Managerial Accounting (5th Edition)
5th Edition
ISBN: 9780134128528
Author: Karen W. Braun, Wendy M. Tietz
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 3, Problem 3.60ACT
Ethics involved with choice of cost driver (Learning Objectives 2, 3, & 4)
ETHICS
Vicki Thornton is the controller for Jackson Manufacturing. It is a small company that manufactures plastic lumber and is run by the owner and CEO, Franklin Jackson. At the end of the year, Jackson is reviewing the projected operating income for the company for the year. He tells Thornton that the projected operating income is too low; if operating income is not at least $250,000, no holiday bonuses will be paid to employees, including Thornton.
Hoping to find an error, Thornton first rechecks the projected financial statements; she finds no errors. Since cost of goods sold is a large portion of Jackson’s expenses, she next analyzes the components of cost of goods sold. The amount of direct material used ties directly to the physical inventory count, so there are no errors there. The direct labor dollars also tie directly to the payroll reports, eliminating another potential source of errors. She then looks at the way manufacturing
Traditionally, manufacturing overhead has been allocated to products based on direct labor hours because the manufacturing process for plastic lumber is labor intensive. Thornton calculates manufacturing overhead based on machine hours used and finds that cost of goods sold will be $55,000 lower if manufacturing overhead is allocated based on machine hours rather than direct labor hours. The $55,000 difference, if booked, would cause net income to be $262,000, which means that bonuses would be paid to all employees. Thornton knows that several factory employees are struggling and the holiday bonus would be much appreciated. In addition, Thornton herself feels that she has earned the bonus over the past year because she has helped to implement several cost savings programs and has worked many long days without overtime pay.
Requirements
- 1. Using the IMA Statement of Ethical Professional Practice as an ethical framework, answer the following questions:
- a. What is(are) the ethical issue(s) in this situation?
- b. What are Thornton’s responsibilities as a
management accountant ?
- 2. Discuss the specific steps Thornton should take to resolve the situation. Refer to the IMA Statement of Ethical Professional Practice in your response.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
1. Garrison Boutique, a small novelty store, just spent $4,000 on a new software program that will help in organizing its inventory. Due to the steep learning curve required to use the new software, Garrison must decide between hiring two part-time college students or one full-time employee. Each college student would work 20 hours per week, and would earn $15 per hour. The full-time employee would work 40 hours per week and would earn $15 per hour plus the equivalent of $2 per hour in benefits. Employees are given two polo shirts to wear as their uniform. The polo-shirts cost Garrison $10 each.
Software, $4,000
None
Shirts, $20
Shirts, $10
Benefits, $80
Benefits, $2
What are the relevant costs, relevant revenues, sunk costs, and opportunity costs for Garrison?
PLEASE NOTE: For categories with multiple items from the list above, you will list them in the order in which they are presented in the problem and for the proper dollar amount.
Categories:
First Item
Second Item…
Question ENGINEERING ECONOMICS
You want to launch a printing services business on campus. The initial cost to get the business running with a September 1st launch date would be $2,000. You estimate that the revenues would approximately offset your costs (e.g. paper, toner, etc.) in the first month of operation so that the monthly profit would be $0. Afterwards, you estimate that profits would increase by $80 each month until the end of the academic year (i.e. $80 profit in October, $160 profit in November, etc. until the end of April). Your annual MARR is 10%, compounded monthly. (a) Calculate the internal rate of return for your investment based on an 8 months study period. Select the appropriate IRR between options 1 to 4 below. (b) Suppose that you now consider another investment opportunity for your printing business services, also with monthly profits, and the internal rate of return of 3%. Is this alternative economically feasible based on IRR?
Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.You are required to submit this assignment to LopesWrite. Please refer to the directions in the Student Success Center.Paul Duncan, financial manager of EduSoft Inc., is facing a dilemma. The firm was founded 5 years ago to provide educational software for the rapidly expanding primary and secondary school markets. Although EduSoft has done well, the firm's founder believes an industry shakeout is imminent. To survive, EduSoft must grab market share now, and this will require a large infusion of new capital.Because he expects earnings to continue rising sharply and looks for the stock price to follow suit, Mr. Duncan does not think it would be wise to issue new common stock at this time. On the other hand, interest rates are currently high by historical standards, and the firm's B rating means that interest payments on a new debt issue would be prohibitive.…
Chapter 3 Solutions
Managerial Accounting (5th Edition)
Ch. 3 - (Learning Objective 1) For which of the following...Ch. 3 - (Learning Objective 2) Which of the following...Ch. 3 - (Learning Objective 2) Which of the following...Ch. 3 - (Learning Objective 3) The amount of manufacturing...Ch. 3 - (Learning Objective 4) Which of the following is...Ch. 3 - (Learning Objective 5) Which of the following is...Ch. 3 - (Learning Objective 5) Assuming the amount of...Ch. 3 - Prob. 8QCCh. 3 - Prob. 9QCCh. 3 - Prob. 10QC
Ch. 3 - Identify product costs, period costs, and product...Ch. 3 - Decide on product costing system (Learning...Ch. 3 - Determine the flow of costs between inventory...Ch. 3 - Understanding key document terms in a job cost...Ch. 3 - Compute a professional billing rate (Learning...Ch. 3 - Prob. 3.6SECh. 3 - Continuation of S3-6: compute total allocated...Ch. 3 - Continuation of S3-7: determine over- or under...Ch. 3 - Prob. 3.9SECh. 3 - Calculate job cost and billing at appliance repair...Ch. 3 - Calculating overallocated or underallocated...Ch. 3 - Prob. 3.12SECh. 3 - Record manufacturing labor costs (Learning...Ch. 3 - Prob. 3.14SECh. 3 - Prob. 3.15SECh. 3 - Understanding key terms (Learning Objectives 1, 2,...Ch. 3 - Identify type of costing system (Learning...Ch. 3 - Prob. 3.18AECh. 3 - Determine the cost of a job and use it for pricing...Ch. 3 - Compute a predetermined overhead rate and...Ch. 3 - Prob. 3.21AECh. 3 - Prob. 3.22AECh. 3 - Determine the cost of a job (Learning Objectives...Ch. 3 - Compare bid prices under two different allocation...Ch. 3 - Analyze manufacturing overhead (Learning...Ch. 3 - Record manufacturing overhead (Learning Objectives...Ch. 3 - Record journal entries (Learning Objectives 2, 3,...Ch. 3 - Analyze T-accounts (Learning Objectives 2, 3, 5, ...Ch. 3 - Job cost and bid price at a consulting firm...Ch. 3 - Record journal entries (Learning Objectives 2, 3,...Ch. 3 - Identify type of costing system (Learning...Ch. 3 - Understand the flow of costs in a job cost shop...Ch. 3 - Prob. 3.33BECh. 3 - Prob. 3.34BECh. 3 - Prob. 3.35BECh. 3 - Sustainability and job costing (Learning...Ch. 3 - Determine the cost of a job (Learning Objectives...Ch. 3 - Compare bid prices under two different allocation...Ch. 3 - Analyze manufacturing overhead (Learning...Ch. 3 - Record manufacturing overhead (Learning Objectives...Ch. 3 - Record journal entries (Learning Objectives 2, 3,...Ch. 3 - Analyze T-accounts (Learning Objectives 2, 3, 5, ...Ch. 3 - Prob. 3.43BECh. 3 - Record journal entries (Learning Objectives 2, 3,...Ch. 3 - Analyze Manufacturing Overhead (Learning...Ch. 3 - Use job costing at an advertising agency (Learning...Ch. 3 - Use job costing at a consulting firm (Learning...Ch. 3 - Prepare job cost record (Learning Objectives 2, 3,...Ch. 3 - Determine and record job costs (Learning...Ch. 3 - Determine flow of costs through accounts (Learning...Ch. 3 - Analyze Manufacturing Overhead (Learning...Ch. 3 - Use job costing at an advertising agency (Learning...Ch. 3 - Use job costing at a consulting firm (Learning...Ch. 3 - Prepare job cost record (Learning Objectives 2, 3,...Ch. 3 - Determine and record job costs (Learning...Ch. 3 - Determine flow of costs through accounts (Learning...Ch. 3 - Job costing or process costing for wedding...Ch. 3 - Discussion Questions 1. Why would it be...Ch. 3 - Unwrapped or How Its Made Go to www.YouTube.com...Ch. 3 - Ethics involved with choice of cost driver...Ch. 3 - Prob. 3.61ACTCh. 3 - Issues with cost of job (Learning Objectives 2, 3,...