Applying ethical standards, management accountability Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company’s five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies: Persuade suppliers to postpone billing $13,000 in invoices until January 1. Record as sales $115,000 in certain software awaiting sale that is held in a public warehouse. Delay the year-end closing a few days into January of the next year so that some of the next year’s sales are included in this year’s sales. Reduce the estimated Bad Debts Expense from 5% of Sales Revenue to 3%, given the company’s continued strong performance. Postpone routine monthly maintenance expenditures from December to January. Requirements Which of these suggested strategies are inconsistent with IMA standards? How might these inconsistencies affect the company’s stakeholders? What should Wallace do if Cauvet insists that she follow all of these suggestions?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Applying ethical standards,
Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company’s five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
- Persuade suppliers to postpone billing $13,000 in invoices until January 1.
- Record as sales $115,000 in certain software awaiting sale that is held in a public warehouse.
- Delay the year-end closing a few days into January of the next year so that some of the next year’s sales are included in this year’s sales.
- Reduce the estimated
Bad Debts Expense from 5% of Sales Revenue to 3%, given the company’s continued strong performance. - Postpone routine monthly maintenance expenditures from December to January.
Requirements
- Which of these suggested strategies are inconsistent with IMA standards?
- How might these inconsistencies affect the company’s stakeholders?
- What should Wallace do if Cauvet insists that she follow all of these suggestions?
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