Why does the company's net income increase when the new costing system is applied? Is the controller acting ethically by using the new costing system for GAAP net income? Explain your answer.
Q: The manager of Gilbert Company used the production cost report to compare budgeted costs to actual…
A:
Q: Activity-Based Costing and Customer Profitability Schneider Electric manufactures power…
A: Manufacturing overhead: It is the indirect cost incurred as a part of manufacturing the products.…
Q: Data Master is a computer software consulting company. Its three major functional areas are computer…
A: Cost allocation is the process of providing relief to shared service organization’s cost centers
Q: The internal business process perspective of a balanced scorecard may contain which of the following…
A: Balance Score Card measures the business from four different perspectives. 1) Financial Perspectives…
Q: ent should focus its sales and production efforts on the product or products that will provide the…
A:
Q: The three types of responsibility centers are cost centers, profit centers, and investment centers.…
A: Responsibility Center: The departments of the organization are generally referred as responsibility…
Q: Techno Inc. has two divisions: Auxiliary Components and Audio Systems. Divisional managers are…
A:
Q: Techno Inc. has two divisions: Auxiliary Components and Audio Systems. Divisional managersare…
A: Hi student Since there are multiple subparts, we will answer only first three subparts.
Q: Which of the following would be the most appropriate cost driver allocating the service department…
A: Cost drivers are direct reason of cost incurred. Allocation of overhead is made on the basis of cost…
Q: The following situations describe decision scenarios that could use managerial accounting…
A: Managerial accounting is the process of identifying, measuring, analyzing, interpreting, and…
Q: You are the new cost accountant for ABX Corporation. After careful review of the company’s…
A: Compute company break-even point and break-even units as shown below:
Q: You are working with a firm of Cost Consultants. A client having a large manufacturing FMCG co.…
A: Basic Considerations: What are the priorities that the management needs to fulfill and what kind of…
Q: Create a spreadsheet with an output section that: (a) determines the overhead application rate per…
A: There are various overheads costs incurred by the Business entity to Complete the Manufacturing of…
Q: In your role as management accountant, you have been concerned about the division's manufacturing…
A: Hi student Since there are multiple subparts, we will answer only three subparts.
Q: Oxmoor Corporation has two service departments (Maintenance and Human Resources) and three…
A: Answer Under direct method of allocation, the costs of service departments, --are not allocated to…
Q: Comment on the new responsibility-centre designation for the Logistics and Distribution Department.
A:
Q: A manufacturing company has been working with one of its primary suppliers to improve the quality of…
A: Cost of Quality refers to costs incurred with respect to a product to assure its quality such as…
Q: Synthesized data to explain the concept of ROI, how the use of an activity-based costing system can…
A: Ratio analysis is a tool used by the financial analyst to measure the financial performance of the…
Q: Xerox Corporation has been an innovator in its responsibility-accounting system. In one initiative,…
A: Responsibility center: A department or unit of a corporation where the management assigns the…
Q: Susan Mills, Company B's chief accountant, has developed an automated costing system that helps…
A: Costing system: The company uses this framework so that it can estimate the cost of its products…
Q: You are the new cost accountant for ABX Corporation. After careful review of the company’s…
A: Compute company break-even point and break-even units as shown below: Compute number of units…
Q: Engineering LLC is facing a cost issues in their production department. The Production manager of Al…
A: It helps in the variance analysis of the company.
Q: The manager of the manufacturing unit of a company is responsibie for the costs of the manufecturing…
A: SOLUTION- The Average Cost is the per unit cost of production obtained by dividing the total cost…
Q: Companies that produce a variety of products need a costing system that allocates costs based on the…
A: Companies that produce a variety of products need a costing system that allocates costs based on the…
Q: You are the new cost accountant for ABX Corporation. After careful review of the company’s…
A: Calculate company break-even point and break-even units as shown below: Calculate the number of…
Q: INDICATE THE SOLUTION.
