Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Textbook Question
Chapter 2, Problem 1TIF
Ethics in Action
TAC Industries Inc. sells heavy equipment to large corporations and federal, state, and local governments. Corporate sales are the result of a competitive bidding process, where TAC competes against other companies based on selling price. Sales to the government, however, are determined on a cost plus basis, where the selling price is determined by adding a fixed markup percentage to the total
Tandy Lane is the cost accountant for the Equipment Division of TAC Industries Inc. The division is under pressure from senior management to improve operating income. As Tandy reviewed the division’s job cost sheets, she realized that she could increase the division’s operating income by moving a portion of the direct labor hours that had been assigned to the job cost sheets of corporate customers onto the job order costs sheets of government customers. She believed that this would create a “win–win” for the division by (1) reducing the cost of corporate jobs, and (2) increasing the cost of government jobs whose profit is based on a percentage of job cost. Tandy submitted this idea to her division manager, who was impressed by her creative solution for improving the division’s profitability.
Is Tandy’s plan ethical?
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Ethics in Action
TAC Industries Inc. sells heavy equipment to large corporations and federal, state, and local governments. Corporate sales are the result of a competitive bidding process, where TAC competes against other companies based on selling price. Sales to the government, however, are determined on a cost plus basis, where the selling price is determined by adding a fixed markup percentage to the total job cost.
Tandy Lane is the cost accountant for the Equipment Division of TAC Industries Inc. The division is under pressure from senior management to improve income from operations. As Tandy reviewed the division's job cost sheets, she realized that she could increase the division's income from operations by moving a portion of the direct labor hours that had been assigned to the job order cost sheets of corporate customers onto the job order costs sheets of government customers. She believed that this would create a “win–win” for the division by (1) reducing the cost of…
TAC Industries Inc. sells heavy equipment to large corporations and federal, state, and local governments. Corporate sales are the result of a competitive bidding process, where TAC competes against other companies based on selling price. Sales to the government, however, are determined on a cost-plus basis, where the selling price is determined by adding a fixed markup percentage to the total job cost.
Tandy Lane is the cost accountant for the Equipment Division of TAC Industries Inc. The division is under pressure from senior management to improve income from operations. As Tandy reviewed the division's job cost sheets, she realized that she could increase the division's income from operations by moving a portion of the direct labor hours that had been assigned to the job order cost sheets of corporate customers onto the job order costs sheets of government customers. She believed that this would create a “win–win” for the division by (1) reducing the cost of corporate jobs, and (2)…
TAC Industries, Inc. sells heavy equipment to large corporations and federal, state, and local governments. Corporate sales are the result of a competitive bidding process, where TAC competes against other companies based on selling price. Sales to government, however, are determined on a cost plus basis, where the selling price is determined by adding a fixed markup percentage to the total job cost.
Tandy Lane is the cost accountant for the Equipment Division of TAC Industries, Inc. The division is under pressure from senior management to improve income from operations. As Tandy reviewed the division's job cost sheets, she realized that she could increase the division's income from operations by moving a portion of the direct labor hours that had been assigned to the job order cost sheets of corporate customers onto the job order cost sheets of government customers. She believed this would create a "win-win" situation for the division by (1) reducing the cost of corporate jobs, and…
Chapter 2 Solutions
Managerial Accounting
Ch. 2 - A. Name two principal types of cost accounting...Ch. 2 - What kind of firm would use a job order cost...Ch. 2 - Which account is used in the job order cost system...Ch. 2 - What document is the source for (A) debiting the...Ch. 2 - What is a job cost sheet?Ch. 2 - Prob. 6DQCh. 2 - Discuss how the predetermined factory overhead...Ch. 2 - A. How is a predetermined factory overhead rate...Ch. 2 - Prob. 9DQCh. 2 - Describe how a job order cost system can be used...
