Ethical case: In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department. To discuss: If a division is reporting losses, does that mean that it should be closed.
Ethical case: In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department. To discuss: If a division is reporting losses, does that mean that it should be closed.
Solution Summary: The author explains that if a division is reporting losses, it does not mean that it should be closed.
In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department.
To discuss: If a division is reporting losses, does that mean that it should be closed.
(b)
To determine
Fixed Cost:
It is a cost which is constant in the short run, it is not related to any change in the production of goods or service, it will be fixed disregarding of increase or decrease in output. Fixed cost is generally incurred on fixed assets in long run.
To explain: Reallocation of fixed costs across the division was unethical.
no ai
Depreciation Expense reflects an allocation of an asset's original cost rather than an allocation based on the economic value that is being consumed.
True
False
The purpose of depreciation is to have the balance sheet report the current value of an asset.
True
False
Depreciation Expense shown on a company's income statement must be the same amount as the depreciation expense on the company's income tax return.
True
False
Chapter 7 Solutions
Managerial Accounting: Tools for Business Decision Making
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