Managerial Accounting Essays

Managerial Accounting Essays

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Ethical issue 1-1

Managerial Accounting essays. Raffie’s kids, a nonprofit organization that provides aid to victims of domestic violence, low income families, and special needs children, has a 30 year, 5% mortgage on the existing building. The mortgage requires monthly payments of $3,000. Raffie’s bookkeeper is preparing financial statements for the board and, in doing so, lists the mortgage balance $287,000 under current liabilities because the board hopes to be able to pay the mortgage off in full next year. Of the mortgage principal, $20,000 will be paid next year if Raffie’s pays according to the mortgage agreement. The board members call you, their trusted CPA, to advise them how Raffie’s kids should report the mortgage on its balance sheet. What is the ethical issue? Provide your recommendation and discuss the reason for your recommendation.

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A2-42 Ethical involved with statement of cash flows preparation

The Green Giraffe Restaurant Group has 21 restaurants scattered across the midwestern portion of the United States. Green Giraffe is not publicly held, but is owned by a small group of investors. ,For years, the company has used the indirect method in preparing its statement of cash flows. Recently, it has come to the attention of a few of the investors that the statement of cash flows might be easier to understand and use if it were prepared using the direct method. ,At the quarterly meeting of the investors, they decide that the statement of cash flows for the Green Giraffe Restaurant Group should be prepared using the direct method. Christopher Wargo is the controller for the Green Giraffe Restaurant Group. He graduated from college several years ago. He vaguely recalls learning about the direct method for pre-paring the statement of cash flows in college but has never used the method.

 

Wargo is rather resentful that the investors are dictating accounting policy; he feels that the financial reporting that is currently done is adequate. Besides, even if the company reports using the direct method, a supplemental schedule of the indirect method will still need to be prepared. This change just seems to create extra work for Wargo. Wargo decides he’ll just do his best on preparing the statement using the direct method. He looks online and finds the Wikipedia page for the statement of cash flows and uses that model to prepare the statement. The company’s information system is not set up to collect data for the direct method at this time. The data can be obtained but it will take several days. Wargo decides to just estimate the numbers that he’s missing rather than spend the time to get the correct numbers. He feels it is unlikely that the auditors will find these few numbers that he has plugged; after all, the totals will be correct. This shortcut he is taking will save him hours of work.

 

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 Wargo’s responsibilities as a management accountant?
2. Discuss what Wargo should do in this situation. Refer to the IMA Statement of Ethical Professional Practice in your response.

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A3-45- Ethics of financial statement analysis

Managerial accounting essays.Fitness Mania is a small technology start- up company that specializes in personal fitness mobile apps. The three founders have been working hard on the company for the past two years since they founded Fitness Mania.
The owners of Fitness Mania want to expand its business lines to include personal fitness trackers. To get into the manufacture and sale of personal fitness trackers, Fitness Mania will need to raise approximately $ 5 million from additional investors.
Fitness Mania’s CEO is making a presentation to a group of potential investors who are interested in funding the new fitness tracker project. This presentation could make or break Fitness Mania, so it is a high- stakes presentation. The CEO knows that, while several of Fitness Mania’s ratios are strong, it is still struggling a bit financially. Some of Fitness Mania’s ratios would raise red flags to potential investors.
The controller of Fitness Mania is Tom Black. Tom likes working for the start- up company and he strongly believes in Fitness Mania’s mission, which is to improve fitness while making it fun. Fitness Mania’s products are potentially life changing for the people who use them to get more fit.

 

Fitness Mania’s CEO asks Tom to prepare a report for the investors that emphasizes the strong ratios while burying the weaker ratios deep in the report.
Tom prepares a report that emphasizes the strong ratios. The weaker ratios are buried deep within the report. Tom has included a lot of extra data in the report to help to camouflage those weaker ratios. Tom also went one step further in the report preparation: He changed a few of the weaker ratios to make them appear stronger.
Tom rationalizes his actions by thinking that the revised report contributes to a greater good. The customers who use their fitness software products are likely to become healthier and have longer lives. He thinks that a few adjustments to the report are relatively minor when compared to the benefits that would be reaped by Fitness Mania’s new product offerings if the potential investors do decide to invest in Fitness Mania.

Requirements

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 Tom’s responsibilities as a management accountant?

