Ethics in Action
In August, Lannister Company introduced a new performance measurement system in manufacturing operations. One of the new performance measures is lead time, which is determined by tagging a random sample of items with a log sheet throughout the month. The log sheets recorded the time that the sample items started production and the time that they ended production, as well as all steps in between. At the end of the month, the controller collected the log sheets and computed the average lead time of the tagged products. This number was reported to central management and was used to evaluate the performance of the plant manager. Because of the poor lead time results reported for August, the plant was under extreme pressure to reduce lead time in September.
The following memo was intercepted by the controller.
Date: September 3
To: Hourly Employees
From: Plant Manager
During last month, you may have noticed that some of the products were tagged with a log sheet. This sheet records the time that a product enters production and the time that it leaves production. The difference between these two times is termed the “lead time.” Our plant is evaluated on improving lead time. From now on, I ask all of you to keep an eye out for the tagged items. When you see a tagged item, it is to receive special attention. Work on that item first, and then immediately move it to the next operation. Under no circumstances should tagged items wait on any other work that you have. Naturally, report accurate information. I insist that you record the correct times on the log sheet as the product goes through your operations.
How should the controller respond to this discovery?
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Managerial Accounting
- Tempe Office Services and Supplies (TOSS) provides various products and services in the Tempe Research Park, home to numerous high-tech and bio-tech companies. Making color copies is one of its most popular and profitable services. The controller performed a regression analysis of data from the Color Copy Department with the following results: Intercept R-squared Number of observations X coefficient Month July August September October November December The regression output was based on the following data: Number of Color Copy Color Copies 25,900 23,000 19,550 18, 150 22,150 20,400 30.874686 0.970922 Req 1 6 0.081144 Required: 1. What is the variable cost per color copy for TOSS? 2. What is the fixed cost for the Color Copy Department? 3. Based on the regression output obtained by the controller, what cost formula should be used to estimate future total costs for the Color Copy Department? Enter answer as an equation in the form of y= a + bx. Req 2 Variable cost Department Costs $…arrow_forwardTempe Office Services and Supplies (TOSS) provides various products and services in the Tempe Research Park, home to numerous high-tech and bio-tech companies. Making color copies is one of its most popular and profitable services. The controller performed a regression analysis of data from the Color Copy Department with the following results: Intercept R-squared Number of observations X coefficient Month July August September October November December The regression output was based on the following data: Number of Color Copies 25,900 23,000 19,550 18, 150 22,150 20,400 Req 1 30.874686 0.970922 Req 2 6 0.081144 Required: 1. What is the variable cost per color copy for TOSS? 2. What is the fixed cost for the Color Copy Department? 3. Based on the regression output obtained by the controller, what cost formula should be used to estimate future total costs for the Color Copy Department? Enter answer as an equation in the form of y= a + bx. Variable cost per color copy Fixed cost Color…arrow_forwardPintura Company implemented a quality improvement program and tracked the following for the five years: By cost category as a percentage of sales for the same period of time: Required: 1. Prepare a bar graph that reveals the trend in quality cost as a percentage of sales (time on the horizontal axis and percentages on the vertical). Comment on the message of the graph. 2. Prepare a bar graph for each cost category as a percentage of sales. What does this graph tell you?arrow_forward
- Communications Jamarcus Bradshaw, plant manager of Georgia Paper Companys papermaking mill, was looking over the cost of production reports for July and August for the Papermaking Department. The reports revealed the following: Jamarcus was concerned about the increased cost per ton from the output of the department. As a result, he asked the plant controller to perform a study to help explain these results. The controller, Leann Brunswick, began the analysis by performing some interviews of key plant personnel in order to understand what the problem might be. Excerpts from an interview with Len Tyson, a paper machine operator, follow: Len: We have two papermaking machines in the department. I have no data, but I think paper machine No. 1 is applying too much pulp and, thus, is wasting both conversion and materials resources. We haven't had repairs on paper machine No. 1 in a while. Maybe this is the problem. Leann: How does too much pulp result in wasted resources? Len: Well, you see, if too much pulp is applied, then we will waste pulp material. The customer will not pay for the extra product; we just use more material to make the product. Also, when there is too much pulp, the machine must be slowed down in order to complete the drying process. This results in additional conversion costs. Leann: Do you have any other suspicions? Len: Well, as you know, we have two productsgreen paper and yellow paper. They are identical except for the color. The color is added to the papermaking process in the paper machine. I think that during August these two color papers have been behaving very differently. I don't have any data, but it just seems as though the amount of waste associated with the green paper has increased. Leann: Why is this? Len: I understand that there has been a change in specifications for the green paper, starting near the beginning of August. This change could be causing the machines to run poorly when making green paper. If this is the case, the cost per ton would increase for green paper. Leann also asked for a database printout providing greater detail on Augusts operating results. September 9 Requested by: Leann Brunswick Papermaking DepartmentAugust detail Prior to preparing a report, Leann resigned from Georgia Paper Company to start her own business. You have been asked to take the data that Leann collected, and write a memo to Jamarcus Bradshaw with a recommendation to management. Your memo should include analysis of the August data to determine whether the paper machine or the paper color explains the increase in the unit cost from July. Include any supporting schedules that are appropriate. Round any calculations to the nearest cent.arrow_forwardThe Northwest regional manager of Logan Outdoor Equipment Company has conducted a