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Assignment 2 & 3

Allen, an accountant at AccuSound Corporation, must decide how to respond to her controller's request to prepare board materials without highlighting potential quality issues with reworked product rejects. Allen has responsibilities to the company, her coworkers, and herself. She risks vulnerability if problems surface that were concealed. One option is to prepare the materials as requested but also submit a separate report to the controller detailing concerns about reworked rejects. Managerial accounting distinguishes between inventoriable costs, which become cost of goods sold, and period costs, which are expensed immediately. Inventoriable costs for manufacturers include direct materials and overhead, while merchandisers include purchase costs of goods for resale. Service providers have no

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Afaq Zaim
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26 views

Assignment 2 & 3

Allen, an accountant at AccuSound Corporation, must decide how to respond to her controller's request to prepare board materials without highlighting potential quality issues with reworked product rejects. Allen has responsibilities to the company, her coworkers, and herself. She risks vulnerability if problems surface that were concealed. One option is to prepare the materials as requested but also submit a separate report to the controller detailing concerns about reworked rejects. Managerial accounting distinguishes between inventoriable costs, which become cost of goods sold, and period costs, which are expensed immediately. Inventoriable costs for manufacturers include direct materials and overhead, while merchandisers include purchase costs of goods for resale. Service providers have no

Uploaded by

Afaq Zaim
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Managerial Accounting

Saad Bin Tariq


20P02001
MBA II - Section C – C2
13.09.2021

Chapter 1
Problem 1 – 31 (Hilton)

1. Allen’s considerations are determined largely by her position as an accountant, with


responsibilities to AccuSound Corporation, others in the company, and herself. Allen’s job
involves collecting, analyzing, and reporting operating information. Although not responsible for
product quality, Allen should exercise initiative and good judgment in providing management
with information having potentially adverse economic impact.

Allen should determine whether the controller’s request violates her professional or
personal standards or the company’s code of ethics, should the company have such a code. As
Allen decides how to proceed, she should protect propriety information and should not violate
the chain of command by discussing this matter with the controller’s superiors.

2. a. The controller has reporting responsibilities and should protect the overall
company interests by encouraging further study of the problem by those in his or
her department, by informing superiors in this matter, and by working with others
in the company to find solutions.

b. The quality control engineer has responsibilities for product quality and should
protect overall company interests by continuing to study the quality of reworked
rejects, by informing the plant manager and his staff in this matter, and by
working with others in the company to find solutions.
c. The plant manager and his or her staff have responsibilities for product quality
and cost and should protect overall company interests by exercising the
stewardship expected of them. Plant management should be sure that products
meet quality standards. Absentee owners need information from management,
and the plant management staff have a responsibility to inform the board of
directors elected by the owners of any problems that could affect the well-being
of the firm.

3. Allen needs to protect the interests of the company, others in the company, and
herself. Allen is vulnerable if she conceals the problem and it eventually surfaces.
Allen must take some action to reduce her vulnerability. One possible action would
be to obey the controller and prepare the advance material for the board without
mentioning or highlighting the probable failure of reworks. Because this approach
differs from the long-standing practice of highlighting information with potentially
adverse economic impact, Allen should write a report to the controller detailing the
probable failure of reworks, the analysis made by her and the quality control
engineer, and the controller's instructions in this matter.

Chapter 2
Exercise 2 – 33

1. Manufacturing-sector companies purchase materials and components and convert them


into different finished goods.
Merchandising-sector companies purchase and then sell tangible products without
changing their basic form.
Service-sector companies provide services or intangible products to their customers - for
example, legal advice or audits.
Only manufacturing and merchandising companies have inventories of goods for sale.

2. Inventoriable costs are all costs of a product that are regarded as an asset when they are
incurred and then become cost of goods sold when the product is sold. These costs for a
manufacturing company are included in work-in-process and finished goods inventory to build
up the costs of creating these assets.
Period costs are all costs in the income statement other than cost of goods sold. These
costs are treated as expenses of the period in which they are incurred because they are presumed
not to benefit future periods (or because there is not sufficient evidence to conclude that such
benefit exists. Expensing these costs immediately best matches expenses to revenues.

3. (a) Phones and computers purchased for resale by Best Buy - Inventoriable cost of a
merchandising company. It becomes part of cost of goods sold when the phones and computers
are sold.
(b) Electricity used for lighting at KitchenAid plant - Inventoriable cost of a
manufacturing company. It is part of the manufacturing overhead that is included in the
manufacturing cost of a finished good.
(c) Depreciation on HughesNet Satellite Equipment used to provide its services - period
cost of a service company. HughesNet has no inventory of goods for sale and, hence, no
Inventoriable cost.
(d) Electricity used to provide lighting for Best Buy’s store aisles - period cost of a
merchandising company. It is a cost that benefits the current period, and it is not traceable to
goods purchased for resale.
(e) Wages for personnel responsible for quality testing of the KitchenAid products during
the assembly process - Inventoriable cost of a manufacturing company. It is usually part of the
manufacturing overhead that is included in the manufacturing cost of a finished good (if quality
testing is done for several products), but may be a direct cost, if quality testing is done by
personnel who work on a specific KitchenAid product line such as the KitchenAid dishwasher.

Problem 2 – 34

1 a. Cost of Goods Purchased


Purchases $155,000
Add Transportation in $7000
Total = $162,000
Deduct:
Purchase returns and allowances $4000
Purchase discounts $6000
Total = $10,000

Cost of goods purchased = $162,000 - $10,000 = $152,000

1 b. Cost of Goods Sold


Revenues = $280,000
Cost of goods sold = $145,000
Gross Margin = $135,000

Operating Costs
Marketing costs = $37,000
Utilities = $17,000
General & administrative costs = $43,000
Misc costs = $4000

Total operating costs = $101000


Operating income = $34,000

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