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P4-23A- Ethical dilemmas

Managerial accounting.Eve Dalton is the new controller for Smashing Hits, a designer and manufacturer of tennis attire. Shortly before the Dec. 31 fiscal year-end, Liz Sinclair (the company president) asks Dalton how things look for the year-end numbers. Sinclair is not happy to learn that earnings growth may be below 10% for the first time in the company’s fire year history. Sinclair explains that financial analysts have again predicted a 12% earnings growth for the company and that she does not intend to dissapoint them. She suggests that Dalton talk to the assistant controller, who can explain how the previous controller dealt with this situation. The assitant controller suggests the following strategies:
a. postpone planned advertising expenditures from December to January

 

b. Do not record sales returns and allowances on the basis that they are individually immaterial
c. Persuade retail customers to accelerate January orders to December
d. Reduce the allowance for bad debts (and bad debts expense).
e. Smashing Hits ships finished goods to public warehouses across the country for temporary storage until it receives firm order from customers. As Smashing Hits receives orders, it directs the warehouse to ship the goods to nearby customers. The assistant controller suggests recording goods sent to the public warehouses as sales.
Which of these suggested strategies are inconsistent with IMA standards? What should Dalton do it Sinclair insists that she follow all of these suggestions?

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A5-54 Ethics involved with assigning costs to inventory

managerial accounting.Mike is the production manager of a large manufacturing firm. He is worried about the prospect of bonuses for the upcoming year. The company has paid out bonuses for the past ten years, so Mike has been counting on the bonus to help pay some debts he has ac-cumulated over the year. In addition, Mike and his wife are expecting their first baby in two months. Due to the unexpected downturn in sales, bonuses appear to be unlikely this year.

 

Joe is the accounting manager for the company. He and Mike are good friends. Over lunch one day, Mike confides in Joe about his financial difficulties. He is stressed out over the bills and the baby on the way. He really needs that bonus.
Joe wants to help Mike. Joe has been with the company for many years and knows that fundamentally the company is strong. This year is just an unusual year. He thinks about ways that he can help Mike. Mike is a good employee and the company does not want to lose him if he were to go to work for a competitor.
Joe thinks about how he can best help Mike. He thinks about a few different options, including the following:
Option # 1: Joe could increase income for the year by adding sales commission costs and advertising costs to the products. If he does this, the product cost will be higher. However, there is still a large inventory of units on hand. The units that are still in ending inventory will shield these costs from decreasing net income until the units are sold in a future year

Option # 2: Joe could quietly make Mike a loan from the company to help him get back on his feet. The company does not have a policy prohibiting loans to employees, but neither does it have a policy of allowing such loans to employees.
Joe does not know what to do.

Requirements

Using the IMA Statement of Ethical Professional Practice as an ethical framework, answer the following questions:
a. If Joe were to increase income by adding sales commission costs and advertising costs to product costs as described in Option # 1, what ethical principles would be violated?
b. If Joe were to make a company loan to Mike (Option # 2), what, if any, ethical principles would be violated?
c. What do you think Joe should do in this situation?

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A6-58 Ethics involved with choice of cost driver

Managerial accounting essays. Molly McDale is the controller for Roberts Manufacturing. It is a small company that manu-factures plastic lumber and is run by the owner and CEO, Franklin Roberts. At the end of the year, Roberts is reviewing the projected operating income for the company for the year. He tells McDale that the projected operating income is too low; if operating income is not at least $ 200,000, no holiday bonuses will be paid to employees, including McDale.
Hoping to find an error, McDale first of all rechecks the projected financial statements; she finds no errors. Since cost of goods sold is a large portion of Roberts’ expenses, she next ana-lyzes 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 overhead has been allocated to products. Traditionally, manufacturing overhead has been allocated to products based on direct labor hours because the manufacturing process for plastic lumber is labor intensive. McDale 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 $ 212,000, which means that bonuses would be paid to all employees. McDale knows that several factory employees are struggling and the holiday bonus would be much appreciated. In addition, McDale 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 with-out 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 McDale’s responsibilities as a management accountant?
2. Discuss the specific steps McDale should take to resolve the situation. Refer to the IMA Statement of Ethical Professional Practice in your response.

