Exam 1: Cost Accounting: Information for Decision Making

Megan Kris,the Vice-President for Human Resources in Learning,Inc.was concerned about a recent memo she had recently received from the CEO's office regarding the possibility of outsourcing the payroll function to Salary Experts,a growing provider of a variety of human resource services.She was shocked that the CEO's office had discussed this matter with the Board of Directors,but failed to consult her. Megan was preparing for a meeting with the CEO.In reading the memo and its attachments,Megan observed the following comparison of costs in a report prepared by the controller's office: Payroll department expenses: Salaries of employees \ 210,000 Share of utilities 75,000 Share of building rent 39,360 Manager's salayy 69,000 Computers and supplies 26,000 Other department expenses 20,000 Total annual expenses \ 439,350 Megan also noted that Salary Experts quoted a fixed fee of $125,000 and variable processing costs of $7.50 per employee transaction.She did not believe that the company will actually save money by outsourcing the payroll function.For one,she did not think that the company will actually save all of the above mentioned amounts.She knew that the payroll department manager could not be removed from the company because he had to oversee the payroll function and serve as a liaison with the outside company.However,all other employees in the department would likely not be required. a.Assume Learning Inc.has 14,000 employees on its payroll.Can the company save money by outsourcing the payroll function? b.What are the pros and cons of outsourcing the payroll function?

Which of the following is not one of the overarching ethical principles of the Institute of Management Accountants (IMA)Code of Ethics?

The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column.That is,they do not match. Function Representative Cost Drier Purchasing A. Number of employees Billing B. Number of shipments Shipping C. Number of customers Computer Support D. Number of inw oices Personnel E. Number of desktop computers Customer Service F. Number of purchase orders Match each business function with its representative cost driver. Function Insert letter of appropriate driver (A through ) 1. Purchasing 2. Billing 3. Shipping 4. Computer Support 5. Personnel 6. Customer Service

Anna Potts is putting together a training session about value chain components.Which of the following would be a good example of a cost for the component of distribution?

Snacking Macs,Inc. ,currently manufactures three different types of scientifically balanced dog food.The firm is considering eliminating one of the three products.What factors should be taken into account in making this decision?

Under the value chain concept,value-added activities are those that firms perform and that customers perceive as adding utility to the goods they purchase.

Mr.Lee is the production Manufacturing Manager of Cathy Company.It is the beginning of the month and he storms into the controllers department,clutching a large folder of reports."Why am I getting so many reports? I don't need them nor do I want all the details.I've delegated responsibility to my managers so I don't have to worry about details.You've got to do something about this,John." John,the controller,starts to think about the problem that seems to have come about as the company decentralized with many layers of responsibility.He has a vague memory of something he learned from his old cost accounting class and has called you,his former professor,for some advice or suggestions in order to reduce the paper flow.Briefly describe the concept of the hierarchy of performance reports.

Which of the following activities would not be included in the value chain of a manufacturing company?

Place the four components in the order they appear along the value chain: A = Customer service;B = Design;C = Distribution;and D = Production.

Financial accounting provides a historical perspective,while cost accounting emphasizes

Financial accounting

Morris Inc.is a management consulting firm that specializes in management training programs.Tackle Manufacturing Inc.has approached Morris to contract for management training for a one-year period.Last year's income statement for Morris is as follows: Sales Revenue \ 360,000 Costs: Labor \ 120,000 Equipment Lease 12,000 Rent 24,000 Utilities 8,400 Supplies 23,600 Other Costs 14,400 Manager's Salary Total Costs 282,400 Operating Profit (Loss) To satisfy the Tackle contract,another part-time trainer will need to be hired at $42,000.Supplies will increase by 12% and other costs will increase by 15%.In addition,new equipment will need to be leased at a cost of $2,500. a.What are the differential costs that would be incurred if the Tackle contract is signed? b.If Tackle will pay $55,000 for one year,should Morris accept the contract? Explain your answer.

The management of Marvel Corporation has been concerned for some time with the financial performance of its product EX123 and has considered discontinuing it on several occasions.Data from the company's accounting system appear below: Sales \ 650,000 Cost of goods sold \ 293,000 Building expenses \ 221,000 Selling and administrative expenses \ 150,000 In the company's accounting system all building expenses of the company are fully allocated to products.Further investigation has revealed that $95,000 of the building expenses and $85,000 of the selling and administrative expenses will not be incurred if product EX123 is discontinued. a.According to the company's accounting system,what are the operating profits (losses)earned by product EX123? b.What would be the effect on the company's overall operating profits if product EX123 is dropped?

Which of the following statements regarding the value chain is true?

The individual who would most likely use only financial accounting information in making decisions is a

Which area(s)of a business can be improved by using a just-in-time (JIT)system?

According to the Institute of Management Accountants (IMA),the final step in resolving an ethical dilemma is to

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?

Financial accounting information is sufficient for making operational decisions.

Systems that identify the costs of producing defective units as well as low-quality items that lose sales are called