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 While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer.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 of 1 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?
-2-2

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. eBook Link Yes / Difficulty: No Easy 2. award: 1 out of 1 point Requirement 2: Would it be easy for Perlman to take the ethical action in this situation?
-2-2

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

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

[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 collegesbusiness, humanities, fine arts, and engineering and quantitative methodsand 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 of 1 point

-2-2

http://ezto.mhhm.

Requirements 1 and 2: Select whether each of these positions is a line position or a staff position. a. University President b . d . Academic Vice President Line position Line position Staff position Line position

c. Managers reporting to Vice Presidents Deans of the four colleges

eBook Link Worksheet Difficulty: Easy Learning Objective: 01-01 Understand the role of management accountants in an organization.

-2-2

Requirements 1 and 2: Select whether each of these positions is a line position or a staff position. a. University President b Academic Vice President c. Managers reporting to Vice Presidents d Deans of the four colleges Line position Line position Staff position Line position

. .

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 of 1 point Requirement 3: All positions would have a need for accounting information of some type.
-2-2

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 Link True / Difficulty: False Easy

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

5. award: 0.89 out of 1 point

-2-2

http://ezto.mhhm.

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 Advertising Factory supervision Property taxes, factory building Sales commissions Insurance, factory Depreciation, administrative office equipment Lease cost, factory equipment Indirect materials, factory Depreciation, factory building Administrative office supplies (billing) Administrative office salaries Direct materials used (wood, bolts, etc.) Utilities, factory Requirement 1:

$91,000 $96,000 $72,000 $23,000 $65,000 $5,000 $2,000 $12,000 $18,000 $103,000 $4,000 $111,000 $434,000 $46,000

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.) Selling or Administrative Cost $0

Cost item Factory labor, direct

Cost behavior Variable Fixed $91,000 $0

Product Cost Direct Ind $91,000

Advertising Factory supervision Property taxes, factory building Sales commissions Insurance, factory Depreciation, administrative office equipment Lease cost, factory equipment Indirect materials, factory Depreciation, factory building Administrative office supplies Administrative office salaries Direct materials used Utilities, factory Total costs

0 0 n/r 65,000 0 0 0 18,000 n/r 4,000 0 434,000 46,000 $658,000

96,000 72,000 23,000 0 5,000 2,000 12,000 0 103,000 0 111,000 0 0 $424,000

96,000 0 n/r 65,000 n/r 2,000 0 n/r n/r 4,000 111,000 0 0 $278,000

0 n/r 0 0 0 0 n/r 0 n/r 0 0 434,000 0 $525,000

72

23

12

18

103

46

$279

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) Learning Objective: 02-03 Distinguish Learning Objective: 02-07 Worksheet between product costs and period costs and Understand the differences between give examples of each. direct and indirect costs. Learning Objective: 02-06 Understand the Difficulty: differences between variable costs and Medium 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 Purchases of raw materials Direct labor Advertising expense Manufacturing overhead Sales commissions $ 85,000 $ 260,000 ? $ 215,000 $ 341,000 $ 34,000

Inventory balances at the beginning and end of the year were as follows: Beginning of Year Raw materials $ 51,000 Work in process ? Finished goods $ 31,000 End of Year $ 40,000 $ 33,000 ?

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 of 1 point

-2-2

http://ezto.mhhm.

Requirement 1: (a Prepare a schedule of cost of goods manufactured. (Input all amounts as positive values. ) Omit the "$" sign in your response.) Superior Company Schedule of Cost of Goods Manufactured For the Year Ended December 31 Direct materials:

Raw materials inventory, beginning Add : Purchases of raw materials

$ 51,000 260,000 311,000 40,000 $ 271,000 63,000 341,000 675,000 47,000 722,000

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

33,000 $ 689,000

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

$ 31,000 689,000 720,000 86,000 $ 634,000

Goods available for sale Deduct : Finished goods inventory, ending

Cost of goods sold eBook Links (5) Worksheet

Learning Objective: 02-03 Distinguish between product

Learning Objective: 02-06 Understand the differences

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

costs and period costs and give between variable costs and examples of each. fixed costs. Learning Objective: 02-04 Prepare an income statement including calculation of the cost of goods sold. Learning Objective: 02-05 Prepare a schedule of cost of goods manufactured.

-2-2

Requirement 1: (a Prepare a schedule of cost of goods manufactured. (Input all amounts as positive values. ) Omit the "$" sign in your response.) Superior Company Schedule of Cost of Goods Manufactured For the Year Ended December 31 Direct materials: 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
51,000

$
260,000

311,000

40,000

271,000

$
63,000

341,000

675,000

47,000

722,000

Deduct : Work in process inventory, ending Cost of goods manufactured

33,000

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 Add : Cost of goods manufactured Goods available for sale Deduct : Finished goods inventory, ending Cost of goods sold

31,000

$
689,000

720,000

86,000

634,000

7. award: 1 out of 1 point

-2-2

http://ezto.mhhm.

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 Manufacturing overhead

$ 9.03 $ 11.37

per unit per unit

eBook Links (5) Worksheet Learning Objective: 02-03 Distinguish between product costs and period costs and give examples of each. Learning Objective: 02-04 Prepare an income statement including calculation of the cost of goods sold. Learning Objective: 02-05 Prepare a schedule of cost of goods manufactured. Learning Objective: 02-06 Understand the differences between variable costs and fixed costs.

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

-2-2

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 Manufacturing overhead

9.03

$
11.37

per unit per unit

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 of 1 point

-2-2

http://ezto.mhhm.

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

eBook Links (5) Worksheet Learning Objective: 02-03 Distinguish between product costs and period costs and give examples of each. Learning Objective: 02-04 Prepare an income statement including calculation of the cost of goods sold. Learning Objective: 02-05 Prepare a schedule of cost of goods manufactured. Learning Objective: 02-06 Understand the differences between variable costs and fixed costs.

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