s Tandy's plan ethical?
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TAC Industries Inc. sells heavy equipment to large corporations and federal, state, and local governments. Corporate sales are the result of a competitive bidding process, where TAC competes against other companies based on selling price. Sales to the government, however, are determined on a cost plus basis, where the selling price is determined by adding a fixed markup percentage to the total
Tandy Lane is the cost accountant for the Equipment Division of TAC Industries Inc. The division is under pressure from senior management to improve income from operations. As Tandy reviewed the division's job cost sheets, she realized that she could increase the division's income from operations by moving a portion of the direct labor hours that had been assigned to the job order cost sheets of corporate customers onto the job order costs sheets of government customers. She believed that this would create a “win–win” for the division by (1) reducing the cost of corporate jobs, and (2) increasing the cost of government jobs whose profit is based on a percentage of job cost. Tandy submitted this idea to her division manager, who was impressed by her creative solution for improving the division's profitability.
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- Jansen, Inc. pays bonuses to its managers based on operating income. Thecompany uses absorption costing, and overhead is applied on the basis of direct labor hours. To increase bonuses, Jansen’s managers may do all of the following except A. Produce those products requiring the most direct labor.B. Defer expenses such as maintenance to a future period.C. Increase production schedules independent of customer demands.D. Decrease production of those items requiring the most direct labor.Assume you are the department B manager for Marley's Manufacturing. Marley's operates under a cost-based transfer structure. Assume you receive the majority of your raw materials from department A, which sells only to department B (they have no outside sales). After calculating the operating income in dollars and operating income in percentage, analyze the following financial information to determine costs that may need further investigation. Marley's ManufacturingIncome StatementMonth Ending August 31, 2018 Dept. A Dept. B Sales $23,000 $50,000 Cost of goods sold 11,270 25,500 Gross profit $11,730 $24,500 Expenses: Utility expenses $1,380 $3,000 Wages expense 5,520 10,000 Costs allocated from corporate 2,070 14,000 Total expenses $8,970 $27,000 Operating income/(loss) in dollars $fill in the blank 1 $fill in the blank 2 Operating income/(loss) in percentage fill in the blank 3 % fill in the blank 4 %Chocolate Bars, Inc. (CBI), manufactures creamy deluxe chocolate candy bars. The firm has developed three distinct products: Almond Dream, Krispy Krackle, and Creamy Crunch. CBI is profitable, but management is quite concerned about the profitability of each product and the product costing methods currently employed. In particular, management questions whether the overhead allocation base of direct labor-hours accurately reflects the costs incurred during the production process of each product. In reviewing cost reports with the marketing manager, Steve Hoffman, who is the cost accountant, notices that Creamy Crunch appears exceptionally profitable and that Almond Dream appears to be produced at a loss. This surprises both him and the manager, and after much discussion, they are convinced that the cost accounting system is at fault and that Almond Dream is performing very well at the current market price. Steve decides to hire Jean Sharpe, a management consultant, to study the…
- Shady Fabrication Group (SFG) manufactures components for manufacturing equipment at several facilities. The company produces two, related, parts at its Park River Plant, the models SF-08 and SF-48. The differences in the models are the quality of the materials and the precision to which they are produced. The SF-48 model is used in applications where the precision is critical and thus requires greater oversight in the production process. Although sales remain reasonably strong, managers at SFG have noticed that the company is meeting more resistance to the pricing for SF-08, although there seems to be little need for negotiation on the price of the SF-48 model. As a result, the marketing manager at SFG has asked the financial staff to review the costs of the two products to understand better what might be happening in the market. Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month manufacturing overhead was $201,600.…Pronghorn Company manufactures equipment. Pronghorn’s products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $200,000 to $1,500,000 and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order for the installed equipment to perform to specifications. Pronghorn has the following arrangement with Winkerbean Inc. ● Winkerbean purchases equipment from Pronghorn for a price of $1,070,000 and contracts with Pronghorn to install the equipment. Pronghorn charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $599,000. ● Winkerbean is obligated to pay Pronghorn the $1,070,000 upon the delivery and installation of the equipment. Pronghorn delivers the equipment on June 1, 2020, and completes the…A large company sells a range of electrical, clothing, and homeware products through a chain of department stores. The main administration functions are provided from the company’s head office. Each department store has its own warehouse which receives goods that are delivered from a central distribution centre. The company currently measures profitability by product group for each store using an absorption costing system. All overhead costs are charged to product groups based on sales revenue. Overhead costs account for approximately one-third of total costs and the directors are concerned about the arbitrary nature of the current method used to charge these costs to product groups. A consultant has been appointed to analyse the activities that are undertaken in the department stores and to establish an activity-based costing system. The consultant has identified the following data for the latest period for each of the product groups for the X town store in the image below: (a)…
