-intensive than the custom hardwood frame line. Based on the past year’s cost data, the production manager is convinced that the new machinery will pay for itself in a matter of two or three years as production and sales volumes for the new frame line increase. Production volumes for the new frames averaged around 24,000 frames a month over the past year, which is close to the production level of 288,000 K&K had budgeted, but well below the RX-1000’s capacity.
Sales prices on these mass-produced plastic frames are obviously much lower than those for the custom frames, but management expects to generate a reasonable profit through high-volume production and higher percentage profit margins. So far, K&K’s internal data indicates that the new line is far more profitable than had been hoped even at current production volumes, with gross margins just under 50%. By contrast, the gross margin percentage for the custom frame line dropped from its usual average between 9% and 10% to an even more anemic 4.9% over the past year. The production foreman prepared a cost summary for the company’s two product lines, which is provided on the pages that follow (see Exhibits 1 and 2).
The RX-1000 system consists of three machines integrated into a single system. The first machine mixes appropriate quantities of the resins and other liquid and powder materials needed to produce a molded plastic frame. The second machine injects the mixed raw materials into a large sheet of molds of a particular size, depending on the production run. When the material is cool, the machine breaks the hardened frames free of the molds, and the frames are then manually fed into the third stage. Here, the third machine polishes the frames to remove any burrs or tabs and inserts a clear, hard plastic sheet, which serves as a picture protector. Workers manually place a glossy paper picture of an attractive young couple behind the clear plastic in each frame (for marketing purposes), and the frames are then packaged for sale and shipment.
The RX-1000 system initially cost $400,000. Management estimates each of the three machines will have a useful life of six years. K&K depreciates the machinery using the straight-line method. These new machines do not require nearly as much direct labor as the custom frame line. Other than a specially trained employee to operate and monitor the system, the only manual labor required is to place the promotional photo and package the frames.
The system is costly to maintain, requiring regular maintenance every two weeks to keep it running effectively. Each regular maintenance cycle requires replacement of parts and lubricants, costing approximately $2,300 a month for labor and parts that must be replaced regularly. A breakdown of expected maintenance and other costs is found in the production foreman’s analysis of production costs in the following pages.
Early on, the RX-1000 was so effective at mass-producing defect-free frames that management rented out an additional storage facility to hold the finished inventory produced by the new machinery. Later in the year, production rates had to be scaled back, and the system periodically sat idle until plastic frame inventories shrank to more reasonable levels. Management wants to be in a position to fill orders on a timely basis and avoid stock-outs, and thus is content to have a considerable amount of both finished goods and raw materials inventories on hand.
Inventory costs consist of direct materials, direct labor, and overhead. Overhead continues to be allocated to both product lines (i.e., the custom frames and the plastic frames) from a common, company-wide cost pool using direct labor hours as the activity base. Further detail on K&K’s production costs are found in the following exhibits.
REQUIRED
[1] Briefly list and explain the primary audit risks in the production and inventory area of the K&K audit.
[2] Identify any accounting or auditing issues in the way K&K handles its product costs, including overhead allocation, that need to be addressed in the current audit.
[3] Review the analysis performed by K&K on the two product lines. K&K’s management is debating the elimination of the manual line given that it is no longer profitable. Should K&K discontinue the labor- intensive custom frame product line? Why or why not?
[4] Based on your analysis, prepare a memo to the audit manager suggesting areas in K&K’s inventory and production-costing systems where your firm could provide advice and value-added services to the client. In addition, given K&K is a non-public company, suggest any areas in which your firm might be able to provide consulting services that would be of value to the client.
![Spencer and Loveland, LLP is a medium-sized, regional accounting firm based in the western part of the United States. A new client of the firm, K&K, Inc., which manufactures a variety of picture frames, recently contracted with Spencer and Loveland to perform an audit of the company’s financial statements for the year ended December 31, 2018. K&K, which is privately owned, expects to use the audited financial statements to obtain a more favorable line of credit with its bank.
Spencer and Loveland has a reputation for providing value to its clients above and beyond the high- quality auditing services the firm provides. The firm successfully looks for opportunities to leverage insights obtained during the audit as a basis for offering advice to its clients as a business advisor. K&K management is eager to receive Spencer and Loveland’s financial advice, which is especially needed because the company’s current accounting personnel primarily have clerical backgrounds. Thus, the audit engagement team has been instructed to generate suggestions that might help improve the growth and profitability of K&K, which have taken a turn for the worse during the past year.
K&K’s original, labor-intensive custom-frame line appears to be struggling. Given rising costs for skilled labor over the past several years, K&K’s production manager has long believed that it was only a matter of time before the company’s older custom-frame line would begin to lose the long-term profitability it had enjoyed. He believes the custom line’s declining profitability over the past year confirms the decision to expand the company’s product line into new areas. At the beginning of last year, K&K invested in the RX-1000 system to mass-produce plastic frames. Internal cost accounting reports indicate that the new plastic-frame line has been quite profitable, despite operating at low volume levels relative to its capacity.The production manager recently recommended to K&K’s president that the company consider discontinuing the labor-intensive custom-frame line to focus on expanding the less labor-intensive, higher-volume, higher-margin line of plastic frames.
You are a second-year audit senior at Spencer and Loveland. You and your audit staff are currently auditing the inventory and production costing systems at K&K. You and the junior staff auditor on the team have performed most of the audit procedures outlined on the audit program and have documented your findings in the audit papers.
As audit senior, you are responsible for reviewing the audit schedules and reporting to the audit engagement manager any areas of concern with respect to the audit. In addition, the manager asked you to analyze the client’s inventory and production situation to indicate any areas where you believe the firm can provide value-added constructive suggestions to the client.
BACKGROUND
K&K, Inc. was founded 25 years ago when brothers Kent and Kevin Shaw started manufacturing custom-made picture frames for local artists using their father’s workshop. They soon realized there was profit to be made in building large frames for use by painting and portrait studios. Over the years, K&K has become a well-known picture frame manufacturer in the western part of the United States, and has distinguished itself as a company that produces and sells high-quality picture frames. K&K manufactures and sells three basic sizes of frames, which are relatively large and ornate. K&K sells wholesale to portrait studios, retailers, and other users of large hardwood picture frames.
Due to the nature of the frames produced, the production process for custom frames at K&K is labor intensive. Most of the work is done essentially by hand, with the aid of specialized carving and shaping tools. Skilled workers use these tools to craft the wood pieces used in making the picture frames. K&K uses a traditional job-order costing system and allocates overhead costs to the frames on the basis of direct labor hours. While the company makes all sizes of frames, K&K’s custom frames generally can be categorized into three basic sizes (small, medium, and large) that use a variety of designs and materials.
