Ethics in Action
In August, Lannister Company introduced a new performance measurement system in manufacturing operations. One of the new performance measures is lead time, which is determined by tagging a random sample of items with a log sheet throughout the month. The log sheets recorded the time that the sample items started production and the time that they ended production, as well as all steps in between. At the end of the month, the controller collected the log sheets and computed the average lead time of the tagged products. This number was reported to central management and was used to evaluate the performance of the plant manager. Because of the poor lead time results reported for August, the plant was under extreme pressure to reduce lead time in September.
The following memo was intercepted by the controller.
Date: September 3
To: Hourly Employees
From: Plant Manager
During last month, you may have noticed that some of the products were tagged with a log sheet. This sheet records the time that a product enters production and the time that it leaves production. The difference between these two times is termed the “lead time.” Our plant is evaluated on improving lead time. From now on, I ask all of you to keep an eye out for the tagged items. When you see a tagged item, it is to receive special attention. Work on that item first, and then immediately move it to the next operation. Under no circumstances should tagged items wait on any other work that you have. Naturally, report accurate information. I insist that you record the correct times on the log sheet as the product goes through your operations.
How should the controller respond to this discovery?
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Managerial Accounting
- Communications Jamarcus Bradshaw, plant manager of Georgia Paper Companys papermaking mill, was looking over the cost of production reports for July and August for the Papermaking Department. The reports revealed the following: Jamarcus was concerned about the increased cost per ton from the output of the department. As a result, he asked the plant controller to perform a study to help explain these results. The controller, Leann Brunswick, began the analysis by performing some interviews of key plant personnel in order to understand what the problem might be. Excerpts from an interview with Len Tyson, a paper machine operator, follow: Len: We have two papermaking machines in the department. I have no data, but I think paper machine No. 1 is applying too much pulp and, thus, is wasting both conversion and materials resources. We haven't had repairs on paper machine No. 1 in a while. Maybe this is the problem. Leann: How does too much pulp result in wasted resources? Len: Well, you see, if too much pulp is applied, then we will waste pulp material. The customer will not pay for the extra product; we just use more material to make the product. Also, when there is too much pulp, the machine must be slowed down in order to complete the drying process. This results in additional conversion costs. Leann: Do you have any other suspicions? Len: Well, as you know, we have two productsgreen paper and yellow paper. They are identical except for the color. The color is added to the papermaking process in the paper machine. I think that during August these two color papers have been behaving very differently. I don't have any data, but it just seems as though the amount of waste associated with the green paper has increased. Leann: Why is this? Len: I understand that there has been a change in specifications for the green paper, starting near the beginning of August. This change could be causing the machines to run poorly when making green paper. If this is the case, the cost per ton would increase for green paper. Leann also asked for a database printout providing greater detail on Augusts operating results. September 9 Requested by: Leann Brunswick Papermaking DepartmentAugust detail Prior to preparing a report, Leann resigned from Georgia Paper Company to start her own business. You have been asked to take the data that Leann collected, and write a memo to Jamarcus Bradshaw with a recommendation to management. Your memo should include analysis of the August data to determine whether the paper machine or the paper color explains the increase in the unit cost from July. Include any supporting schedules that are appropriate. Round any calculations to the nearest cent.arrow_forwardThe Northwest regional manager of Logan Outdoor Equipment Company has conducted a study to determine how her store managers are allocating their time. A study was undertaken over three weeks that collected the following data related to the percentage of time each store manager spent on the tasks of attending required meetings, preparing business reports, customer interaction, and being idle. The results of the data collection appear in the following table: a. Create a stacked-bar chart with locations along the vertical axis. Reformat the bar chart to best display these data by adding axis labels, a chart title, and so on. b. Create a clustered-bar chart with locations along the vertical axis and clusters of tasks. Reformat the bar chart to best display these data by adding axis labels, a chart title, and the like. c. Create multiple bar charts in which each location becomes a single bar chart showing the percentage of time spent on tasks. Reformat the bar charts to best display these data by adding axis labels, a chart title, and so forth. d. Which form of bar chart (stacked, clustered, or multiple) is preferable for these data? Why? e. What can we infer about the differences among how store managers are allocating their time at the different locations?arrow_forwardGreiner Company makes and sells high-quality glare filters for microcomputer monitors. John Craven, controller, is responsible for preparing Greiners master budget and has assembled the following data for the coming year. The direct labor rate includes wages, all employee-related benefits, and the employers share of FICA. Labor saving machinery will be fully operational by March. Also, as of March 1, the companys union contract calls for an increase in direct labor wages that is included in the direct labor rate. Greiner expects to have 5,600 glare filters in inventory on December 31 of the current year, and has a policy of carrying 35 percent of the following month's projected sales in inventory. Information on the first four months of the coming year is as follows: Required: 1. Prepare the following monthly budgets for Greiner Company for the first quarter of the coming year. Be sure to show supporting calculations. a. Production budget in units b. Direct labor budget in hours c. Direct materials cost budget d. Sales budget 2. Calculate the total budgeted contribution margin for Greiner Company by month and in total for the first quarter of the coming year. Be sure to show supporting calculations. (CMA adapted)arrow_forward