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A7-60 Ethics and physical inventory counts

Managerial accounting essays. Thompson Products produces plastic containers through a blow molding process. The company uses process costing because its products are generally homogeneous and are produced in large batches. Bradley Quito is the controller at Thompson Products. It is December 31, 2014, and Quito is supervising a physical count of all the inventory on hand. He knows it will be a tough year because of a sharp decline in sales near the end of the year. In early December 2014, an earthquake struck in the southwestern Sichuan province in China. A major supplier of Thompson Products sustained considerable damage in the earthquake, preventing this supplier from delivering critical parts to Thompson Products in December. This shortage of raw materials has caused a decline in sales revenue for the last month in the year since production at Thompson Products has stalled due to the lack of the critical parts from this supplier.

 

Thompson Products income will therefore be lower than projected for 2014. If annual income targets are not met, the company will not be paying bonuses to its employees. Quito feels that this decline in sales revenue is a temporary situation due entirely to the earthquake. It appears likely that the supplier for these parts will be able to supply Thompson Products with all of the parts it needs by the end of February 2015. As Quito is supervising the physical count on the last day of the year, he edits some inventory records to show more inventory items on the floor on December 31, 2014, than are actually in inventory. Quito justifies his action by thinking that the missed sales will actually be made up in ­January and February ( of 2015) when the supplier gets back on track with shipments. The decrease in sales revenue the company experienced in December is only a temporary timing difference. He is concerned that if bonuses are not paid to employees because of this timing difference, Thompson Products could lose some of its best employees to competitors that are offering higher wages. Thompson Products has always used the bonuses as a key component of its talent recruiting and retention strategy. Quito himself has verbally promised bonuses to key employees he has recruited during 2014, as have other managers.
Requirements
1. Using the IMA Statement of Ethical Professional Practice answer the following questions:
a. What are the ethical issue(s) in this situation?
b. What are Quito responsibilities as a management accountant?
2. How would recording more units than are actually in inventory impact the 2014 balance sheet and income statement? How would it impact the 2015 balance sheet and income statement?
3. Discuss the specific steps Quito should take in this situation. Refer to the IMA Statement of Ethical Professional Practice in your response.

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A8-71 Ethics of building inventory

Managerial Accounting essays. G Products, Inc., is a manufacturer of mobile devices. Richard is the plant manager at KGs Orrville, Ohio, plant. The Orrville plant manufactures a smartphone, the Zoom, which has sold well for the past six months. Richard is being considered for promotion to manager of the entire West Coast division of KG Products. Penny is an accounting supervisor at KG Products and is a good friend of Richards.
Richard and Penny are having lunch in the company cafeteria. There are about six weeks left in the current fiscal year. Richard is concerned that his plant will be showing a loss rather than the healthy profit he had projected for the year. The reason for the shortfall is that demand has radically declined for the Zoom smartphone currently manufactured by Richard’s plant. New smartphones with more features have been brought to market by KGs competitors. Engineers at KG are currently working on an updated model of the Zoom, but it will not be ready for production in Richard’s plant for another five months. If Richard’s plant shows a loss this year, Richard will not receive his performance bonus for the year. He also knows that his chance of promotion to the West Coast manager will be greatly reduced.

 

Penny thinks about Richard’s situation. She then shares with him a strategy that he can use to help increase his profits. She explains that under absorption costing, the more units in ending inventory, the more costs can be deferred. Using her tablet, she makes up a quick example in Excel to show him how he can turn his situation around and show operating ­income for the year.
Penny’s first spreadsheet assumes that five units are produced and sold in this hypothetical situation:
If five units are produced and sold, the hypothetical company would have a loss of $ 20. Now Penny changes just one fact; instead of producing five units, the company in the example produces ten units. No other facts change the company still sells just five units. Penny shows Richard the revised income statement under the increased production scenario:

 

Under this second scenario, the operating income would be $ 30, which is quite a bit higher than the original scenario. Penny again emphasizes that the only fact that was different between the two scenarios is that production, and therefore ending inventory, increased in the second scenario.

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A9-71 CVP analysis by intern with ethical dilemma

managerial accounting essays. Abbott Work Wear, Inc., supplies uniforms for a variety of businesses. Greg Michaels is a new intern in the Accounting Department at Abbott. To expand sales, the company is considering paying commissions to its sales force. The controller, John Hammond, asks Greg to complete an analysis assuming sales would increase 25% under the proposed sales commission plan. This analysis should include 1) the new breakeven sales figure and 2) the operating profit under the new sales commission plan. Greg does his best to perform the analysis. He is not exactly sure what he is doing but he does not want to appear like he does not understand accounting. After he gets his preliminary analysis finished, he calls his friend, Beth Sparrow, who is an accounting analyst at Scrubs and More, a competing uniform supplier. He knows Beth from a church group and figures he can trust her. He tells her he is working on a new project and asks her if they can meet for dinner later, where he can ask her advice. At dinner, Greg confesses to Beth that he really does not know if he did his analysis correctly. Beth assures him that she has worked on similar things at her company. She asks him if they can go over the analysis together. He readily agrees because this is just the type of help he had hoped to get. He shows her the spreadsheet he has been working on; the two of them discuss each item on the analysis.