K&K has grown slowly over the past 25 years, generating reasonable profits along the way. Early last year, management decided to accelerate its growth by entering the market for smaller, mass-produced picture frames of the type sold in most craft and discount retail stores. The company first experimented with inexpensive metal frames. They purchased two used machines to produce these frames, which manufactured a large quantity of metal frames in a relatively short time. However, the frames produced were of varying quality and did not sell well. Thus, the machines remained idle through the second half of last year, and the company does not plan to produce any more of this type of frame.
K&K currently produces around 4,000 custom hardwood frames a month, or 48,000 a year. After the failed experiment with mass-produced metal frames, K&K invested in new machinery called the RX-1000 system. This new system is capable of producing standard-sized (5x7, 8x10, and 11x14 inch) plastic picture frames at a rate of up to 60,000 frames a month, with little variation in quality. The new machinery fit easily into K&K’s existing plant facilities.
Even though the machinery was quite expensive, the plastic frame line is much less labor-intensive than the custom hardwood frame line. Based on the past year’s cost data, the production manager is convinced that the new machinery will pay for itself in a matter of two or three years as production and sales volumes for the new frame line increase. Production volumes for the new frames averaged around 24,000 frames a month over the past year, which is close to the production level of 288,000 K&K had budgeted, but well below the RX-1000’s capacity.
Sales prices on these mass-produced plastic frames are obviously much lower than those for the custom frames, but management expects to generate a reasonable profit through high-volume production and higher percentage profit margins. So far, K&K’s internal data indicates that the new line is far more profitable than had been hoped even at current production volumes, with gross margins just under 50%. By contrast, the gross margin percentage for the custom frame line dropped from its usual average between 9% and 10% to an even more anemic 4.9% over the past year. The production foreman prepared a cost summary for the company’s two product lines, which is provided on the pages that follow (see Exhibits 1 and 2).
The RX-1000 system consists of three machines integrated into a single system. The first machine mixes appropriate quantities of the resins and other liquid and powder materials needed to produce a molded plastic frame. The second machine injects the mixed raw materials into a large sheet of molds of a particular size, depending on the production run. When the material is cool, the machine breaks the hardened frames free of the molds, and the frames are then manually fed into the third stage. Here, the third machine polishes the frames to remove any burrs or tabs and inserts a clear, hard plastic sheet, which serves as a picture protector. Workers manually place a glossy paper picture of an attractive young couple behind the clear plastic in each frame (for marketing purposes), and the frames are then packaged for sale and shipment.
The RX-1000 system initially cost $400,000. Management estimates each of the three machines will have a useful life of six years. K&K depreciates the machinery using the straight-line method. These new machines do not require nearly as much direct labor as the custom frame line. Other than a specially trained employee to operate and monitor the system, the only manual labor required is to place the promotional photo and package the frames.
The system is costly to maintain, requiring regular maintenance every two weeks to keep it running effectively. Each regular maintenance cycle requires replacement of parts and lubricants, costing approximately $2,300 a month for labor and parts that must be replaced regularly. A breakdown of expected maintenance and other costs is found in the production foreman’s analysis of production costs in the following pages.
Early on, the RX-1000 was so effective at mass-producing defect-free frames that management rented out an additional storage facility to hold the finished inventory produced by the new machinery. Later in the year, production rates had to be scaled back, and the system periodically sat idle until plastic frame inventories shrank to more reasonable levels. Management wants to be in a position to fill orders on a timely basis and avoid stock-outs, and thus is content to have a considerable amount of both finished goods and raw materials inventories on hand.
Inventory costs consist of direct materials, direct labor, and overhead. Overhead continues to be allocated to both product lines (i.e., the custom frames and the plastic frames) from a common, company-wide cost pool using direct labor hours as the activity base. Further detail on K&K’s production costs are found in the following exhibits.
REQUIRED
[1] Briefly list and explain the primary audit risks in the production and inventory area of the K&K audit.
[2] Identify any accounting or auditing issues in the way K&K handles its product costs, including overhead allocation, that need to be addressed in the current audit.
[3] Review the analysis performed by K&K on the two product lines. K&K’s management is debating the elimination of the manual line given that it is no longer profitable. Should K&K discontinue the labor- intensive custom frame product line? Why or why not?
[4] Based on your analysis, prepare a memo to the audit manager suggesting areas in K&K’s inventory and production-costing systems where your firm could provide advice and value-added services to the client. In addition, given K&K is a non-public company, suggest any areas in which your firm might be able to provide consulting services that would be of value to the client.](../images/spencer-and-loveland-llp-is-a-medium-sized-regional-273892-1.jpg)
![Spencer and Loveland, LLP is a medium-sized, regional accounting firm based in the western part of the United States. A new client of the firm, K&K, Inc., which manufactures a variety of picture frames, recently contracted with Spencer and Loveland to perform an audit of the company’s financial statements for the year ended December 31, 2018. K&K, which is privately owned, expects to use the audited financial statements to obtain a more favorable line of credit with its bank.
Spencer and Loveland has a reputation for providing value to its clients above and beyond the high- quality auditing services the firm provides. The firm successfully looks for opportunities to leverage insights obtained during the audit as a basis for offering advice to its clients as a business advisor. K&K management is eager to receive Spencer and Loveland’s financial advice, which is especially needed because the company’s current accounting personnel primarily have clerical backgrounds. Thus, the audit engagement team has been instructed to generate suggestions that might help improve the growth and profitability of K&K, which have taken a turn for the worse during the past year.
K&K’s original, labor-intensive custom-frame line appears to be struggling. Given rising costs for skilled labor over the past several years, K&K’s production manager has long believed that it was only a matter of time before the company’s older custom-frame line would begin to lose the long-term profitability it had enjoyed. He believes the custom line’s declining profitability over the past year confirms the decision to expand the company’s product line into new areas. At the beginning of last year, K&K invested in the RX-1000 system to mass-produce plastic frames. Internal cost accounting reports indicate that the new plastic-frame line has been quite profitable, despite operating at low volume levels relative to its capacity.The production manager recently recommended to K&K’s president that the company consider discontinuing the labor-intensive custom-frame line to focus on expanding the less labor-intensive, higher-volume, higher-margin line of plastic frames.
You are a second-year audit senior at Spencer and Loveland. You and your audit staff are currently auditing the inventory and production costing systems at K&K. You and the junior staff auditor on the team have performed most of the audit procedures outlined on the audit program and have documented your findings in the audit papers.
As audit senior, you are responsible for reviewing the audit schedules and reporting to the audit engagement manager any areas of concern with respect to the audit. In addition, the manager asked you to analyze the client’s inventory and production situation to indicate any areas where you believe the firm can provide value-added constructive suggestions to the client.