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Leah Berry is entering her senior year as an accounting major and has a number of options for her summer break. Her options for the 3-month break follow: (1) Work full time at a local accounting firm making $3,400 per month. (2) Take a summer class which will cost $200 per month and work half time making $2,500 per month. (3) Take two classes at a cost of $1,200 and not work at all during the summer. Leah’s incremental revenue if she chooses option 1 over option 2 would be $900 per month. $800 per month. $700 per month. $3,400 per month. $1,000 per month.arrow_forwardUse ABC to allocate manufacturing overhead (Learning Objective 2)Several years after reengineering its production process, King Corporation hired a new controller, Christine Erickson . She developed an ABC system very similar to the one used by King's chief rival. Part of the reason Erickson developed the ABC system was because King's profits had been declining, even though the company had shifted its product mix toward the product that had appeared most profitable under the old system . Before adopting the new ABC system, the company had used a plantwide overhead rate, based on direct labor hours developed years ago .For the upcoming year, King's budgeted ABC manufacturing overhead allocation rates are as follows :ActivityMaterials handling .......................... Machine setup ................................ Insertion of parts ............................ Finishing .........................................Allocation BaseNumber of partsNumber of setupsNumber of partsFinishing…arrow_forwardLeah Berry is entering her senior year as an accounting major and has a number of options for her summer break. Her options for the 3-month break follow: (1) Work full time at a local accounting firm making $1,500 per month. (2) Take a summer class which will cost 200 per month and work half time making $1,600 per month. (3) Take two classes at a total monthly cost of $3,200 and not work at all during the summer. Leah’s opportunity cost of taking two classes if she chooses option 3 over option 1 would be: $3,200 per month. $1,700 per month. $1,200 per month. $1,500 per month. $1,400 per month.arrow_forward
- Sara has just taken a job as the middle school assistant principal for an area school district. Prior to Chis, she was a teacher. She has received the following performance measurements for her first administrative job. Her first order of business is to determine if these performance measurements are short-term goals or long-term goals based on her individual situation. She has completed her administrative degree but has not yet worked as an administrator. Identify each of the following goals as short term or long term. A. Conduct teacher walk-throughs/observations/evaluations for teachers of grades 6 and 7. B. Assist the districts mission in seeking to educate all youth in the school district. C. Train to become a building instructional leader. Act as building administrator in the absence of the principal. D. Attend meetings with building principals and the administrative team when called to do so. E. Engage all students in a meaningful way, and support teachers and staff in providing rigor and relevance. Success of school-wide discipline and attendance policies and enforcement depends on a combination of creativity and sound pedagogy while adhering to district, state, and federal law, guidelines, and regulations. F. Facilitate and supervise all federal- and state-mandated drills (fire, lockdowns, tornado, others). G. Dress professionally. H. Assist the building principal in all job duties and responsibilities.arrow_forwardAcademia Press produces textbooks for high school accounting courses. The company recently hired a new editor, Billie Green, to handle production and sales of books for an introductory accounting course. Billie's compensation depends on the gross margin associated with sales of this book. Billie needs to decide how many copies of the book to produce. The following information is available for the fall semester 2020: (Click the icon to view the information.) Billie has decided to produce either 22,000, 27,500, or 29,700 books. Read the requirements. Requirement 1. Calculate expected gross margin if Billie produces 22,000, 27,500, or 29,700 books. (Make sure you include the production-volume variance as part of cost of goods sold.) Calculate the gross margin for each level of production. Begin with 22,000 books, then 27,500 books, and lastly 29,700 books. (Enter a "0" for any zero balance accounts. If an account does not have a variance, do not select a label.) 22,000 books Revenues Cost…arrow_forwardDuring each year, CSL Computer Company needs to train 27 service representatives. It costs $12,000 to run a training program, regardless of the number of students being trained. Service reps earn a monthly salaryof $1500, so CSL does not want to train them before they are needed. Each training session takes one month. a. State the assumptions needed for the EOQ model to be applicable. b. How many service reps should be in each training group? c. How many training programs should CSL undertake each year? d. How many trained service reps will be available when each training program begins?arrow_forward