Ch. 2 - Issuance of materials On May 7, Bergan Company...Ch. 2 - Direct labor costs During May, Bergan Company...Ch. 2 - Factory overhead costs During May, Bergan Company...Ch. 2 - Applying factory overhead Bergan Company estimates...Ch. 2 - Job costs At the end of May, Bergan Company had...Ch. 2 - Cost of goods sold Pine Creek Company completed...Ch. 2 - Transactions in a job order cost system Five...Ch. 2 - The following information is available for the...Ch. 2 - Cost of materials issuances under the FIFO method...Ch. 2 - Materials issued are as follows: Journalize the...Ch. 2 - Kingsford Furnishings Company manufactures...Ch. 2 - A summary of the time tickets is as follows:...Ch. 2 - Entry for factory labor costs The weekly time...Ch. 2 - Schumacher Industries Inc. manufactures...Ch. 2 - Eclipse Solar Company operates two factories. The...Ch. 2 - Exotic Engine Shop uses a job order cost system to...Ch. 2 - Predetermined factory overhead rate Poehling...Ch. 2 - The following account appears in the ledger prior...Ch. 2 - Collegiate Publishing Inc. began printing...Ch. 2 - The following events took place for Rushmore...Ch. 2 - Job order cost accounting for a service company...Ch. 2 - Job order cost accounting for a service company...Ch. 2 - Barnes Company uses a job order cost system. The...Ch. 2 - Entries and schedules for unfinished jobs and...Ch. 2 - Job cost sheet Remnant Carpet Company sells and...Ch. 2 - Analyzing manufacturing cost accounts Fire Rock...Ch. 2 - Prob. 5PACh. 2 - Entries for costs in a job order cost system Royal...Ch. 2 - Entries and schedules for unfinished jobs and...Ch. 2 - Job cost sheet Stretch and Trim Carpet Company...Ch. 2 - Analyzing manufacturing cost accounts Clapton...Ch. 2 - Flow of costs and income statement Technology...Ch. 2 - Antolini Enterprises produces mens sports coats...Ch. 2 - Alvarez Manufacturing Inc. is a job shop. The...Ch. 2 - Prob. 3MADCh. 2 - Prob. 4MADCh. 2 - Ethics in Action TAC Industries Inc. sells heavy...Ch. 2 - Prob. 2TIFCh. 2 - Communication Carol Creedence, the plant manager...Ch. 2 - RIRA Company makes attachments such as backhoes...Ch. 2 - Todd Lay just began working as a cost accountant...Ch. 2 - Baldwin Printing Company uses a job order cost...Ch. 2 - John Sheng, a cost accountant at Starlet Company,...Ch. 2 - Lucy Sportswear manufactures a specialty line of...Ch. 2 - Patterson Corporation expects to incur 70,000 of...
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- Tonya Martin, CMA and controller or the Parts Division of Gunderson Inc., was meeting with Doug Adams, manager of the division. The topic of discussion was the assignment of overhead costs to jobs and their impact on the divisions pricing decisions. Their conversation was as follows: Tonya: Doug, as you know, about 25% of our business is based on government contracts, with the other 75% based on jobs from private sources won through bidding. During the last several years, our private business has declined. We have been losing more bids than usual. After some careful investigation, I have concluded that we are overpricing some jobs because of improper assignment of overhead costs. Some jobs are also being underpriced. Unfortunately, the jobs being overpriced are coming from our higher-volume, labor-intensive products, so we are losing business. Dong: I think I understand. Jobs associated with our high-volume products are being assigned more overhead than they should be receiving. Then when we add our standard 40% markup, we end up with a higher price than our competitors, who assign costs more accurately. Tonya: Exactly. We have two producing departments, one labor-intensive and the other machine-intensive. The labor-intensive department generates much less overhead than the machine-intensive department. Furthermore, virtually all of our high-volume jobs are labor-intensive. We have been using a plantwide rate based on direct labor hours to assign overhead to all jobs. As a result, the high-volume, labor-intensive jobs receive a greater share of the machine-intensive departments overhead than they deserve. This problem can be greatly alleviated by switching to departmental overhead rates. For example, an average high-volume job would be assigned 100,000 of overhead using a plantwide rate and only 70,000 using departmental rates. The change would lower our bidding price on high-volume jobs by an average of 42,000 per job. By increasing the accuracy of our product costing, we can make better pricing decisions and win back much of our private-sector business. Doug: Sounds good. When can you implement the change in overhead rates? Tonya: It wont take long. I can have the new system working within four to six weekscertainly by the start of the new fiscal year. Doug: Hold it. I just thought of a possible complication. As I recall, most of our government contract work is done in the labor-intensive department. This new overhead assignment scheme will push down the cost on the government jobs, and we will lose revenues. They pay us full cost plus our standard markup. This business is not threatened by our current costing procedures, but we cant switch our rates for only the private business. Government auditors would question the lack of consistency in our costing procedures. Tonya: You do have a point. I thought of this issue also. According to my estimates, we will gain more revenues from the private sector than we will lose from our government contracts. Besides, the costs of our government jobs are distorted. In effect, we are overcharging the government. Doug: They dont know that and never would unless we switch our overhead assignment procedures. I think I have the solution. Officially, lets keep our plantwide overhead rate. All of the official records will reflect this overhead costing approach for both our private and government business. Unofficially. I want you to develop a separate set of books that can be used to generate the information we need to prepare competitive bids for our private-sector business. Required: 1. Do you believe that the solution proposed by Doug is ethical? Explain. 2. Suppose that Tonya decides that Dougs solution is not right and objects strongly. Further suppose that, despite Tonyas objections, Doug insists strongly on implementing the action. 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Ethical Decision Making in Management; Author: GreggU;https://www.youtube.com/watch?v=6UrBO-cL27Q;License: Standard Youtube License