BACKGROUND
K&K, Inc. was founded 25 years ago when brothers Kent and Kevin Shaw started manufacturing custom-made picture frames for local artists using their father’s workshop. They soon realized there was profit to be made in building large frames for use by painting and portrait studios. Over the years, K&K has become a well-known picture frame manufacturer in the western part of the United States, and has distinguished itself as a company that produces and sells high-quality picture frames. K&K manufactures and sells three basic sizes of frames, which are relatively large and ornate. K&K sells wholesale to portrait studios, retailers, and other users of large hardwood picture frames.
Due to the nature of the frames produced, the production process for custom frames at K&K is labor intensive. Most of the work is done essentially by hand, with the aid of specialized carving and shaping tools. Skilled workers use these tools to craft the wood pieces used in making the picture frames. K&K uses a traditional job-order costing system and allocates overhead costs to the frames on the basis of direct labor hours. While the company makes all sizes of frames, K&K’s custom frames generally can be categorized into three basic sizes (small, medium, and large) that use a variety of designs and materials.
K&K has grown slowly over the past 25 years, generating reasonable profits along the way. Early last year, management decided to accelerate its growth by entering the market for smaller, mass-produced picture frames of the type sold in most craft and discount retail stores. The company first experimented with inexpensive metal frames. They purchased two used machines to produce these frames, which manufactured a large quantity of metal frames in a relatively short time. However, the frames produced were of varying quality and did not sell well. Thus, the machines remained idle through the second half of last year, and the company does not plan to produce any more of this type of frame.
K&K currently produces around 4,000 custom hardwood frames a month, or 48,000 a year. After the failed experiment with mass-produced metal frames, K&K invested in new machinery called the RX-1000 system. This new system is capable of producing standard-sized (5x7, 8x10, and 11x14 inch) plastic picture frames at a rate of up to 60,000 frames a month, with little variation in quality. The new machinery fit easily into K&K’s existing plant facilities.
Even though the machinery was quite expensive, the plastic frame line is much less labor-intensive than the custom hardwood frame line. Based on the past year’s cost data, the production manager is convinced that the new machinery will pay for itself in a matter of two or three years as production and sales volumes for the new frame line increase. Production volumes for the new frames averaged around 24,000 frames a month over the past year, which is close to the production level of 288,000 K&K had budgeted, but well below the RX-1000’s capacity.
Sales prices on these mass-produced plastic frames are obviously much lower than those for the custom frames, but management expects to generate a reasonable profit through high-volume production and higher percentage profit margins. So far, K&K’s internal data indicates that the new line is far more profitable than had been hoped even at current production volumes, with gross margins just under 50%. By contrast, the gross margin percentage for the custom frame line dropped from its usual average between 9% and 10% to an even more anemic 4.9% over the past year. The production foreman prepared a cost summary for the company’s two product lines, which is provided on the pages that follow (see Exhibits 1 and 2).
The RX-1000 system consists of three machines integrated into a single system. The first machine mixes appropriate quantities of the resins and other liquid and powder materials needed to produce a molded plastic frame. The second machine injects the mixed raw materials into a large sheet of molds of a particular size, depending on the production run. When the material is cool, the machine breaks the hardened frames free of the molds, and the frames are then manually fed into the third stage. Here, the third machine polishes the frames to remove any burrs or tabs and inserts a clear, hard plastic sheet, which serves as a picture protector. Workers manually place a glossy paper picture of an attractive young couple behind the clear plastic in each frame (for marketing purposes), and the frames are then packaged for sale and shipment.
The RX-1000 system initially cost $400,000. Management estimates each of the three machines will have a useful life of six years. K&K depreciates the machinery using the straight-line method. These new machines do not require nearly as much direct labor as the custom frame line. Other than a specially trained employee to operate and monitor the system, the only manual labor required is to place the promotional photo and package the frames.
The system is costly to maintain, requiring regular maintenance every two weeks to keep it running effectively. Each regular maintenance cycle requires replacement of parts and lubricants, costing approximately $2,300 a month for labor and parts that must be replaced regularly. A breakdown of expected maintenance and other costs is found in the production foreman’s analysis of production costs in the following pages.
Early on, the RX-1000 was so effective at mass-producing defect-free frames that management rented out an additional storage facility to hold the finished inventory produced by the new machinery. Later in the year, production rates had to be scaled back, and the system periodically sat idle until plastic frame inventories shrank to more reasonable levels. Management wants to be in a position to fill orders on a timely basis and avoid stock-outs, and thus is content to have a considerable amount of both finished goods and raw materials inventories on hand.
Inventory costs consist of direct materials, direct labor, and overhead. Overhead continues to be allocated to both product lines (i.e., the custom frames and the plastic frames) from a common, company-wide cost pool using direct labor hours as the activity base. Further detail on K&K’s production costs are found in the following exhibits.
REQUIRED
[1] Briefly list and explain the primary audit risks in the production and inventory area of the K&K audit.
[2] Identify any accounting or auditing issues in the way K&K handles its product costs, including overhead allocation, that need to be addressed in the current audit.
[3] Review the analysis performed by K&K on the two product lines. K&K’s management is debating the elimination of the manual line given that it is no longer profitable. Should K&K discontinue the labor- intensive custom frame product line? Why or why not?
[4] Based on your analysis, prepare a memo to the audit manager suggesting areas in K&K’s inventory and production-costing systems where your firm could provide advice and value-added services to the client. In addition, given K&K is a non-public company, suggest any areas in which your firm might be able to provide consulting services that would be of value to the client.](../images/spencer-and-loveland-llp-is-a-medium-sized-regional-273892-2.jpg)
![Spencer and Loveland, LLP is a medium-sized, regional accounting firm based in the western part of the United States. A new client of the firm, K&K, Inc., which manufactures a variety of picture frames, recently contracted with Spencer and Loveland to perform an audit of the company’s financial statements for the year ended December 31, 2018. K&K, which is privately owned, expects to use the audited financial statements to obtain a more favorable line of credit with its bank.
Spencer and Loveland has a reputation for providing value to its clients above and beyond the high- quality auditing services the firm provides. The firm successfully looks for opportunities to leverage insights obtained during the audit as a basis for offering advice to its clients as a business advisor. K&K management is eager to receive Spencer and Loveland’s financial advice, which is especially needed because the company’s current accounting personnel primarily have clerical backgrounds. Thus, the audit engagement team has been instructed to generate suggestions that might help improve the growth and profitability of K&K, which have taken a turn for the worse during the past year.
