Q2. Wintz Publishing House produces consumer magazines. The House and Home Division, which sells home-improvement and home-decorating magazines, has seen a 20% reduction in operating income over the past 9 months, primarily due to an economic recession and a depressed consumer housing market. The division's controller, Happy Franklin, has felt pressure from the CFO to improve her division's operating results by the end of the year. Franklin is considering the following options for improving the division's performance by year-end: (a.) Cancelling two of the division's least profitable magazines, resulting in the layoff of 25 employees. (b.) Selling the new printing equipment that was purchased in January and replacing it with discarded equipment from one of the company's other divisions. The previously discarded equipment no longer meets current safety standards. (c.) Recognizing unearned subscription revenue (cash received in advance for magazines that will be delivered in the future) as revenue when cash is received in the current month (just before fiscal year-end) instead of showing it as a liability. (d.) Recognizing advertising revenues that relate to January in December. Which of the forgoing "year-end" actions are clearly in conflict with the IMA Statement of Ethical Standards and should be viewed as unacceptable because of their potential harm to investors?
Q2. Wintz Publishing House produces consumer magazines. The House and Home Division, which sells home-improvement and home-decorating magazines, has seen a 20% reduction in operating income over the past 9 months, primarily due to an economic recession and a depressed consumer housing market. The division's controller, Happy Franklin, has felt pressure from the CFO to improve her division's operating results by the end of the year. Franklin is considering the following options for improving the division's performance by year-end: (a.) Cancelling two of the division's least profitable magazines, resulting in the layoff of 25 employees. (b.) Selling the new printing equipment that was purchased in January and replacing it with discarded equipment from one of the company's other divisions. The previously discarded equipment no longer meets current safety standards. (c.) Recognizing unearned subscription revenue (cash received in advance for magazines that will be delivered in the future) as revenue when cash is received in the current month (just before fiscal year-end) instead of showing it as a liability. (d.) Recognizing advertising revenues that relate to January in December. Which of the forgoing "year-end" actions are clearly in conflict with the IMA Statement of Ethical Standards and should be viewed as unacceptable because of their potential harm to investors?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Question
Transcribed Image Text:Q2. Wintz Publishing House produces consumer magazines. The House
and Home Division, which sells home-improvement and home-decorating
magazines, has seen a 20% reduction in operating income over the past
9 months, primarily due to an economic recession and a depressed
consumer housing market. The division's controller, Happy Franklin, has
felt pressure from the CFO to improve her division's operating results by
the end of the year. Franklin is considering the following options for
improving the division's performance by year-end: (a.) Cancelling two of
the division's least profitable magazines, resulting in the layoff of 25
employees. (b.) Selling the new printing equipment that was purchased in
January and replacing it with discarded equipment from one of the
company's other divisions. The previously discarded equipment no longer
meets current safety standards. (c.) Recognizing unearned subscription
revenue (cash received in advance for magazines that will be delivered in
the future) as revenue when cash is received in the current month (just
before fiscal year-end) instead of showing it as a liability. (d.)
Recognizing advertising revenues that relate to January in December.
Which of the forgoing "year-end" actions are clearly in conflict with the
IMA Statement of Ethical Standards and should be viewed as
unacceptable because of their potential harm to investors?
Options a and c
Options a and d
Options c and d
Options b and d
Transcribed Image Text:Q3. Wintz Publishing House produces consumel m
and Home Division, which sells home-improvement and home-decorating
magazines, has seen a 20% reduction in operating income over the past
9 months, primarily due to an economic recession and a depressed
consumer housing market. The division's controller, Happy Franklin, has
felt pressure from the CFO to improve her division's operating results by
the end of the year. Franklin is considering the following options for
improving the division's performance by year-end:a.Cancelling two of the
division's least profitable magazines, resulting in the layoff of 25
employees.b.Selling the new printing equipment that was purchased in
January and replacing it with discarded equipment from one of the
company's other divisions. The previously discarded equipment no longer
meets current safety standards.c.Recognizing unearned subscription
revenue (cash received in advance for magazines that will be delivered in
the future) as revenue when cash is received in the current month (just
before fiscal year-end) instead of showing it as a liability. d.Reducing the
division's Allowance for Bad Debt Expense. This transaction alone would
increase operating income by 5%.e.Recognizing advertising revenues
that relate to January in December, Which of the forgoing "year-end"
actions should be viewed as unacceptable because of their potential
harm to employee?
Option b
Option c
option d
option e
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