Exam 1: Cost Accounting: Information for Decision Making

In 2020, the TransUnion Company had consulting revenues of $1,000,000 while costs were $750,000. In 2021, TransUnion will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in costs. Assuming no changes are expected for the other services, operating profits are expected to increase between 2020 and 2021 by:

) The Flamboyant Flirt is a small but prosperous hair cutting salon. Diane Stock, the manager of the salon, has been asked by several clients if she will ever offer other "hair related" services (e.g., perm, dye, etc.). After careful thought, Ms. Stock is considering expanding her offerings. However, in order to do so, she will have to hire one additional stylist at a salary of $26,000 per year. Other expenses will increase as follows: rent by 20%, supplies and utilities by 25%, and miscellaneous expenses by 10%. Her revenues from additional services are likely to be $55,000 for the next year (i.e., 2021). The Flamboyant Flirt's income statement for the most recent year is presented below. The Flamboyant Flirt Income Statement for the Year Ended December 2020 Sales Revenue \2 20,000 Costs: Labor \ 5,000 Utilities 12,000 Supplies 45,000 Rent 18,000 Miscellaneous 5,000 Manager's Salary 30,000 162,000 Operating Profits \5 8,000 a. Based on your financial analysis, should Diane Stock go ahead with the expansion? b. What other factors must Ms. Stock consider before making a final decision?

Managers do not make decisions about future events based on:

Adair Company has been busy over the first few years of its existence in penetrating its market and gaining a respectable market share. To facilitate this, Mr. Adair, the CEO, and his controller, Mr. Brown, have been developing the annual master budgets. To date this approach has worked well. Adair has been acquired by a company in a related business but will continue to operate as an independent subsidiary. The CFO of the acquiring company, Mr. Horwitz, has suggested to Mr. Adair that, since it was expected that his company would continue to grow, it adopt a departmental budgeting system; a suggestion Mr. Adair agreed to readily. Mr. Horwitz explained to Adair's departmental managers the concepts of a departmental participative budgeting system and their involvement. The managers were encouraged to take the information and come back with suggestions which could then be put into a formal budget process. a. What benefits will accrue to Adair under this new budgeting system? b. What behavioral issues might arise for departmental managers and for production workers? c. What is the most probable long-term reaction of Adair's people to the participative budget system?

The manager of a profit center of a large electronics manufacturing corporation made some projections regarding sales and profits for the upcoming fourth quarter of the year. The managers' performance evaluation and compensation depended significantly on his ability to meet budget goals. The manager discovered that the fourth quarter would have to be a particularly good quarter in order to meet these goals. He decided to implement a sales program offering liberal payment terms in order to pull some sales that would normally occur next year into the current year. Customers accepting delivery in the fourth quarter would not have to pay the invoice for 140 days. Also, he sold some equipment that was not being used and realized a significant profit on the sale. Are these actions ethical? Why or why not?