- H inc manufactures equipment for metal testing. It also manufactures the electronicchips that go into the manufacture of the testing equipment.The company has a well-established cost and management accounting system. The costaccounting system records the actual manufacturing costs for the electronic chips and thetesting equipment, and also produces standard unit costs for the purposes of budgeting andvariance analysis.The management accountant of H Inc is pleased with themanagement information system that is in place within the company, and is particularlyproud of the budgetary control reporting system that provides monthly control reports tothe board within one week of the end of each month.The market for metal testing equipment is growing at a reasonable rate, but there are threeother competitors in the market. Competition between them is strong and consequentlyprofit margins are fairly low at the moment, although H Inc is operating at a profit.H Inc senior management are not sure…Utica Manufacturing (UM) was recently acquired by MegaMachines, Inc. (MM). and organized as a separate division within the company. Most manufacturing plants at MM use an ABC system, but UM has always used a traditional product costing system. Bob Miller, the plant controller at UM, has decided to experiment with ABC and has asked you to help develop a simple ABC system that would help him decide if it was useful. The controller's staff has identified costs for the first month in the four overhead cost pools along with appropriate cost drivers for each pool. Activity Drivers Direct material cost Costs 154, 000 1,600, 900 900, 000 450, 000 Cost Pools Incoming inspection Production Machine-hours Machine setup Shipping Setups Units shipped The company manufactures two basic products with model numbers 308 and 510. The following are data for production for the first month as part of MM. Products 308 510 $ 45,000 $173,800 50,000 $ 32,000 $283,809 118,800 Total direct material costs Total…Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow: Capacity (units) Sales price Variable costsb Fixed costs a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production. Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All other facts remain the same. a. Optimal transfer price b. Transfer price c Transfer price Required: a. Current output in Production is 25,300 units. Packaging requests an additional 5,960 units to produce a special order. What transfer price would you recommend? to search b. Suppose Production is operating at full capacity. What transfer price would you…
- Shady Fabrication Group (SFG) manufactures components for manufacturing equipment at several facilities. The company produces two, related, parts at its Park River Plant, the models SF-08 and SF-48. The differences in the models are the quality of the materials and the precision to which they are produced. The SF-48 model is used in applications where the precision is critical and thus requires greater oversight in the production process. Although sales remain reasonably strong, managers at SFG have noticed that the company is meeting more resistance to the pricing for SF-08, although there seems to be little need for negotiation on the price of the SF-48 model. As a result, the marketing manager at SFG has asked the financial staff to review the costs of the two products to understand better what might be happening in the market. Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month manufacturing overhead was $208,800.…Assume you are the department B manager for Marley's Manufacturing. Marley's operates under a cost-based transfer structure. Assume you receive the majority of your raw materials from department A, which sells only to department B (they have no outside sales). After calculating the operating income in dollars and operating income in percentage, analyze the following financial information to determine costs that may need further investigation. Marley's ManufacturingIncome StatementMonth Ending August 31, 2018 Dept. A Dept. B Sales $21,000 $52,000 Cost of goods sold 9,870 27,040 Gross profit $11,130 $24,960 Expenses: Utility expenses $840 $3,120 Wages expense 5,040 10,920 Costs allocated from corporate 2,100 14,560 Total expenses $7,980 $28,600 Operating income/(loss) in dollars $fill in the blank 1 $fill in the blank 2 Operating income/(loss) in percentage fill in the blank 3 % fill in the blank 4 % Department B had…Chocolate Bars, Inc. (CBI), manufactures creamy deluxe chocolate candy bars. The firm has developed three distinct products: Almond Dream, Krispy Krackle, and Creamy Crunch. CBI is profitable, but management is quite concerned about the profitability of each product and the product costing methods currently employed. In particular, management questions whether the overhead allocation base of direct labor-hours accurately reflects the costs incurred during the production process of each product. Skipped In reviewing cost reports with the marketing manager, Steve Hoffman, who is the cost accountant, notices that Creamy Crunch appears exceptionally profitable and that Almond Dream appears to be produced at a loss. This surprises both him and the manager, and after much discussion, they are convinced that the cost accounting system is at fault and that Almond Dream is performing very well at the current market price. Steve decides to hire Jean Sharpe, a management consultant, to study the…