K&K’s original, labor-intensive custom-frame line appears to be struggling. Given rising costs for skilled labor over the past several years, K&K’s production manager has long believed that it was only a matter of time before the company’s older custom-frame line would begin to lose the long-term profitability it had enjoyed. He believes the custom line’s declining profitability over the past year confirms the decision to expand the company’s product line into new areas. At the beginning of last year, K&K invested in the RX-1000 system to mass-produce plastic frames. Internal cost accounting reports indicate that the new plastic-frame line has been quite profitable, despite operating at low volume levels relative to its capacity.The production manager recently recommended to K&K’s president that the company consider discontinuing the labor-intensive custom-frame line to focus on expanding the less labor-intensive, higher-volume, higher-margin line of plastic frames.
You are a second-year audit senior at Spencer and Loveland. You and your audit staff are currently auditing the inventory and production costing systems at K&K. You and the junior staff auditor on the team have performed most of the audit procedures outlined on the audit program and have documented your findings in the audit papers.
As audit senior, you are responsible for reviewing the audit schedules and reporting to the audit engagement manager any areas of concern with respect to the audit. In addition, the manager asked you to analyze the client’s inventory and production situation to indicate any areas where you believe the firm can provide value-added constructive suggestions to the client.
BACKGROUND
K&K, Inc. was founded 25 years ago when brothers Kent and Kevin Shaw started manufacturing custom-made picture frames for local artists using their father’s workshop. They soon realized there was profit to be made in building large frames for use by painting and portrait studios. Over the years, K&K has become a well-known picture frame manufacturer in the western part of the United States, and has distinguished itself as a company that produces and sells high-quality picture frames. K&K manufactures and sells three basic sizes of frames, which are relatively large and ornate. K&K sells wholesale to portrait studios, retailers, and other users of large hardwood picture frames.
Due to the nature of the frames produced, the production process for custom frames at K&K is labor intensive. Most of the work is done essentially by hand, with the aid of specialized carving and shaping tools. Skilled workers use these tools to craft the wood pieces used in making the picture frames. K&K uses a traditional job-order costing system and allocates overhead costs to the frames on the basis of direct labor hours. While the company makes all sizes of frames, K&K’s custom frames generally can be categorized into three basic sizes (small, medium, and large) that use a variety of designs and materials.
K&K has grown slowly over the past 25 years, generating reasonable profits along the way. Early last year, management decided to accelerate its growth by entering the market for smaller, mass-produced picture frames of the type sold in most craft and discount retail stores. The company first experimented with inexpensive metal frames. They purchased two used machines to produce these frames, which manufactured a large quantity of metal frames in a relatively short time. However, the frames produced were of varying quality and did not sell well. Thus, the machines remained idle through the second half of last year, and the company does not plan to produce any more of this type of frame.
K&K currently produces around 4,000 custom hardwood frames a month, or 48,000 a year. After the failed experiment with mass-produced metal frames, K&K invested in new machinery called the RX-1000 system. This new system is capable of producing standard-sized (5x7, 8x10, and 11x14 inch) plastic picture frames at a rate of up to 60,000 frames a month, with little variation in quality. The new machinery fit easily into K&K’s existing plant facilities.
Even though the machinery was quite expensive, the plastic frame line is much less labor-intensive than the custom hardwood frame line. Based on the past year’s cost data, the production manager is convinced that the new machinery will pay for itself in a matter of two or three years as production and sales volumes for the new frame line increase. Production volumes for the new frames averaged around 24,000 frames a month over the past year, which is close to the production level of 288,000 K&K had budgeted, but well below the RX-1000’s capacity.
Sales prices on these mass-produced plastic frames are obviously much lower than those for the custom frames, but management expects to generate a reasonable profit through high-volume production and higher percentage profit margins. So far, K&K’s internal data indicates that the new line is far more profitable than had been hoped even at current production volumes, with gross margins just under 50%. By contrast, the gross margin percentage for the custom frame line dropped from its usual average between 9% and 10% to an even more anemic 4.9% over the past year. The production foreman prepared a cost summary for the company’s two product lines, which is provided on the pages that follow (see Exhibits 1 and 2).
The RX-1000 system consists of three machines integrated into a single system. The first machine mixes appropriate quantities of the resins and other liquid and powder materials needed to produce a molded plastic frame. The second machine injects the mixed raw materials into a large sheet of molds of a particular size, depending on the production run. When the material is cool, the machine breaks the hardened frames free of the molds, and the frames are then manually fed into the third stage. Here, the third machine polishes the frames to remove any burrs or tabs and inserts a clear, hard plastic sheet, which serves as a picture protector. Workers manually place a glossy paper picture of an attractive young couple behind the clear plastic in each frame (for marketing purposes), and the frames are then packaged for sale and shipment.
The RX-1000 system initially cost $400,000. Management estimates each of the three machines will have a useful life of six years. K&K depreciates the machinery using the straight-line method. These new machines do not require nearly as much direct labor as the custom frame line. Other than a specially trained employee to operate and monitor the system, the only manual labor required is to place the promotional photo and package the frames.
The system is costly to maintain, requiring regular maintenance every two weeks to keep it running effectively. Each regular maintenance cycle requires replacement of parts and lubricants, costing approximately $2,300 a month for labor and parts that must be replaced regularly. A breakdown of expected maintenance and other costs is found in the production foreman’s analysis of production costs in the following pages.
Early on, the RX-1000 was so effective at mass-producing defect-free frames that management rented out an additional storage facility to hold the finished inventory produced by the new machinery. Later in the year, production rates had to be scaled back, and the system periodically sat idle until plastic frame inventories shrank to more reasonable levels. Management wants to be in a position to fill orders on a timely basis and avoid stock-outs, and thus is content to have a considerable amount of both finished goods and raw materials inventories on hand.
Inventory costs consist of direct materials, direct labor, and overhead. Overhead continues to be allocated to both product lines (i.e., the custom frames and the plastic frames) from a common, company-wide cost pool using direct labor hours as the activity base. Further detail on K&K’s production costs are found in the following exhibits.
REQUIRED
[1] Briefly list and explain the primary audit risks in the production and inventory area of the K&K audit.
[2] Identify any accounting or auditing issues in the way K&K handles its product costs, including overhead allocation, that need to be addressed in the current audit.
[3] Review the analysis performed by K&K on the two product lines. K&K’s management is debating the elimination of the manual line given that it is no longer profitable. Should K&K discontinue the labor- intensive custom frame product line? Why or why not?
[4] Based on your analysis, prepare a memo to the audit manager suggesting areas in K&K’s inventory and production-costing systems where your firm could provide advice and value-added services to the client. In addition, given K&K is a non-public company, suggest any areas in which your firm might be able to provide consulting services that would be of value to the client.](../images/spencer-and-loveland-llp-is-a-medium-sized-regional-273892-3.jpg)
![Spencer and Loveland, LLP is a medium-sized, regional accounting firm based in the western part of the United States. A new client of the firm, K&K, Inc., which manufactures a variety of picture frames, recently contracted with Spencer and Loveland to perform an audit of the company’s financial statements for the year ended December 31, 2018. K&K, which is privately owned, expects to use the audited financial statements to obtain a more favorable line of credit with its bank.
