Professional ethics and reporting division performance. Maria Mendez is division controller and James Dalton is division manager of the Hestor Shoe Company. Mendez has line responsibility to Dalton, but she also has staff responsibility to the company controller. Dalton is under severe pressure to achieve the budgeted division income for the year. He has asked Mendez to book $200,000 of revenues on December 31. The customers’ orders are firm, but the shoes are still in the production process. They will be shipped on or around January 4. Dalton says to Mendez. “The key event is getting the sales order, not shipping the shoes. You should support me, not obstruct my reaching division goals.” 1. Describe Mendez’s ethical responsibilities.

Types of Responsibility Centers Consider each of the following independent scenarios: a. Terrin Belson, plant manager for the laser printer factory of Compugear Inc., brushed his hair back and sighed. December had been a bad month. Two machines had broken down, and some factory production workers (all on salary) were idled for part of the month. Materials prices increased, and insurance premiums on the factory increased. No way out of it; costs were going up. He hoped that the marketing vice president would be able to push through some price increases, but that really wasnt his department. b. Joanna Pauly was delighted to see that her ROI figures had increased for the third straight year. She was sure that her campaign to lower costs and use machinery more efficiently (enabling her factories to sell several older machines) was the reason why. Joanna planned to take full credit for the improvements at her semiannual performance review. c. Gil Rodriguez, sales manager for ComputerWorks, was not pleased with a memo from headquarters detailing the recent cost increases for the laser printer line. Headquarters suggested raising prices. Great, thought Gil, an increase in price will kill sales and revenue will go down. Why cant the plant shape up and cut costs like every other company in America is doing? Why turn this into my problem? d. Susan Whitehorse looked at the quarterly profit and loss statement with disgust. Revenue was down, and cost was upwhat a combination! Then she had an idea. If she cut back on maintenance of equipment and let a product engineer go, expenses would decreaseperhaps enough to reverse the trend in income. e. Shonna Lowry had just been hired to improve the fortunes of the Southern Division of ABC Inc. She met with top staff and hammered out a 3-year plan to improve the situation. A centerpiece of the plan is the retiring of obsolete equipment and the purchasing of state-of-the-art, computer-assisted machinery. The new machinery would take time for the workers to learn to use, but once that was done, waste would be virtually eliminated. Required: For each of the above independent scenarios, indicate the type of responsibility center involved (cost, revenue, profit, or investment).

Sanchez Trucking has been experiencing delays at its warehouse operations. Management hired a consultant to find out why service deliveries to local businesses have taken longer than they should. The consultant narrowed down the problem to the number of work crews loading and unloading trucks. Each crew consists of 7 employees who work as a team on a variety of tasks; each employee works a full 40 hours a week. However, costs are also a concern. The consultant advised management that they could supplement work crews with short-term employees, at a higher cost, to cover unexpected needs on a weekly basis. Each work crew permanently hired by Sanchez costs $3,500 per week in wages and benefits, while a crew of short-term employees costs $6,000 per week. Complicating the decision is the fact that the weekly hourly requirements for work crews is uncertain because of the volatility in the number of deliveries to be made. Deliberating with management, the consultant arrived at the following…

Accounting Executive Solutions is a strategy consulting firm. Other than the senior leadership (who manage the firm, but do not actively consult), the managers and staff are billed to clients on an hourly basis. The workload varies quite a bit from month to month requiring careful planning.Managers are billed to clients at a rate of $900 per hour and staff at a rate of $450 per hour. Managers are paid $225 per hour worked (including nonbillable time) and staff are paid $125 per hour. The current plan calls for managers to bill 1,200 hours in May and 750 hours in June. Staff are expected to bill 6,400 hours in May and 4,500 hours in June. Managers will work a total of 2,400 hours in both months and staff will work a total of 9,600 hours in both months.Other monthly costs (all fixed) are $550,000 SG&A, $225,000 in depreciation, and $350,000 in marketing. Required: Prepare a budgeted income statement for Executive Solutions for May and June (separately).

Executive Solutions is a strategy consulting firm. Other than the senior leadership (who manage the firm, but do not actively consult), the managers and staff are billed to clients on an hourly basis. The workload varies quite a bit from month to month requiring careful planning. Managers are billed to clients at a rate of $910 per hour and staff at a rate of $455 per hour. Managers are paid $235 per hour worked (including nonbillable time) and staff are paid $130 per hour. The current plan calls for managers to bill 1,210 hours in May and 760 hours in June. Staff are expected to bill 6,420 hours in May and 4,520 hours in June. Managers will work a total of 2,420 hours in both months and staff will work a total of 9,620 hours in both months. Other monthly costs (all fixed) are $550,500 SG&A, $225,500 in depreciation, and $350,500 in marketing. Required: Prepare a budgeted income statement for Executive Solutions for May and June (separately).

Problem: Ethics in Business Lisa Ronsin had recently been transferred to the Home Security Systems Division of National Home Products. Shortly after taking over her new position as divisional controller, she was asked to develop the division’s predetermined overhead rate for the upcoming year. The accuracy of the rate is important because it is usedthroughout the year and any underapplied or overapplied overhead is closed out to Cost of Goods Sold at the end of the year. National Home Products uses direct labor- hours in all of its divisions as the allocation base formanufacturing overhead. To compute the predetermined overhead rate, Lisa divided her estimate of the total manufacturing overhead for the coming year by the production manager’s estimate of the total direct labor-hours for the coming year. She took her computations to the division’s general manager for approval but was quite surprised when he suggested amodification in the base. Her conversation with the general manager…