A: 1. Calculate the manufacturing cycle efficiency. Manufacturing cycle efficency = Processing time /…
Q: Ritz Company sells fine collectible statues and has implemented activity-based costing. Costs in the…
A: The cost recovery rate is computed by dividing the total cost by the annual activity. Cost…
Q: Aaron is a cost accountant for Majik Systems Inc. Martin the VP of marketing has asked Aaron to meet…
A: Sharing of relevant cost data with competitor is abuse of information. It helps competitor to get an…
Q: hich of the following statements regarding the allocation of cost from other departments to the…
A: Allocation of Cost: It is the method of providing help to given the service organization's cost. The…
Q: Paula Woodward is the head of the Information Systems Department at Mo Manufacturing Company. Roland…
A: Job Order Costing - It is system when customers order small and unique bathes of products in which…
Q: Activity-Based Costing and Customer Profitability Schneider Electric manufactures power distribution…
A:
Q: Consumer Focus is a marketing research firm that organizes focus groups for consumerproduct…
A: Direct costs are the costs which are related to a product or service. Indirect costs are not…
Q: Consider the business application," filing excess capacity 'below cost'. As noted there, the…
A: USPS is a monopoly player in postal services legally which prevents others from entering into the…
Q: Setting standards in an organization may be primarily to assist in the calculation of a standard…
A: Standardization in customer service firm is necessary just like the standardization in products…
Q: Techno Instruments uses a manufacturing costing system with one direct-cost category (direct…
A: Solution:- Calculation of the manufacturing cost per unit of HJ6 in 2016 and manufacturing cost per…
Q: Which of the following are features of lean manufacturing? Yes or NO a. Maintaining excess…
A: Lean manufacturing is one of the principles used by the manufacturer in order to cut the cost or to…
Q: Value chain classifications Match each of the following cost items with the value chain business…
A:
Q: Wolk Corporation is a highly automated manufacturing firm. The vice president of finance has decided…
A: The production or manufacturing lead time refers to the time period among the purchase order of…
Q: Ritz Company sells fine collectible statues and has implemented activity-based costing. Costs in the…
A: Overheads are the indirect costs incurred for manufacturing or selling products. These overheads…
Q: . As more warehouses are added to the system, what would we expect to happen to thefollowing?a.…
A: Warehousing : Warehouse is place where the goods that need to be sold or distributed later are need…
Q: Which of the following statements is false? Cost allocations such as activity-based costing allow…
A: Activity-Based Costing: Activity-Based Costing method is generally used to allocate the overhead…
Q: Aaron McKinney is a cost accountant for Majik Systems Inc. Martin Dodd, Vice President of Marketing,…
A: A cost accountant is a person in a business who is responsible for the recording of all the costs…
Q: “I’m going to focus on the customers of my business and leave cost-allocation issues to my…
A: Costing: Costing is a technique used in cost accounting to determine the cost of a product. With the…
Q: ges the inventories and provides other logistical services to the company s Business Systems Group.…
A: Introduction Responsibility accounting system is designed where subunit or investment center…
The controller of Tri Con Global System Inc. has developed a new costing system that traces the cost of activities to products. The new system is able to measure post-manufacturing activities such as selling, promotional, and distribution activities, and allocates these activities to products in a manner that provides a more complete view of the company’s product costs. This system produces better strategic information about the relative profitability of products lines.
In the course of implementing the new costing system, the controller realized that the company’s current period GAAP net income would increase significantly if the new product cost information were used for
- Why does the company's net income increase when the new costing system is applied?
- Is the controller acting ethically by using the new costing system for GAAP net income? Explain your answer.
Generally accepted accounting principles (GAAP) refer to a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB).
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Randy Harris, controller, has been given the charge to implement an advanced cost management system. As part of this process, he needs to identify activity drivers for the activities of the firm. During the past four months, Randy has spent considerable effort identifying activities, their associated costs, and possible drivers for the activities costs. Initially, Randy made his selections based on his own judgment using his experience and input from employees who perform the activities. Later, he used regression analysis to confirm his judgment. Randy prefers to use one driver per activity, provided that an R2 of at least 80 percent can be produced. Otherwise, multiple drivers will be used, based on evidence provided by multiple regression analysis. For example, the activity of inspecting finished goods produced an R2 of less than 80 percent for any single activity driver. Randy believes, however, that a satisfactory cost formula can be developed using two activity drivers: the number of batches and the number of inspection hours. Data collected for a 14-month period are as follows: Required: 1. Calculate the cost formula for inspection costs using the two drivers, inspection hours and number of batches. Are both activity drivers useful? What does the R2 indicate about the formula? 