Spencer and Loveland has a reputation for providing value to its clients above and beyond the high- quality auditing services the firm provides. The firm successfully looks for opportunities to leverage insights obtained during the audit as a basis for offering advice to its clients as a business advisor. K&K management is eager to receive Spencer and Loveland’s financial advice, which is especially needed because the company’s current accounting personnel primarily have clerical backgrounds. Thus, the audit engagement team has been instructed to generate suggestions that might help improve the growth and profitability of K&K, which have taken a turn for the worse during the past year.
K&K’s original, labor-intensive custom-frame line appears to be struggling. Given rising costs for skilled labor over the past several years, K&K’s production manager has long believed that it was only a matter of time before the company’s older custom-frame line would begin to lose the long-term profitability it had enjoyed. He believes the custom line’s declining profitability over the past year confirms the decision to expand the company’s product line into new areas. At the beginning of last year, K&K invested in the RX-1000 system to mass-produce plastic frames. Internal cost accounting reports indicate that the new plastic-frame line has been quite profitable, despite operating at low volume levels relative to its capacity.The production manager recently recommended to K&K’s president that the company consider discontinuing the labor-intensive custom-frame line to focus on expanding the less labor-intensive, higher-volume, higher-margin line of plastic frames.
You are a second-year audit senior at Spencer and Loveland. You and your audit staff are currently auditing the inventory and production costing systems at K&K. You and the junior staff auditor on the team have performed most of the audit procedures outlined on the audit program and have documented your findings in the audit papers.
As audit senior, you are responsible for reviewing the audit schedules and reporting to the audit engagement manager any areas of concern with respect to the audit. In addition, the manager asked you to analyze the client’s inventory and production situation to indicate any areas where you believe the firm can provide value-added constructive suggestions to the client.
BACKGROUND
K&K, Inc. was founded 25 years ago when brothers Kent and Kevin Shaw started manufacturing custom-made picture frames for local artists using their father’s workshop. They soon realized there was profit to be made in building large frames for use by painting and portrait studios. Over the years, K&K has become a well-known picture frame manufacturer in the western part of the United States, and has distinguished itself as a company that produces and sells high-quality picture frames. K&K manufactures and sells three basic sizes of frames, which are relatively large and ornate. K&K sells wholesale to portrait studios, retailers, and other users of large hardwood picture frames.
Due to the nature of the frames produced, the production process for custom frames at K&K is labor intensive. Most of the work is done essentially by hand, with the aid of specialized carving and shaping tools. Skilled workers use these tools to craft the wood pieces used in making the picture frames. K&K uses a traditional job-order costing system and allocates overhead costs to the frames on the basis of direct labor hours. While the company makes all sizes of frames, K&K’s custom frames generally can be categorized into three basic sizes (small, medium, and large) that use a variety of designs and materials.
K&K has grown slowly over the past 25 years, generating reasonable profits along the way. Early last year, management decided to accelerate its growth by entering the market for smaller, mass-produced picture frames of the type sold in most craft and discount retail stores. The company first experimented with inexpensive metal frames. They purchased two used machines to produce these frames, which manufactured a large quantity of metal frames in a relatively short time. However, the frames produced were of varying quality and did not sell well. Thus, the machines remained idle through the second half of last year, and the company does not plan to produce any more of this type of frame.
K&K currently produces around 4,000 custom hardwood frames a month, or 48,000 a year. After the failed experiment with mass-produced metal frames, K&K invested in new machinery called the RX-1000 system. This new system is capable of producing standard-sized (5x7, 8x10, and 11x14 inch) plastic picture frames at a rate of up to 60,000 frames a month, with little variation in quality. The new machinery fit easily into K&K’s existing plant facilities.
Even though the machinery was quite expensive, the plastic frame line is much less labor-intensive than the custom hardwood frame line. Based on the past year’s cost data, the production manager is convinced that the new machinery will pay for itself in a matter of two or three years as production and sales volumes for the new frame line increase. Production volumes for the new frames averaged around 24,000 frames a month over the past year, which is close to the production level of 288,000 K&K had budgeted, but well below the RX-1000’s capacity.
Sales prices on these mass-produced plastic frames are obviously much lower than those for the custom frames, but management expects to generate a reasonable profit through high-volume production and higher percentage profit margins. So far, K&K’s internal data indicates that the new line is far more profitable than had been hoped even at current production volumes, with gross margins just under 50%. By contrast, the gross margin percentage for the custom frame line dropped from its usual average between 9% and 10% to an even more anemic 4.9% over the past year. The production foreman prepared a cost summary for the company’s two product lines, which is provided on the pages that follow (see Exhibits 1 and 2).
The RX-1000 system consists of three machines integrated into a single system. The first machine mixes appropriate quantities of the resins and other liquid and powder materials needed to produce a molded plastic frame. The second machine injects the mixed raw materials into a large sheet of molds of a particular size, depending on the production run. When the material is cool, the machine breaks the hardened frames free of the molds, and the frames are then manually fed into the third stage. Here, the third machine polishes the frames to remove any burrs or tabs and inserts a clear, hard plastic sheet, which serves as a picture protector. Workers manually place a glossy paper picture of an attractive young couple behind the clear plastic in each frame (for marketing purposes), and the frames are then packaged for sale and shipment.
The RX-1000 system initially cost $400,000. Management estimates each of the three machines will have a useful life of six years. K&K depreciates the machinery using the straight-line method. These new machines do not require nearly as much direct labor as the custom frame line. Other than a specially trained employee to operate and monitor the system, the only manual labor required is to place the promotional photo and package the frames.
The system is costly to maintain, requiring regular maintenance every two weeks to keep it running effectively. Each regular maintenance cycle requires replacement of parts and lubricants, costing approximately $2,300 a month for labor and parts that must be replaced regularly. A breakdown of expected maintenance and other costs is found in the production foreman’s analysis of production costs in the following pages.
Early on, the RX-1000 was so effective at mass-producing defect-free frames that management rented out an additional storage facility to hold the finished inventory produced by the new machinery. Later in the year, production rates had to be scaled back, and the system periodically sat idle until plastic frame inventories shrank to more reasonable levels. Management wants to be in a position to fill orders on a timely basis and avoid stock-outs, and thus is content to have a considerable amount of both finished goods and raw materials inventories on hand.