- The Happy Toddlers (THT) is a preparatory school for children three to five years old. There are ten teachers employed by THT: five senior teachers with a salary of P30,000 a month and five junior teachers at P18,000 a month. There are also four administrators with average monthly salary of P35,000. Annual depreciation for furniture and fixtures amounted to P100,000. Utilities starting operation totals P200,000. Required:Examine and list down the expenses of THT as of December 31 by nature. Which type of expense is the highest and lowest? If the owner of THT consulted you on minimizing expenses and maximizing profit, what would you recommend?arrow_forwardThe Happy Toddlers (THT) is a preparatory school for children three to five years old. There are ten teachers employed by THT: five senior teachers with a salary of P30,000 a month and five junior teachers at P18,000 a month. There are also four administrators with average monthly salary of P35,000. Annual depreciation for furniture and fixtures amounted to P100,000. Utilities starting operation totals P200,000. Required:Examine and list down the expenses of THT as of December 31 by nature. Which type of expense is the highest and loarrow_forwardE-LEARNING COST ACCOUNTING ASSIGNMENT Answer all the THREE Questions. 1 Mr Gardens, the financial controller of Sugarland Ltd, accidentally tossed the company's cost records into a wastebasket which had been light .On realising that mistake, he rushed to the roaring blaze and managed to retrieve only a few of the records. From the salvaged records, he managed to determine the following facts about the current year 2020: (i) Sales totaled sh 1,000,000 during 2020. (ii) The beginning inventories for the year were: work in progress sh 120,000; Finished goods sh 60,000. (iii) There were no closing inventories of raw materials. (iv) Direct labor is equal to 25% of conversion cost; direct, labor is also equal to 40% of prime cost. (v) The work in progress inventory decreased by sh 20,000 during the year. (vi)Gross margin during the year was 55% of sales. (vii) Manufacturing overheads amounted to sh 240,000 in the year. (iv) Administrative expenses for 2014 were twice as great as net income…arrow_forward
- Which of the following is a reason for a company to implement a knowledge management system? Select one: O a. Some of the company's policies and procedures will be revised in the coming year. O b. A new Human Resources manager who is a recent, external hire is telling everyone that a KMS is the way to go and that she used one at her old company. Oc. There is leftover budget money at the end of the year, and the IT department thinks a new software program is the way to spend it. Od. An early retirement program was offered, and many senior managers across the organization are interested in taking advantage of it.arrow_forwardGarrison Boutique, a small novelty store, just spent $4,000 on a new software program that will help in organizing its inventory. Due to the steep learning curve required to use the new software, Garrison must decide between hiring two part-time college students or one full-time employee. Each college student would work 20 hours per week, and would earn $15 per hour. The full-time employee would work 40 hours per week and would earn $15 per hour plus the equivalent of $2 per hour in benefits. Employees are given two polo shirts to wear as their uniform. The polo-shirts cost Garrison $10 each. Software, $4,000 None Shirts, $20 Shirts, $10 Benefits, $80 Benefits, $2 What are the relevant costs, relevant revenues, sunk costs, and opportunity costs for Garrison? PLEASE NOTE: For categories with multiple items from the list above, you will list them in the order in which they are presented in the problem and for the proper dollar amount. Categories: First Item Second Item Third Item…arrow_forward(Comprehensive Problem) Suppose that you are in the fall of your senior year and are faced with the choice of either getting a job when you graduate or going to law school. Of course, your choice is not purely financial. However, to make an informed decision you would like to know the financial implications of the two alternatives. Let's assume that your alternatives are as follows: If you take the "get a job" route you expect to start off with a salary of $40,000 per year. There is no way to predict what will happen in the future, your best guess is that your salary will grow at 4 percent per year until you retire in 41 years. As a law student, you will be paying $30,000 per year tuition for each of the 3 years you are in graduate school. However, you can then expect a job with a starting salary of $80,000 per year. Moreover, you expect your salary to grow by 7 percent per year until you retire 34 years later. Clearly, your total expected lifetime salary will be higher if you become a…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Inspection and Quality control in Manufacturing. What is quality inspection?; Author: Educationleaves;https://www.youtube.com/watch?v=Ey4MqC7Kp7g;License: Standard youtube license