Richmond, Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele.

Before finalizing these plans, two stores were remodeled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses.

 1.award:1 out of1 point  Requirement 1:According to the IMA's Statement of Ethical Professional Practice, would it be ethical for Perlman not to report the inventory as obsolete?

Yes

No

Failure to report the obsolete nature of the inventory would violate the IMA's Statement of Ethical Professional Practice as follows:

Competence

 Perform duties in accordance with relevant technical standards. Generally accepted accounting principles (GAAP) require the write-down of obsolete inventory.

  Prepare decision support information that is accurate.

Integrity  Mitigate actual conflicts of interest and avoid apparent conflicts of interest.  Refrain from engaging in any conduct that would prejudice carrying out duties ethically.  Abstain from activities that would discredit the profession.

Members of the management team, of which Perlman is a part, are responsible for both operations and recording the results of operations. Because the team will benefit from a bonus, increasing earnings by ignoring the obsolete inventory is clearly a conflict of interest. Furthermore, such behavior is a discredit to the profession.

Credibility  Communicate information fairly and objectively.  Disclose all relevant information.  Hiding the obsolete inventory impairs the objectivity and relevance of financial statements.

-2-2

eBook LinkYes / No

Difficulty: Easy

Learning Objective: 01-03 Understand the importance of upholding ethical standards.

 2.award:1 out of1 point  Requirement 2:Would it be easy for Perlman to take the ethical action in this situation?

Yes

No

As discussed above, the ethical course of action would be for Perlman to insist on writing down the obsolete inventory. This would not, however, be an easy thing to do. Apart from adversely affecting her own compensation, the ethical action may anger her colleagues and make her very unpopular. Taking the ethical action would require considerable courage and self-assurance.

eBook Link

-2-2

[The following information applies to the questions displayed below.]Bristow University is a large private school located in the Midwest. The university is headed by a president who has five vice presidents reporting to him. These vice presidents are responsible for, respectively, auxiliary services, admissions and records, academics, financial services (controller), and the physical plant.

In addition, the university has managers over several areas who report to these vice presidents. These include managers over central purchasing, the university press, and the university bookstore, all of whom report to the vice president for auxiliary services; managers over computer services and over accounting and finance, who report to the vice president for financial services; and managers over grounds and custodial services and over plant and maintenance, who report to the vice president for physical plant.

The university has four colleges—business, humanities, fine arts, and engineering and quantitative methods—and a law school. Each of these units has a dean who is responsible to the academic vice president. Each college has several departments.

 3.award:1 out of1 point   

Requirements 1 and 2:Select whether each of these positions is a line position or a staff position.

  a. University President Line position   b. Academic Vice President Line position   c. Managers reporting to Vice Presidents Staff position   d. Deans of the four colleges Line position 

 eBook Link

WorksheetDifficulty: Easy

Learning Objective: 01-01 Understand the role of management accountants in an organization.

 

Requirements 1 and 2:Select whether each of these positions is a line position or a staff position.

  a. University President Line position  b. Academic Vice President Line position  c. Managers reporting to Vice Presidents Staff position  d. Deans of the four colleges Line position

-2-2 http://ezto.mhhm.

-2-2

 Explanation:

Line positions include the university president, academic vice-president, the deans of the four colleges, and the dean of the law school. In addition, the department heads (as well as the faculty) are in line positions. The reason is that their positions are directly related to the basic purpose of the university, which is education. All other positions on the organization chart are staff positions. The reason is that these positions are indirectly related to the educational process, and exist only to provide service or support to the line positions. 

  4.award:1 out of1 point  Requirement 3:All positions would have a need for accounting information of some type.

True

False

All positions would have need for accounting information of some type. For example, the manager of central purchasing would need to know the level of current inventories and budgeted allowances in various areas before doing any purchasing; the vice-president for admissions and records would need to know the status of scholarship funds as students are admitted to the university; the dean of the business college would need to know his/her budget allowances in various areas, as well as information on cost per student credit hour; and so forth.

eBook LinkTrue / False

Difficulty: Easy

Learning Objective: 01-01 Understand the role of management accountants in an organization.