 

Greg explains his reasoning behind each calculation and his data assumptions. Beth tells him that his analysis is thorough and agrees that he has done it all correctly as far as she can tell. Now confident in his work, Greg turns in the proposed sales commission plan analysis the following day. His report ends with a recommendation that the new sales commission plan be undertaken, since it will lead to a significant increase in operating income with only a small increase in breakeven sales. John Hammond glances through the report and is impressed with the appearance of the report; it looks professional and complete. Since John has a lot of other work tasks, he approves the new sales commission plan without any further analysis or investigation. When he is booking some payroll entries the following week, Greg realizes that he made an error in the CVP analysis he did for the sales commission project. He failed to include the monthly salaries of the sales staff in his computations. Greg is in a panic. If he tells John Hammond of his mistake, Greg is afraid he will not be offered a full- time position upon completion of his internship. Greg decides to keep quiet and not let the controller know of his error. He reasons that it is unlikely that the difference between what he projected versus the actual expenses will be discovered since Abbott does not create detailed monthly operating statements.

 

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 Greg Michael’s responsibilities as a management accountant?
c. What are John Hammond’s responsibilities as a management accountant? d. What are Beth Sparrow’s responsibilities as a management accountant?
2. What would be the impact on breakeven sales from failing to include the fixed monthly salaries? Would the breakeven using the erroneous data be lower or higher than the correct breakeven (the breakeven calculation including the monthly salaries)? Do you think this error would be likely to influence the decision of whether to proceed with the new sales commission proposal?
3. Discuss the specific steps Greg should take to resolve the situation. Refer to the IMA Statement of Ethical Professional Practice in your response.

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A10-56 Ethics and outsourcing

Managerial accounting essays. Der Dutchman is a large family- style restaurant chain located throughout the Midwest in Amish communities. Currently Der Dutchman makes its own biscuits. Customers love these biscuits; they are light, fluffy, and incredibly delicious.

 

People are not eating out at restaurants as much as they did before the recession hit in 2007. Like many other restaurants, Der Dutchman is under increasing pressure to control its costs to help to counteract the lower number of diners. As part of its efforts to remain cost competitive, Der Dutchman is analyzing whether it should continue to make its own biscuits or to outsource part of the biscuit- making process by purchasing ready- made dough from a national supplier.
Seth McGilvrey works as a management accountant at the Der Dutchman restaurant group. Seth is asked by the controller to analyze whether the biscuits should continue to be made in- house from scratch or if the company should purchase ready- made dough from a ­national supplier. Seth’s mother- in- law, Audrey Parsons, is a salesperson for a national food manufacturer. He decides to get a bid from her before contacting any other suppliers. Audrey has been struggling financially since the illness and subsequent death of Seth’s father- in- law last year and could use the sales commissions generated by this order. Seth emails Audrey and asks her for a bid price for the ready- made dough. Audrey sends him a price of $ 33.20 per case (a case of dough makes 12 dozen biscuits.)

 

Seth analyzes the cost of making the biscuits in- house. He arrives at the following schedule of cost for the dough to make 12 dozen biscuits:

Seth’s analysis shows that the restaurant should purchase the ready- made dough from the national supplier because the ready- made dough is less expensive than making the dough in-house. However, Seth has deliberately left out all of the fixed costs in the cost calculation of making the biscuits in- house. Part of those fixed costs is unavoidable, but he does not distinguish between avoidable and unavoidable fixed costs in his analysis. The unavoidable portion of the fixed cost allocated to 12 dozen biscuits is $ 1.24.
Seth submits his analysis to the controller. In his report, he recommends that Der Dutchman products choose Audrey’s firm to supply the dough for its biscuits. Seth chooses to say nothing about his relationship to Audrey, figuring no one will know since his mother- in- law has a different last name than he does.
The controller accepts Seth’s analysis and Der Dutchman enters into a contract with ­Audrey’s firm for the ready- made dough.

 

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 Seth’s responsibilities as a management accountant?
2. When making the decision to outsource the dough, what other factors should be considered?