2. Using the formula developed in Requirement 1, calculate the inspection cost when 300 inspection hours are used and 30 batches are produced. Prepare a 90 percent confidence interval for this prediction.Tom Young, vice president of Dunn Company (a producer of plastic products), has been supervising the implementation of an activity-based cost management system. One of Toms objectives is to improve process efficiency by improving the activities that define the processes. To illustrate the potential of the new system to the president, Tom has decided to focus on two processes: production and customer service. Within each process, one activity will be selected for improvement: molding for production and sustaining engineering for customer service. (Sustaining engineers are responsible for redesigning products based on customer needs and feedback.) Value-added standards are identified for each activity. For molding, the value-added standard calls for nine pounds per mold. (Although the products differ in shape and function, their size, as measured by weight, is uniform.) The value-added standard is based on the elimination of all waste due to defective molds (materials is by far the major cost for the molding activity). The standard price for molding is 15 per pound. For sustaining engineering, the standard is 60 percent of current practical activity capacity. This standard is based on the fact that about 40 percent of the complaints have to do with design features that could have been avoided or anticipated by the company. Current practical capacity (the first year) is defined by the following requirements: 18,000 engineering hours for each product group that has been on the market or in development for five years or less, and 7,200 hours per product group of more than five years. Four product groups have less than five years experience, and 10 product groups have more. There are 72 engineers, each paid a salary of 70,000. Each engineer can provide 2,000 hours of service per year. There are no other significant costs for the engineering activity. For the first year, actual pounds used for molding were 25 percent above the level called for by the value-added standard; engineering usage was 138,000 hours. There were 240,000 units of output produced. Tom and the operational managers have selected some improvement measures that promise to reduce non-value-added activity usage by 30 percent in the second year. Selected actual results achieved for the second year are as follows: The actual prices paid per pound and per engineering hour are identical to the standard or budgeted prices. Required: 1. For the first year, calculate the non-value-added usage and costs for molding and sustaining engineering. Also, calculate the cost of unused capacity for the engineering activity. 2. Using the targeted reduction, establish kaizen standards for molding and engineering (for the second year). 3. Using the kaizen standards prepared in Requirement 2, compute the second-year usage variances, expressed in both physical and financial measures, for molding and engineering. (For engineering, explain why it is necessary to compare actual resource usage with the kaizen standard.) Comment on the companys ability to achieve its targeted reductions. In particular, discuss what measures the company must take to capture any realized reductions in resource usage.Communication The controller of New Wave Sounds Inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and the marketing expenses. As such, the controller has confidence in the accuracy of this report. In addition, the controller interviewed the vice president of marketing, who provided the following insight into the companys three products: The home theater speakers are an older product that is highly recognized in the marketplace. The wireless speakers are a new product that was just recently launched. The wireless headphones are a new technology that has no competition in the marketplace, and it is hoped that they will become an important future addition to the companys product portfolio. Initial indications are that the product is well received by customers. The controller believes that the manufacturing costs for all three products are in line with expectations. Based on the information provided: 1. Calculate the ratio of gross profit to sales and the ratio of operating income to sales for each product. 2. Write a brief (one-page) memo using the product profitability report and the calculations in (a) to make recommendations to management with respect to strategies for the three products.
- Classify each of the following performance measures into the balanced scorecard perspective to which it relates: financial perspective, internal operations perspective, learning and growth perspective, or customer perspective. A. Employee satisfaction surveys B. Units of waste per production process, uniformity of products and inventory control C. Number of energy-efficient bulbs replaced D. Management training course certificates awarded E. Divisional profit F. Number of customer referralsClassify the following cost drivers as structural, executional, or operational. a. Number of plants b. Number of moves c. Degree of employee involvement d. Capacity utilization e. Number of product lines f. Number of distribution channels g. Engineering hours h. Direct labor hours i. Scope j. Product configuration k. Quality management approach l. Number of receiving orders m. Number of defective units n. Employee experience o. Types of process technologies p. Number of purchase orders q. Type and efficiency of layout r. Scale s. Number of functional departments t. Number of planning meetingsAaron McKinney is a cost accountant for Majik Systems Inc. Martin Dodd, Vice President of Marketing, has asked Aaron to meet with representatives of Majik Systems major competitor to discuss product cost data. Martin indicates that the sharing of these data will enable Majik Systems to determine a fair and equitable price for its products. Would it be ethical for Aaron to attend the meeting and share the relevant cost data? Explain your answer.