-2-2

5.award:0.89 out of1 point   

The Dorilane Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 4,100 sets per year. Annual cost data at full capacity follow:

   Factory labor, direct $91,000    Advertising $96,000    Factory supervision $72,000    Property taxes, factory building $23,000    Sales commissions $65,000    Insurance, factory $5,000    Depreciation, administrative office equipment $2,000    Lease cost, factory equipment $12,000    Indirect materials, factory $18,000    Depreciation, factory building $103,000    Administrative office supplies (billing) $4,000    Administrative office salaries $111,000    Direct materials used (wood, bolts, etc.) $434,000    Utilities, factory $46,000  

  Requirement 1:Enter the dollar amount of each cost item under the appropriate headings. Note that each cost item is classified in two ways: first, as variable or fixed with respect to the number of units produced and sold; and second, as a selling and administrative cost or a product cost. (If the item is a product cost, it should also be classified as either direct or indirect as shown.) (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

  Cost behaviorSelling or

Administrative Product CostCost item Variable Fixed Cost Direct Indirect

  Factory labor, direct $91,000    $0    $0    $91,000     Advertising 0    96,000    96,000    0     Factory supervision 0    72,000    0    n/r    72,000  Property taxes, factory building n/r    23,000    n/r    0    23,000  Sales commissions 65,000    0    65,000    0   

-2-2 http://ezto.mhhm.

  Insurance, factory 0    5,000    n/r    0    5,000  Depreciation, administrative office equipment 0    2,000    2,000    0   

  Lease cost, factory equipment 0    12,000    0    n/r    12,000  Indirect materials, factory 18,000    0    n/r    0    18,000  Depreciation, factory building n/r    103,000    n/r    n/r    103,000  Administrative office supplies 4,000    0    4,000    0     Administrative office salaries 0    111,000    111,000    0     Direct materials used 434,000    0    0    434,000     Utilities, factory 46,000    0    0    0    46,000  Total costs $658,000    $424,000    $278,000    $525,000    $279,000

  Requirement 2:Compute the average product cost of one patio set. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

  Average product cost $196 

 per patio set

  Requirement 3:Assume that production drops to only 1,000 sets annually. Would you expect the average product cost per set to increase, decrease, or remain unchanged? Increase   Requirement 4:Refer to the original data. The president's brother-in-law has considered making himself a patio set and has priced the necessary materials at a building supply store. The brother-in-law has asked the president if he could purchase a patio set from the Dorilane Company "at cost," and the president agreed to let him do so.

(a)

Would you expect any disagreement between the president and brother-in-law over the price?

     Yes 

(b)

Because the company is operating at full capacity, what cost term used in the chapter might be justification for the president to charge the full, regular price to the brother-in-law and still be selling "at cost"?

     Opportunity cost    eBook Links (3)

WorksheetLearning Objective: 02-03 Distinguish between product costs and period costs and give examples of each.

Learning Objective: 02-07 Understand the differences between direct and indirect costs.

Difficulty: Medium

Learning Objective: 02-06 Understand the differences between variable costs and fixed costs

[The following information applies to the questions displayed below.]

Selected account balances for the year ended December 31 are provided below for Superior Company:

   Selling and administrative salaries $  85,000    Purchases of raw materials $ 260,000    Direct labor ?    Advertising expense $ 215,000    Manufacturing overhead $ 341,000    Sales commissions $   34,000  

Inventory balances at the beginning and end of the year were as follows:

 Beginningof  Year

End ofYear

  Raw materials $ 51,000    $ 40,000    Work in process         ?    $ 33,000    Finished goods $ 31,000            ?  

The total manufacturing costs for the year were $675,000; the goods available for sale totaled $720,000; and the cost of goods sold totaled $634,000.

 6.award:1 out of1 point   

Requirement 1:(a)

Prepare a schedule of cost of goods manufactured. (Input all amounts as positive values. Omit the "$" sign in your response.)

Superior CompanySchedule of Cost of Goods Manufactured

For the Year Ended December 31  Direct materials:        Raw materials inventory, beginning  $ 51,000         Add  : Purchases of raw materials  260,000         Raw materials available for use  311,000         Deduct  : Raw materials inventory, ending  40,000     

-2-2 http://ezto.mhhm.

    Raw materials used in production   $ 271,000     Direct labor    63,000     Manufacturing overhead    341,000     Total manufacturing costs   675,000     Add  : Work in process inventory, beginning    47,000       722,000     Deduct  : Work in process inventory, ending    33,000     Cost of goods manufactured   $ 689,000   

(b)

Prepare the cost of goods sold section of the company's income statement for the year. (Input all amounts as positive values. Omit the "$" sign in your response.)