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A11-68 Ethics and Budgetary slack

managerial accounting essays. Mendelson Company, a publicly held corporation, operates a regional chain of large ­drugstores. Each drugstore is operated by a general manager and a controller. The general manager is responsible for the day- to- day operations of the store, while the controller is ­responsible for the budget and other financial tasks. The general manager, Sophie Beckett, has been at Mendelson Company for several years. Employee turnover is high at Mendelson Company, just as it is in the retail industry in general. Beckett just hired a new controller, Mike Dexter.

 

Dexter was asked to prepare the master budget. Each retail location prepares its master budget once a year and then submits that budget to company headquarters for approval. Once approved by headquarters, the master budget is used to evaluate the store’s perfor-mance. These performance evaluations directly affect the managers’ bonuses and whether ­additional company funds are invested in that location.
When Dexter was almost done preparing the budget, Beckett instructed him to increase the amounts budgeted for labor and supplies by 20%. When asked why, Beckett responded that this budgetary cushion gives store management flexibility in running the store. For exam-ple, because company headquarters tightly controls operating funds and capital improvement funds, any extra money budgeted for labor and supplies can be used to replace store furnish-ings or to pay bonuses to help to retain good employees. She explains that the chance of getting extra funds from company headquarters is not good; this “cushion” is usually the only opportunity to replace store décor or to pay bonuses to key employees. Beckett also needs extra funds occasionally to make “under the table” payments to employees as incentives to work extra hours or to keep them from leaving for a higher- paying job

Dexter feels conflicted. He is eager to please Beckett and he is wondering what he should do in this situation.

Requirements
1. Using the IMA Statement of Ethical Professional Practice as an ethical framework, answer the following questions:
a. What are the ethical issue(s) in this situation? b. What are Dexter’s responsibilities as a management accountant?
2. Would your answer differ if Mendelson Company were instead owned by one individual instead of being publicly held? Why or why not?
3. Would anyone be harmed if slack were to be built into the budget? Why or why not?
4. Discuss the specific steps Dexter should take in this situation. Refer to the IMA Statement of Ethical Professional Practice in your response.

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A12-61 Ethics involving with choice of cost driver

Managerial accounting essays. The Blue Rabbit Company manufactures lawn and garden concrete and resin statues. It uses a standard costing system for its products. Managers and production personnel are paid bonuses based on attainment of material, labor, and overhead standards. The standards are recommended by a committee that is composed of engineers, production staff, and accountants. The accounting manager, however, has the final say on what the standards will be for each upcoming year.
Four years ago, the senior management at Blue Rabbit adopted a “zero- defects” strategy throughout the organization. As part of the zero- defects strategy, the company has been using ideal standards. Senior management has pointed out that it does not want to build waste into the standards by using practical standards. The adoption of ideal standards has been somewhat problematic at Blue Rabbit and there has been a lot of resistance from employees to the ideal standards.
Mike Anderson is the accounting manager at Blue Rabbit and is currently evaluating the material, labor, and overhead standards for the upcoming year. The standards committee has already met and made its recommendations. The standards are, as dictated by senior management, extremely tight and allow for zero waste, breakdowns, or downtime.
The plant manager, Dana Sullivan, comes to Mike and asks him to loosen the standards for the upcoming year. The plant manager is upset that the standards are set at a 100% ­efficiency rate (zero defects). Dana points out that everyone’s bonus is on the line if the ­standards are not met. Some jobs may also be lost if standards are not met. Dana feels that the standards are unattainable and are not fair to employees. Dana even indicates that Mike’s job might possibly be on the line if another year goes by without standards being achieved.

 

Mike gets together with a close friend, Julia Leiser, and discusses the matter at length with her. He tells her he feels guilty if the production staff does not get bonuses because of the way that the standards are set. He is also worried about his own job over the long run; it is in his best interests to have a good relationship with the plant manager. The economy is bad and he does not know how long it would take to get a new job. Mike shows Julia the ideal standards recommended by the committee and then shows her the adjustments that he thinks he could make to help make the standards achievable. Julia agrees that the standards should be adjusted.

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 Mike Anderson’s responsibilities as a management accountant?
2. Should Mike adjust the standards to a more achievable level in this situation? Support your answer.
3. Describe another way that Mike could handle this situation that would not violate the IMA Statement of Ethical Professional Practice.

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By admin in Essays on January 31, 2017