Inventory costs consist of direct materials, direct labor, and overhead. Overhead continues to be allocated to both product lines (i.e., the custom frames and the plastic frames) from a common, company-wide cost pool using direct labor hours as the activity base. Further detail on K&K’s production costs are found in the following exhibits.
REQUIRED
[1] Briefly list and explain the primary audit risks in the production and inventory area of the K&K audit.
[2] Identify any accounting or auditing issues in the way K&K handles its product costs, including overhead allocation, that need to be addressed in the current audit.
[3] Review the analysis performed by K&K on the two product lines. K&K’s management is debating the elimination of the manual line given that it is no longer profitable. Should K&K discontinue the labor- intensive custom frame product line? Why or why not?
[4] Based on your analysis, prepare a memo to the audit manager suggesting areas in K&K’s inventory and production-costing systems where your firm could provide advice and value-added services to the client. In addition, given K&K is a non-public company, suggest any areas in which your firm might be able to provide consulting services that would be of value to the client.](../images/spencer-and-loveland-llp-is-a-medium-sized-regional-273892-4.jpg)
![Spencer and Loveland, LLP is a medium-sized, regional accounting firm based in the western part of the United States. A new client of the firm, K&K, Inc., which manufactures a variety of picture frames, recently contracted with Spencer and Loveland to perform an audit of the company’s financial statements for the year ended December 31, 2018. K&K, which is privately owned, expects to use the audited financial statements to obtain a more favorable line of credit with its bank.
Spencer and Loveland has a reputation for providing value to its clients above and beyond the high- quality auditing services the firm provides. The firm successfully looks for opportunities to leverage insights obtained during the audit as a basis for offering advice to its clients as a business advisor. K&K management is eager to receive Spencer and Loveland’s financial advice, which is especially needed because the company’s current accounting personnel primarily have clerical backgrounds. Thus, the audit engagement team has been instructed to generate suggestions that might help improve the growth and profitability of K&K, which have taken a turn for the worse during the past year.
K&K’s original, labor-intensive custom-frame line appears to be struggling. Given rising costs for skilled labor over the past several years, K&K’s production manager has long believed that it was only a matter of time before the company’s older custom-frame line would begin to lose the long-term profitability it had enjoyed. He believes the custom line’s declining profitability over the past year confirms the decision to expand the company’s product line into new areas. At the beginning of last year, K&K invested in the RX-1000 system to mass-produce plastic frames. Internal cost accounting reports indicate that the new plastic-frame line has been quite profitable, despite operating at low volume levels relative to its capacity.The production manager recently recommended to K&K’s president that the company consider discontinuing the labor-intensive custom-frame line to focus on expanding the less labor-intensive, higher-volume, higher-margin line of plastic frames.
You are a second-year audit senior at Spencer and Loveland. You and your audit staff are currently auditing the inventory and production costing systems at K&K. You and the junior staff auditor on the team have performed most of the audit procedures outlined on the audit program and have documented your findings in the audit papers.
As audit senior, you are responsible for reviewing the audit schedules and reporting to the audit engagement manager any areas of concern with respect to the audit. In addition, the manager asked you to analyze the client’s inventory and production situation to indicate any areas where you believe the firm can provide value-added constructive suggestions to the client.
BACKGROUND
K&K, Inc. was founded 25 years ago when brothers Kent and Kevin Shaw started manufacturing custom-made picture frames for local artists using their father’s workshop. They soon realized there was profit to be made in building large frames for use by painting and portrait studios. Over the years, K&K has become a well-known picture frame manufacturer in the western part of the United States, and has distinguished itself as a company that produces and sells high-quality picture frames. K&K manufactures and sells three basic sizes of frames, which are relatively large and ornate. K&K sells wholesale to portrait studios, retailers, and other users of large hardwood picture frames.
Due to the nature of the frames produced, the production process for custom frames at K&K is labor intensive. Most of the work is done essentially by hand, with the aid of specialized carving and shaping tools. Skilled workers use these tools to craft the wood pieces used in making the picture frames. K&K uses a traditional job-order costing system and allocates overhead costs to the frames on the basis of direct labor hours. While the company makes all sizes of frames, K&K’s custom frames generally can be categorized into three basic sizes (small, medium, and large) that use a variety of designs and materials.
K&K has grown slowly over the past 25 years, generating reasonable profits along the way. Early last year, management decided to accelerate its growth by entering the market for smaller, mass-produced picture frames of the type sold in most craft and discount retail stores. The company first experimented with inexpensive metal frames. They purchased two used machines to produce these frames, which manufactured a large quantity of metal frames in a relatively short time. However, the frames produced were of varying quality and did not sell well. Thus, the machines remained idle through the second half of last year, and the company does not plan to produce any more of this type of frame.
K&K currently produces around 4,000 custom hardwood frames a month, or 48,000 a year. After the failed experiment with mass-produced metal frames, K&K invested in new machinery called the RX-1000 system. This new system is capable of producing standard-sized (5x7, 8x10, and 11x14 inch) plastic picture frames at a rate of up to 60,000 frames a month, with little variation in quality. The new machinery fit easily into K&K’s existing plant facilities.
Even though the machinery was quite expensive, the plastic frame line is much less labor-intensive than the custom hardwood frame line. Based on the past year’s cost data, the production manager is convinced that the new machinery will pay for itself in a matter of two or three years as production and sales volumes for the new frame line increase. Production volumes for the new frames averaged around 24,000 frames a month over the past year, which is close to the production level of 288,000 K&K had budgeted, but well below the RX-1000’s capacity.
Sales prices on these mass-produced plastic frames are obviously much lower than those for the custom frames, but management expects to generate a reasonable profit through high-volume production and higher percentage profit margins. So far, K&K’s internal data indicates that the new line is far more profitable than had been hoped even at current production volumes, with gross margins just under 50%. By contrast, the gross margin percentage for the custom frame line dropped from its usual average between 9% and 10% to an even more anemic 4.9% over the past year. The production foreman prepared a cost summary for the company’s two product lines, which is provided on the pages that follow (see Exhibits 1 and 2).
The RX-1000 system consists of three machines integrated into a single system. The first machine mixes appropriate quantities of the resins and other liquid and powder materials needed to produce a molded plastic frame. The second machine injects the mixed raw materials into a large sheet of molds of a particular size, depending on the production run. When the material is cool, the machine breaks the hardened frames free of the molds, and the frames are then manually fed into the third stage. Here, the third machine polishes the frames to remove any burrs or tabs and inserts a clear, hard plastic sheet, which serves as a picture protector. Workers manually place a glossy paper picture of an attractive young couple behind the clear plastic in each frame (for marketing purposes), and the frames are then packaged for sale and shipment.