- Big Mikes, a large hardware store, has gathered data on its overhead activities and associated costs for the past 10 months. Nizam Sanjay, a member of the controllers department, believes that overhead activities and costs should be classified into groups that have the same driver. He has decided that unloading incoming goods, counting goods, and inspecting goods can be grouped together as a more general receiving activity, since these three activities are all driven by the number of receiving orders. The 10 months of data shown below have been gathered for the receiving activity. Required: 1. Prepare a scattergraph, plotting the receiving costs against the number of purchase orders. Use the vertical axis for costs and the horizontal axis for orders. 2. Select two points that make the best fit, and compute a cost formula for receiving costs. 3. Using the high-low method, prepare a cost formula for the receiving activity. 4. Using the method of least squares, prepare a cost formula for the receiving activity. What is the coefficient of determination?arrow_forwardPhono Company manufactures a plastic toy cell phone. The following standards have been established for the toys materials and labor inputs: During the first week of July, the company had the following results: The purchasing agent located a new source of slightly higher-quality plastic, and this material was used during the first week in July. Also, a new manufacturing layout was implemented on a trial basis. The new layout required a slightly higher level of skilled labor. The higher-quality material has no effect on labor utilization. Similarly, the new manufacturing approach has no effect on material usage. (Note: Round all variances to the nearest dollar.) Required: 1. CONCEPTUAL CONNECTION Compute the materials price and usage variances. Assuming that the materials variances are essentially attributable to the higher quality of materials, would you recommend that the purchasing agent continue to buy this quality, or should the usual quality be purchased? Assume that the quality of the end product is not affected significantly. 2. CONCEPTUAL CONNECTION Compute the labor rate and efficiency variances. Assuming that the labor variances are attributable to the new manufacturing layout, should it be continued or discontinued? Explain. 3. CONCEPTUAL CONNECTION Refer to Requirement 2. Suppose that the industrial engineer argued that the new layout should not be evaluated after only one week. His reasoning was that it would take at least a week for the workers to become efficient with the new approach. Suppose that the production is the same the second week and that the actual labor hours were 13,200 and the labor cost was 132,000. Should the new layout be adopted? Assume the variances are attributable to the new layout. If so, what would be the projected annual savings?arrow_forwardDataSpan, Inc., automated its plant at the start of the current year and installed a flexible manufacturing system. The company is also evaluating its suppliers and moving toward Lean Production. Many adjustment problems have been encountered, including problems relating to performance measurement. After much study, the company has decided to use the performance measures below, and it has gathered data relating to these measures for the first four months of operations. Month 1 2 3 4 Throughput time (days) ? ? ? ? Delivery cycle time (days) ? ? ? ? Manufacturing cycle efficiency (MCE) ? ? ? ? Percentage of on-time deliveries 77 % 72 % 69 % 66 % Total sales (units) 3880 3715 3525 3391 Management has asked for your help in computing throughput time, delivery cycle time, and MCE. The following average times have been logged over the last four months: Average per Month (in days) 1 2 3 4 Move time per unit 0.7…arrow_forward
- Farnsworth Company has gathered data on its overhead activities and associated costs for the past 10 months. Tracy Heppler, a member of the controller's department, has convinced management that overhead costs can be better estimated and controlled if the fixed and variable components of each overhead activity are known. One such activity is receiving raw materials (unloading incoming goods, counting goods, and inspecting goods), which she believes is driven by the number of receiving orders. Ten months of data have been gathered for the receiving activity and are as follows: Month Receiving Orders Receiving Cost $ 1 1,000 18,000 2 700 15,000 3 1,500 28,000 4 1,200 17,000 5 1,300 25,000 6 1,100 21,000 7 1,600 29,000 8 1,400 24,000 9 1,700 27,000 10 900 16,000 Assume that Tracy has used the method of least squares on the receiving data and has gotten the following results: Intercept 3,212…arrow_forwardEthics and the Manager Terri Ronsin had recently been transferred to the Home Security Systems Division of National Home Products. Shortly after taking over her new position as divisional controller, she was asked to develop the division’s predetermined overhead rate for the upcoming year. The accuracy of the rate is important because it is used throughout the year and any underapplied or overapplied overhead is closed out to Cost of Goods Sold at the end of the year. National Home Products uses direct labor-hours in all of its divisions as the allocation base for manufacturing overhead. To compute the predetermined overhead rate, Terri divided her estimate of the total manufacturing overhead for the coming year by the production manager’s estimate of the total direct labor-hours for the coming year. She took her computations to the division’s general manager for approval but was quite surprised when he suggested a modification in the allocation base. Her conversation with the general…arrow_forwardRecognising that there would be fierce competition to regain lost markets, Management felt that there should be a renewed focus on the productivity and profitability of the operations. The productivity analysis would focus on the Manufacturing department, and the profitability would examine both products. To conduct this analysis, you have extracted the following information for the Manufacturing Department for the month of January: At the start of the month there were 1,000 units in stock, which were 20% complete with respect to conversion costs, and was valued at $ 16,000. During the month, 9,000 units were introduced to the production. At the end of the month there were 1,000 units in stock which were 40% complete with respect to conversion costs. All Materials are added at the start of the process. Costs incurred for the month were: Materials - $ 63,000; Conversion costs - $ 139,840. The Department uses a FIFO costing system. Further examination of the records showed the…arrow_forward
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