Tom Kemper is the controller of the Wichita manufacturing facility of Prudhom Enterprises, Inc. The annual cost control report is one of the many reports that must be filed with corporate headquarters and is due at corporate headquarters shortly after the beginning of the New Year. Kemper does not like putting work off to the last minute, so just before Christmas he prepared a preliminary draft of the cost control report. Some adjustments would later be required for transactions that occur between Christmas and New Year’s Day. A copy of the preliminary draft report, which Kemper completed on December 21, follows: Wichita Manufacturing FacilityCost Control ReportDecember 21 Preliminary Draft ActualResults FlexibleBudget SpendingVariances Labor-hours 18,000 18,000 Direct labor $ 326,000 $ 324,000 $ 2,000 U Power 19,750 18,000 1,750 U Supplies 105,000 99,000 6,000 U Equipment depreciation 343,000 332,000 11,000 U…

Cassidy Manning is the assistant controller at LeMar Packaging, Inc., a manufacturer of cardboard boxes and other packaging materials. Manning has just returned from a packaging industry conference on activity-based costing. She realizes that ABC may help LeMar meet its goal of reducing costs by 5% over each of the next three years. LeMar Packaging’s Order Department is a likely candidate for ABC. While orders are entered into a computer that updates the accounting records, clerks manually check customers’ credit history and hand-deliver orders to shipping. This process occurs whether the sales order is for a dozen specialty boxes worth $80 or 10,000 basic boxes worth $8,000. Manning believes that identifying the cost of processing a sales order would justify (1) further computerization of the order process and (2) changing the way the company processes small orders. However, the significant cost savings would arise from the elimination of two positions in the Order Department. The…

ABC Manufacturing is a producer of a local product used in house cleaning, called Agent C. The production manager is required to present a production report for the month August, however he got no idea on what information he needed for the report, and what analysis could be made to help the top management on their decision-making. The production manager sought your expertise on the subject matter and gave to you the following information: Sales (in Pesos) 4,957,875.00 22,500.00 Sales Volume Variable Costs: Cost of Direct Raw Materials 895,000.00 530,000.00 124,200.00 Cost of Direct Labor Cost of Packaging Materials Fixed Costs: Monthly Depreciation Monthly Rent of Warehouse Fixed Monthly Allowance for Electricity Other Fixed Manufacturing Overhead 650,000.00 100,000.00 675,000.00 146,700.00 Required: SENSITIVITY ANALYSIS If the selling price per unit is increased by 20% of its current price while the variable cost per unit is also increased by 30%, compute the following: d. How many…

ABC Manufacturing is a producer of a local product used in house cleaning, called Agent C. The production manager is required to present a production report for the month August, however he got no idea on what information he needed for the report, and what analysis could be made to help the top management on their decision-making. The production manager sought your expertise on the subject matter and gave to you the following information: Sales (in Pesos) 4,957,875.00 22,500.00 Sales Volume Variable Costs: Cost of Direct Raw Materials 895,000.00 530,000.00 124,200.00 Cost of Direct Labor Cost of Packaging Materials Fixed Costs: Monthly Depreciation Monthly Rent of Warehouse Fixed Monthly Allowance for Electricity Other Fixed Manufacturing Overhead 650,000.00 100,000.00 675,000.00 146,700.00 Required: SENSITIVITY ANALYSIS If the selling price per unit is increased by 20% of its current price while the variable cost per unit is also increased by 30%, compute the following: a. Compute the…

ABC Manufacturing is a producer of a local product used in house cleaning, called Agent C. The production manager is required to present a production report for the month August, however he got no idea on what information he needed for the report, and what analysis could be made to help the top management on their decision-making. The production manager sought your expertise on the subject matter and gave to you the following information: Sales (in Pesos) 4,957,875.00 22,500.00 Sales Volume Variable Costs: Cost of Direct Raw Materials 895,000.00 530,000.00 124,200.00 Cost of Direct Labor Cost of Packaging Materials Fixed Costs: Monthly Depreciation Monthly Rent of Warehouse Fixed Monthly Allowance for Electricity Other Fixed Manufacturing Overhead 650,000.00 100,000.00 675,000.00 146,700.00 Required: SENSITIVITY ANALYSIS If the selling price per unit is increased by 20% of its current price while the variable cost per unit is also increased by 30%, compute the following: g. How many…

ABC Manufacturing is a producer of a local product used in house cleaning, called Agent C. The production manager is required to present a production report for the month August, however he got no idea on what information he needed for the report, and what analysis could be made to help the top management on their decision-making. The production manager sought your expertise on the subject matter and gave to you the following information: Sales (in Pesos) 4,957,875.00 22,500.00 Sales Volume Variable Costs: Cost of Direct Raw Materials 895,000.00 530,000.00 124,200.00 Cost of Direct Labor Cost of Packaging Materials Fixed Costs: Monthly Depreciation Monthly Rent of Warehouse Fixed Monthly Allowance for Electricity Other Fixed Manufacturing Overhead 650,000.00 100,000.00 675,000.00 146,700.00 Required: BREAKEVEN ANALYSIS 1. Compute the selling price per unit of Agent C. 2. Compute the variable cost per unit of Agent C. 3. Compute the variable cost rate of Agent C. 4. Compute the…

Big Apple Design Company specializes in designing commercial office space in Chicago. The firm’s president recently reviewed the following income statement and noticed that operating profits were below her expectations. She had a hunch that certain customers were not profitable for the company and asked the controller to perform a customer-profitability analysis showing profitability by customer for the month of March. Required: Put yourself in the position of Big Apple’s controller and write a memo to the president to accompany the customer-profitability graph. Comment on the implications of the customer-profitability analysis and raise four or more questions that should be addressed by the firm’smanagement team.

Solution Summary: The author explains the ethical duties of M, a division controller, and the actions to be taken if D orders her to book false sales.

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