The RX-1000 system initially cost $400,000. Management estimates each of the three machines will have a useful life of six years. K&K depreciates the machinery using the straight-line method. These new machines do not require nearly as much direct labor as the custom frame line. Other than a specially trained employee to operate and monitor the system, the only manual labor required is to place the promotional photo and package the frames.
The system is costly to maintain, requiring regular maintenance every two weeks to keep it running effectively. Each regular maintenance cycle requires replacement of parts and lubricants, costing approximately $2,300 a month for labor and parts that must be replaced regularly. A breakdown of expected maintenance and other costs is found in the production foreman’s analysis of production costs in the following pages.
Early on, the RX-1000 was so effective at mass-producing defect-free frames that management rented out an additional storage facility to hold the finished inventory produced by the new machinery. Later in the year, production rates had to be scaled back, and the system periodically sat idle until plastic frame inventories shrank to more reasonable levels. Management wants to be in a position to fill orders on a timely basis and avoid stock-outs, and thus is content to have a considerable amount of both finished goods and raw materials inventories on hand.
Inventory costs consist of direct materials, direct labor, and overhead. Overhead continues to be allocated to both product lines (i.e., the custom frames and the plastic frames) from a common, company-wide cost pool using direct labor hours as the activity base. Further detail on K&K’s production costs are found in the following exhibits.
REQUIRED
[1] Briefly list and explain the primary audit risks in the production and inventory area of the K&K audit.
[2] Identify any accounting or auditing issues in the way K&K handles its product costs, including overhead allocation, that need to be addressed in the current audit.
[3] Review the analysis performed by K&K on the two product lines. K&K’s management is debating the elimination of the manual line given that it is no longer profitable. Should K&K discontinue the labor- intensive custom frame product line? Why or why not?
[4] Based on your analysis, prepare a memo to the audit manager suggesting areas in K&K’s inventory and production-costing systems where your firm could provide advice and value-added services to the client. In addition, given K&K is a non-public company, suggest any areas in which your firm might be able to provide consulting services that would be of value to the client.](../images/spencer-and-loveland-llp-is-a-medium-sized-regional-273892-5.jpg)
> Refer to concerning spurious correlation. Replace number of smartphones with per capita soda consumption in gallons. (a) Create a scatter diagram and identify the kind of association. (b) Comment on possible lurking variables.
> An ongoing study of wolves is being conducted at the Yukon-Charley Rivers National Preserve. Table in the Data Bank gives the physical characteristics of wolves that were captured. (a) Plot length versus weight for the female wolves. From your visual ins
> An ongoing study of wolves is being conducted at the Yukon-Charley Rivers National Preserve. Table in the Data Bank gives the physical characteristics of wolves that were captured. (a) Plot length versus weight for the male wolves. From your visual inspe
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> What is wrong with this statement of purpose? PURPOSE: Determine if a new style wireless mouse is comfortable. Give an improved statement of purpose.
> Calculations from a data set of n = 36 pairs of ( x, y) values have provided the following results. Obtain the correlation coefficient.
> Is the correlation in Figure 9 about (a) .1, (b) .5, (c) .9, or (d) -.7?
> Match the following values of r with the correct diagrams. (a) r - .3 (b) r .l (c) r .9
> (a) Construct scatter diagrams of the data sets (b) Calculate r for the data set (i). (c) Guess the value of r for the data set (ii) and then calculate r.
> Breakfast cereals from three leading manufacturers can be classified either above average or below average in sugar content. Data for ten cereals from each manufacturer are given below: (a) Complete the marginal totals. (b) Calculate the relative freque
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> For the data set (a) Construct a scatter diagram. (b) Guess the sign and value of the correlation coefficient. (c) Calculate the correlation coefficient.
> If the value of r is small, can we conclude that there is not a strong relationship between the two variables?
> A new study is widely reported to show that dog owners benefit by being more agreeable and extroverted than cat owners. Comment in light of facts that, on average, dogs cost more to maintain and that dog owners have larger incomes than cat owners.
> In each of the following instances, would you expect a positive, negative, or zero correlation? (a) Number of salespersons and total dollar sales for real estate firms. (b) Total payroll and percent of wins of national league baseball teams. (c) The amou
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> With reference to the quit-smoking experiment: (a) Suppose the placebo trials were ignored and you were only told that 120 of 216 were abstinent after using the medicated patches. Would this now appear to be stronger evidence in favor of the patches? (
> With reference to the quit-smoking experiment, suppose two new subjects are available. Explain how you would assign one subject to receive the placebo and one to receive the medicated patch.
> Nausea from air sickness affects some travelers. A drug company, wanting to establish the effectiveness of its motion sickness pill, randomly gives either its pill or a look-alike sugar pill (placebo) to 200 passengers. (a) Complete the marginal totals.
> A sample of persons will each be asked to give the number of their close friends. The responses are to be grouped into the following classes: 0, 1-3, 3-5, 6 or more. Left endpoint is included. Explain where difficulties might arise.
> The number of goals your favorite ice hockey team scores are to be collected for each game. These game totals are to be grouped into the classes 0- 1, 2- 3, 4- 5, 7 or more. Both endpoints are included. Explain where a difficulty might arise.
> Data from one campus dorm on the number of burglaries are collected each week of the semester. These data are to be grouped into the classes 0-1, 2-3, 3-5, 6 or more. Both endpoints included. Explain where a difficulty might arise.
> Of the $207 million raised by a major university's fund drive, $11 7 million came from individuals and bequests, $24 million from industry and business, and $66 million from foundations and associations. Present this information in the form of a pie char
> At the last minute, 6 tickets have become available for a big football game. Use Table 1, Appendix B, to select the recipients from among 89 interested students.
> Eighty customers at a bakery named their favorite pie. The responses are as follows: (a) Calculate the frequency for each pie. (b) Construct a pie chart.
> The number of automobile accidents reported per month helps to identify intersections that require improvement. The number of crashes per month reported at an intersection near a university campus in Madison, Wisconsin, are Present these data in a freque
> A student at the University of Wisconsin surveyed 40 students in her dorm concerning their participation in extracurricular activities during the past week. The data on number of activities are Present these data in a frequency table and in a relative fr
> Recorded here are the blood types of 40 persons who have volunteered to donate blood at a plasma center. Summarize the data in a frequency table. Include calculations of the relative frequencies.
> The city of Madison regularly checks the water quality at swimming beaches located on area lakes. The concentration of fecal coliforms, in number of colony forming units (CFU) per 100 ml of water, was measured on fifteen days during the summer at one bea
> A campus area merchant recorded the number of bad checks received per month, for five months 4 5 4 7 6 Display the data in a dot diagram.