   Finished goods inventory, beginning  $ 31,000     Add  : Cost of goods manufactured  689,000     Goods available for sale 720,000     Deduct  : Finished goods inventory, ending  86,000     Cost of goods sold $ 634,000   

eBook Links (5)

Worksheet

Learning Objective: 02-03 Distinguish between product costs and period costs and give examples of each.

Learning Objective: 02-06 Understand the differences between variable costs and fixed costs.

Difficulty: Medium

Learning Objective: 02-04 Prepare an income statement including calculation of the cost of goods sold.

 

Learning Objective: 02-02 Identify and give examples of each of the three basic manufacturing cost categories.

Learning Objective: 02-05 Prepare a schedule of cost of goods manufactured.

 

 

Requirement 1:(a)

Prepare a schedule of cost of goods manufactured. (Input all amounts as positive values. Omit the "$" sign in your response.)

Superior CompanySchedule of Cost of Goods Manufactured

For the Year Ended December 31  Direct materials:    

-2-2

    Raw materials inventory, beginning $    

    Add : Purchases of raw materials 

 

    Raw materials available for use    

    Deduct : Raw materials inventory, ending 

 

    Raw materials used in production   $  

  Direct labor    

  Manufacturing overhead   

  Total manufacturing costs    

  Add : Work in process inventory, beginning   

     

  Deduct : Work in process inventory, ending    

  Cost of goods manufactured  $  

(b)

Prepare the cost of goods sold section of the company's income statement for the year. (Input all amounts as positive values. Omit the "$" sign in your response.)

 

  Finished goods inventory, beginning $  

  Add : Cost of goods manufactured 

  Goods available for sale  

  Deduct : Finished goods inventory, ending  

  Cost of goods sold$  

  7.award:1 out of1 point

51,000

260,000

311,000

40,000

271,000

63,000

341,000

675,000

47,000

722,000

33,000

689,000

31,000

689,000

720,000

86,000

634,000

   

Requirement 2:Assume that the dollar amounts given above are for the equivalent of 30,000 units produced during the year. Compute the average cost per unit for direct materials used and the average cost per unit for manufacturing overhead. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

   Direct materials $ 9.03  per unit    Manufacturing overhead $ 11.37  per unit  

 eBook Links (5)

Worksheet

Learning Objective: 02-03 Distinguish between product costs and period costs and give examples of each.

Learning Objective: 02-06 Understand the differences between variable costs and fixed costs.

Difficulty: Medium

Learning Objective: 02-04 Prepare an income statement including calculation of the cost of goods sold.

 

Learning Objective: 02-02 Identify and give examples of each of the three basic manufacturing cost categories.

Learning Objective: 02-05 Prepare a schedule of cost of goods manufactured.

 

 

Requirement 2:Assume that the dollar amounts given above are for the equivalent of 30,000 units produced during the year. Compute the average cost per unit for direct materials used and the average cost per unit for manufacturing overhead. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

 

  Direct materials $ per unit    Manufacturing overhead $ per unit  

-2-2 http://ezto.mhhm.

-2-2

9.03

11.37

 Explanation:

Direct materials: $271,000 ÷ 30,000 units = $9.03 per unit.Manufacturing overhead: $341,000 ÷ 30,000 units = $11.37 per unit.

  8.award:1 out of1 point   

Requirement 3:Assume that in the following year the company expects to produce 51,000 units and manufacturing overhead is fixed. What average cost per unit and total cost would you expect to be incurred for direct materials? For manufacturing overhead? (Assume that direct materials is a variable cost.) (Round per unit to 2 decimal places. Omit the "$" sign in your response.)

  Per unit Total  Direct materials $ 9.03  $ 460,530     Manufacturing overhead $ 6.69  $ 341,000   

 eBook Links (5)

Worksheet

Learning Objective: 02-03 Distinguish between product costs and period costs and give examples of each.

Learning Objective: 02-06 Understand the differences between variable costs and fixed costs.

Difficulty: Medium

Learning Objective: 02-04 Prepare an income statement including calculation of the cost of goods sold.

 

Learning Objective: 02-02 Identify and give examples of each of the three basic manufacturing cost categories.

Learning Objective: 02-05 Prepare a schedule of cost of goods manufactured.

 

 

-2-2 http://ezto.mhhm.