study to determine how her store managers are allocating their time. A study was undertaken over three weeks that collected the following data related to the percentage of time each store manager spent on the tasks of attending required meetings, preparing business reports, customer interaction, and being idle. The results of the data collection appear in the following table: a. Create a stacked-bar chart with locations along the vertical axis. Reformat the bar chart to best display these data by adding axis labels, a chart title, and so on. b. Create a clustered-bar chart with locations along the vertical axis and clusters of tasks. Reformat the bar chart to best display these data by adding axis labels, a chart title, and the like. c. Create multiple bar charts in which each location becomes a single bar chart showing the percentage of time spent on tasks. Reformat the bar charts to best display these data by adding axis labels, a chart title, and so forth. d. Which form of bar chart (stacked, clustered, or multiple) is preferable for these data? Why? e. What can we infer about the differences among how store managers are allocating their time at the different locations?arrow_forwardRoss Company implemented a quality improvement program and tracked the following for the five years: By cost category as a percentage of sales for the same period of time: Required: 1. Prepare a bar graph that reveals the trend in quality cost as a percentage of sales (time on the horizontal axis and percentages on the vertical). Comment on the message of the graph. 2. Prepare a bar graph for each cost category as a percentage of sales. What does this graph tell you? 3. What if management would like to have the trend in relative distribution of quality costs? Express this as a bar graph and comment on its significance.arrow_forward
- Greiner Company makes and sells high-quality glare filters for microcomputer monitors. John Craven, controller, is responsible for preparing Greiners master budget and has assembled the following data for the coming year. The direct labor rate includes wages, all employee-related benefits, and the employers share of FICA. Labor saving machinery will be fully operational by March. Also, as of March 1, the companys union contract calls for an increase in direct labor wages that is included in the direct labor rate. Greiner expects to have 5,600 glare filters in inventory on December 31 of the current year, and has a policy of carrying 35 percent of the following month's projected sales in inventory. Information on the first four months of the coming year is as follows: Required: 1. Prepare the following monthly budgets for Greiner Company for the first quarter of the coming year. Be sure to show supporting calculations. a. Production budget in units b. Direct labor budget in hours c. Direct materials cost budget d. Sales budget 2. Calculate the total budgeted contribution margin for Greiner Company by month and in total for the first quarter of the coming year. Be sure to show supporting calculations. (CMA adapted)arrow_forwardGolding Bank provided the following data about its resources and activities for its checking account process: Required: 1. Calculate the capacity cost rate for the checking account process. 2. Calculate the activity rates for the four activities. If the total number of statements issued was 20,000, calculate the cost of the issuing statements activity. 3. What if process improvements decreased the number of customer inquiries, leading to a 10 percent reduction in check processing hours and a 10,000 reduction in total resource costs? Update all the activity rates for these changes in operating conditions.arrow_forwardThe controller of Emery, Inc. has computed quality costs as a percentage of sales for the past 5 years (20X1 was the first year the company implemented a quality improvement program). This information is as follows: Required: 1. Prepare a trend graph for total quality costs. Comment on what the graph has to say about the success of the quality improvement program. 2. Prepare a graph that shows the trend for each quality cost category. What does the graph have to say about the success of the quality improvement program? Does this graph supply more insight than the total cost trend graph does? 3. Prepare a graph that compares the trend in relative control costs versus relative failure costs. Comment on the significance of this trend.arrow_forward
- Norris Company implemented a quality improvement program and tracked the following for the 5 years: By cost category of sales for the same period of time: Required: 1. Prepare a bar graph (hat reveals the trend in quality cost as a percentage of sales (time on horizontal axis and percentages on the vertical). Comment on the message of the graph. 2. Prepare a bar graph for each cost category as a percentage of sales. What does this graph tell you?arrow_forwardBig Mikes, a large hardware store, has gathered data on its overhead activities and associated costs for the past 10 months. Nizam Sanjay, a member of the controllers department, believes that overhead activities and costs should be classified into groups that have the same driver. He has decided that unloading incoming goods, counting goods, and inspecting goods can be grouped together as a more general receiving activity, since these three activities are all driven by the number of receiving orders. The 10 months of data shown below have been gathered for the receiving activity. Required: 1. Prepare a scattergraph, plotting the receiving costs against the number of purchase orders. Use the vertical axis for costs and the horizontal axis for orders. 2. Select two points that make the best fit, and compute a cost formula for receiving costs. 3. Using the high-low method, prepare a cost formula for the receiving activity. 4. Using the method of least squares, prepare a cost formula for the receiving activity. What is the coefficient of determination?arrow_forwardTempe Office Services and Supplies (TOSS) provides various products and services in the Tempe Research Park, home to numerous high-tech and bio-tech companies. Making color copies is one of its most popular and profitable services. The controller performed a regression analysis of data from the Color Copy Department with the following results: Intercept R-squared Number of observations X coefficient Month July August September October November December The regression output was based on the following data: Color Copy Department Costs Number of Color Copies 25,900 23,000 Reg 1 19,550 18,150 22,150 20,400 Regression High-Low Req 2 $ 30.874686 0.970922 Required: 1. What is the variable cost per color copy for TOSS? 2. What is the fixed cost for the Color Copy Department? 3. Based on the regression output obtained by the controller, what cost formula should be used to estimate future total costs for the Color Copy Department? Enter answer as an equation in the form of y= a + bx. 5-a. Use…arrow_forward
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