> Before microwave ovens are sold, the manufacturer must check to ensure that the radiation coming through the door is below a specified safe limit. The amounts of radiation leakage (mW/cm2) with the door closed from 25 ovens are as follows (courtesy of Jo
> A person with asthma took measurements by blowing into a peak-flow meter on seven consecutive days. 429 425 471 422 432 444 454 Display the data in a dot diagram.
> A sample of 50 departing airline passengers at the main check-in counter produced the following number of bags checked through to final destinations. (a) Make a relative frequency line diagram. (b) Comment on the pattern. (c) What proportion of passenger
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> Twelve bicycles are available for use at the student union. Use Table 1, to select 4 of them for you and three of your friends to ride today.
> A survey of 451 men revealed that 144 men, or 3 1.9%, wait until Valentine's day or the day before to purchase flowers. Identify a statistical population and the sample.
> It was 9:30 A.M. on a Monday morning when the call came through. “Hi Dr. Mitchell, do you have a minute?” “Sure,” the professor replied. “I am one of your former students, but if you don’t mind, I would prefer to remain anonymous. I think it is best for
> Nathan recently interviewed with one of the accounting firms in the city where he wants to live. The firm agreed to cover the expense of a rental car that he used to travel from his university to the firm’s office. The rental car agency required that Nat
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> Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, comme
> Analytical procedures can be powerful tools in conducting an audit. They help the auditor understand a client’s business and are useful in identifying potential risks and problem areas requiring greater substantive audit attention. If f
> Anne Aylor, Inc. (Anne Aylor) is a leading national specialty retailer of high-quality women’s apparel, shoes, and accessories sold primarily under the “Anne Aylor” brand name. Anne Aylor is a highly
> Town and Country Hardware (T&CH) is a closely owned business founded six years ago by Caleb and Jasmine Wright. T&CH has retail hardware stores located at three lake communities along the Virginia and North Carolina border. T&CH sells products for home i
> In a management review control (MRC), members of management review key information and evaluate its reasonableness by comparing it to expected values. Some examples include comparing budget to actual, reviewing impairment analyses, and reviewing estimate
> On January 24, 2008, Société Générale, France’s second largest bank announced the largest trading loss in history, a staggering 4.9 billion Euro ($7.2 billion U.S.), which it blamed on a single rogue trader. The trader, Jérôme Kerviel, worked at what Soc
> Large public companies in the U.S. are required by law to engage an auditor to perform an “integrated audit” involving both a traditional financial statement audit and an audit of internal control over financial reporting. PCAOB Audit Standard No. 2201,
> You are the new information technology (IT) audit specialist at the accounting firm of Townsend and Townsend, LLP. One of the audit partners, Harold Mobley, asked you to evaluate the effectiveness of general and application IT-related controls for a pote
> St. James Clothiers is a high-end clothing store located in a small Tennessee town. St. James has only one store, which is located in the shopping district by the town square. St. James enjoys the reputation of being the place to buy nice clothing in the
> An entrepreneur by the name of Francisco Fernandez recently entered into a new venture involving ownership and operation of a small, 26-room motel and café. The motel is located in a remote area of southern Utah. The area is popular for tourists, who com
> Apple Inc. (Apple) is a worldwide provider of innovative technology products and services. Apple’s products and services include iPhone®, iPad®, Mac®, iPod®, Apple Watch®, Apple TV®, a portfolio of consumer and professional software applications, iOS, ma
> Tina is an audit manager with a national public accounting firm and one of her clients is Simply Steam, Co. Simply Steam provides industrial and domestic carpet steam-cleaning services. This is the first time Simply Steam has been audited. Thus, Tina doe
> John C. Koss started his first company, J.C. Koss Hospital Television Rental Company, in 1953, based in Milwaukee, Wisconsin, but John had greater ambitions. Eventually he partnered with Martin Lange, an engineer, and by 1958 the two had founded Koss Ele
> In December 1995, the flamboyant entrepreneur, Michael “Mickey” Monus, formerly president and chief operating officer (COO) of the deep-discount retail chain Phar-Mor, Inc., was sentenced to 19 years and seven months in prison. Monus was convicted for th
> Xerox Corporation (Xerox), once a star in the technology sector of the economy, found itself engulfed in an accounting scandal alleging that it was too aggressive in recognizing equipment revenue.1 The complaint filed by the Securities and Exchange Commi
> Waste Management, Inc.’s Form 10-K filed with the Securities and Exchange Commission (SEC) on March 28, 1997 described the company at that time as a leading international provider of waste management services. According to disclosures i
> One can only imagine the high expectations of investors when the boards of directors of CUC International, Inc. (CUC) and HFS, Inc. (HFS) agreed to merge in May 1997 to form Cendant Corporation. The $14 billion stock merger of HFS and CUC, considered a m
> Enron Corporation entered 2001 as the seventh largest public company in the United States, only to later exit the year as the largest company to ever declare bankruptcy to that point in U.S. history. Investors who lost millions and lawmakers seeking to p
> Don’t ever tell yourself, “that won’t happen to me.” Just ask Cynthia Cooper, former Vice President of Internal Audit at WorldCom. Cynthia Cooper was a typical accounting student as an undergrad at Mississippi State University. Raised in Clinton, Mississ
> The accounting firm of Barnes and Fischer, LLP, is a medium-sized, national CPA firm. The partnership, formed in 1954, now has over 4,000 professionals on the payroll. The firm mainly provides auditing and tax services, but it has recently had success bu
> In what ways can leaders create ethical organizations?
> How do the contemporary theories of leadership relate to earlier foundational theories?
> What are the contingency theories of leadership?
> What are the causes and consequences of abuse of power?
> What power or influence tactics and their contingencies are identified most often?
> How is leadership different from power?
> The authors who suggested that membership in a team makes us smarter found that teams were more rational and quicker at finding solutions to difficult probability problems and reasoning tasks than were individuals. After participation in the study, team
> On the highly functioning teams in which you’ve been a member, what other characteristics might have contributed to success?
> From your experiences in teams, do you agree with the researchers’ findings on the characteristics of smart teams? Why or why not?
> Imagine you are a manager at a national corporation. You have been asked to select employees for a virtual problem-solving team. What types of employees would you include and why?
> Can you think of strategies that can help build trust among virtual team members?
> Recall a time when you felt like you could not trust members on your team. Why did you feel that way? How did that affect the team’s performance?
> What are the relevant points of intellectual and physical abilities to organizational behavior?
> In the cases discussed above, where do you think you would perform better, and why? Justify your answer by taking into account efficiency factors, reward systems, the context, and your individual perceptions.
> What type of group or team are cyclists working for a supervisor for Deliveroo? Justify your answer.
> How should the criterion of “legitimacy” be determined? Explain.
