1.
Fraud Case
Case Summary: J is the manager of a fleet of utility trucks for a county government and doing the job for 30 years. He knows that the residual value of the truckis set low when they are fully
To explain: If a business recognizes gain or loss when it sells a fully depreciated asset for its residual value.
2.
To discuss: The method the business use to determine the residual values for their various assets. To ascertain if any ‘hard and fast’ rule exists for residual values.
3.
To Identify: The methods to be used to prevent the kind of fraud show cased in this situation.
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Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)
- Basuras Waste Disposal Company has a long-term contract with several large cities to collect garbage and trash from residential customers. To facilitate the collection, Basuras places a large plastic container with each household. Because of wear and tear, growth, and other factors, Basuras places about 200,000 new containers each year (about 20% of the total households). Several years ago, Basuras decided to manufacture its own containers as a cost-saving measure. A strategically located plant involved in this type of manufacturing was acquired. To help ensure cost efficiency, a standard cost system was installed in the plant. The following standards have been established for the products variable inputs: During the first week in January, Basuras had the following actual results: The purchasing agent located a new source of slightly higher-quality plastic, and this material was used during the first week in January. Also, a new manufacturing process was implemented on a trial basis. The new process required a slightly higher level of skilled labor. The higher- quality material has no effect on labor utilization. However, the new manufacturing process was expected to reduce materials usage by 0.25 pound per container. Required: 1. CONCEPTUAL CONNECTION Compute the materials price and usage variances. Assume that the 0.25 pound per container reduction of materials occurred as expected and that the remaining effects are all attributable to the higher-quality material. 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 process, should it be continued or discontinued? In answering, consider the new processs materials reduction effect as well. Explain. 3. CONCEPTUAL CONNECTION Refer to Requirement 2. Suppose that the industrial engineer argued that the new process 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 9,000 and the labor cost was 99,000. Should the new process be adopted? Assume the variances are attributable to the new process. Assuming production of 6,000 units per week, what would be the projected annual savings? (Include the materials reduction effect.)arrow_forwardTaylor owns a 150-unit motel that was constructed in the late 1960s. It is located on 10 acres on the main highway leading into the city. Taylor renovated the motel three years ago. Taylors motel is condemned by the city, which is going to use 2 of the 10 acres for a small park. Taylor will sell the other 8 acres to a time-share developer who intends to build 400 units on the property. The developer already has secured approval from the city planning commission. Taylors attorney advises him not to contest the condemnation of the 2 acres for the park. Under the eminent domain provision, the city does have the right to take private property for public use. However, the attorney advises Taylor to contest the condemnation of the remaining property. According to the attorney, the city does not have the right to take private property for private use. The citys position is that the condemnation will result in a substantial number of new jobs and additional tax revenue for the city. Will Taylor be successful if he follows his attorneys advice? Summarize your findings in a two- to three-paragraph e-mail to your instructor.arrow_forwardEkon owns a small tow-truck business that responds to state patrol requests to tow cars involved in wrecks, as well as to private business requests from customers at various auto repair shops and individuals with stalled autos. Ekons business is open 24/7 for 365 days a year. He is starting to see too many repairs on his three trucks, which either means that he loses business or must divert a truck from another area. He is now trying to consider whether it is best to continue use of the current trucks or whether he needs to invest some money in new trucks. Using the steps for the process of capital decision-making, create an outline with sub-steps that include questions Ekon can use to guide his investigation or considerations of buying new truck.arrow_forward
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