- Consider the following list of scorecard measures: a. Product profitability b. Ratings from customer surveys c. Number of patents pending d. Strategic job coverage ratio e. Revenue per employee f. Quality costs g. Percentage of market h. Employee turnover percentages i. First-pass yields j. On-time delivery percentage k. Percentage of revenues from new sources l. Economic value added Required: Classify each measure according to the following: perspective, financial or nonfinancial, subjective or objective, and external or internal. When the perspective is process, identify which type of process: innovation, operations, or post-sales service.As manager of department B in MarIeys Manufacturing, based on the costs you identified in the previous exercise for further research, how does this impact the financial performance of your department, and what might be some questions you want to ask or solutions you might propose to Marleys management?The actions listed next are associated with either an activity-based operational control system or a traditional operational control system: a. Budgeted costs for the maintenance department are compared with the actual costs of the maintenance department. b. The maintenance department manager receives a bonus for beating budget. c. The costs of resources are traced to activities and then to products. d. The purchasing department is set up as a responsibility center. e. Activities are identified and listed. f. Activities are categorized as adding or not adding value to the organization. g. A standard for a products material usage cost is set and compared against the products actual materials usage cost. h. The cost of performing an activity is tracked over time. i. The distance between moves is identified as the cause of materials handling cost. j. A purchasing agent is rewarded for buying parts below the standard price set by the company. k. The cost of the materials handling activity is reduced dramatically by redesigning the plant layout. l. An investigation is undertaken to find out why the actual labor cost for the production of 1,000 units is greater than the labor standard allowed. m. The percentage of defective units is calculated and tracked over time. n. Engineering has been given the charge to find a way to reduce setup time by 75 percent. o. The manager of the receiving department lays off two receiving clerks so that the fourth-quarter budget can be met. Required: Classify the preceding actions as belonging to either an activity-based operational control system or a traditional control system. Explain why you classified each action as you did.
- Lean manufacturing is characterized by all but one of the following: a. Employee empowerment b. Total quality management c. Inventories of goods awaiting further processing or consumption d. Elimination of wasteJohn Thomas, vice president of Mallett Company (a producer of a variety of plastic products), has been supervising the implementation of an ABC management system. John wants to improve process efficiency by improving the activities that define the processes. To illustrate the potential of the new system to the president, John has decided to focus on two processes: production and customer service. Within each process, one activity will be selected for improvement: materials usage for production and sustaining engineering for customer service (sustaining engineers are responsible for redesigning products based on customer needs and feedback). Value-added standards are identified for each activity. For materials usage, the value-added standard calls for six pounds per unit of output (the products differ in shape and function, but their weight is uniform). The value-added standard is based on the elimination of all waste due to defective molds. The standard price of materials is 5 per pound. For sustaining engineering, the standard is 58% of current practical activity capacity. This standard is based on the fact that about 42% of the complaints have to do with design features that could have been avoided or anticipated by the company. Current practical capacity (at the end of 20X1) is defined by the following requirements: 6,000 engineering hours for each product group that has been on the market or in development for 5 years or less and 2,400 hours per product group of more than 5 years. Four product groups have less than 5 years experience, and 10 product groups have more. Each of the 24 engineers is paid a salary of 60,000. Each engineer can provide 2,000 hours of service per year. No other significant costs are incurred for the engineering activity. Actual materials usage for 20X1 was 25% above the level called for by the value-added standard; engineering usage was 46,000 hours. A total of 80,000 units of output were produced. John and the operational managers have selected some improvement measures that promise to reduce nonvalue-added activity usage by 40% in 20X2. Selected actual results achieved for 20X2 are as follows: The actual prices paid for materials and engineering hours are identical to the standard or budgeted prices. Required: 1. For 20X1, calculate the nonvalue-added usage and costs for materials usage and sustaining engineering. 2. CONCEPTUAL CONNECTION Using the budgeted improvements, calculate the expected activity usage levels for 20X2. Now, compute the 20X2 usage variances (the difference between the expected and actual values), expressed in both physical and financial measures, for materials and engineering. Comment on the companys ability to achieve its targeted reductions. In particular, discuss what measures the company must take to capture any realized reductions in resource usage.The following strategic objectives have been derived from a strategy that seeks to improve asset utilization by more careful development and use of its human assets and internal processes: a. Increase revenue from new products. b. Increase implementation of employee suggestions. c. Decrease operating expenses. d. Decrease cycle time for the development of new products. e. Decrease rework. f. Increase employee morale. g. Increase customer satisfaction. h. Increase access of key employees to customer and product information. i. Increase customer acquisition. j. Increase return on investment (ROI). k. Increase employee productivity. l. Decrease the collection period for accounts receivable. m. Increase employee skills. The heart of the strategy is developing the companys human resources. Management is convinced that empowering employees will lead to an increase in economic returns. Studies have shown that there is a positive relationship between employee morale and customer satisfaction. Furthermore, the more satisfied customers pay their bills more quickly. It was hypothesized that as employees became more involved and more productive, their morale would improve. Thus, the strategy incorporated key objectives that would lead to an increase in productivity and involvement. Required: 1. Classify the objectives by perspective, and suggest a measure for each objective. 2. Prepare a strategy map that illustrates the likely causal relationships among the strategic objectives.