05 Jun Question QUESTION 1 1. You are the new controller for the consumer division of XYZ Company. In the past five
Question
QUESTION 1
1.
You are the new controller for the consumer division of XYZ Company. In the past five
years, XYZs earnings have grown by at least 15% annually, with the consumer divisions
earnings growing by over 20% annually over the same time-period. In the 4th quarter of the
current year, however, it is projected that consumers income will grow by 8% and XYZs will
grow by 10%. The consumer divisions president wants you to take some of the following end
of the year actions in order to improve consumers reported earnings. Under the previous
controller, these types of actions were more or less taken as acceptable practices.
Deferring routine monthly maintenance on equipment by an outside vendor until
January.
2.
Extending the close of the fiscal year beyond December 31 so that some sales
from next year are counted in the current fiscal year.
3.
Altering dates on shipping documents so that sales made in January of the next
year appear to have occurred in December of the current year.
4.
Giving salespeople a double bonus to exceed December targets.
5.
Reducing the number of December advertising spots and increasing the number to
be run in January.
6.
Deferring advertising costs by asking the outside advertising agency to delay
sending out bills for December advertisements until January or by having the agency
indicate that advertisements run in December were run in January.
7.
Persuading customers to accept merchandise for shipment in December that they
would normally not order until the following year.
1.
a) Classify each of these possible actions as acceptable or unacceptable according to the
IMA Standards of Ethical Behavior for Practitioners of Management Accounting and Financial
Management. Be sure to justify / explain your classifications.
b) What should you do if the president suggests that these actions are taken in every division of
XYZ and that the consumer division will be greatly harmed if it does not present better results
than 8% growth?
24 points
QUESTION 2
1.
A firm produces two products in the same facility using the same equipment. Product
XYZ is a higher volume product that takes a relatively small amount of machine-time per unit to
produce, while Product FTP is a lower volume product that takes a significantly higher amount
of machine-time per unit to produce. In addition, it takes very little set-up time to prepare to
produce a batch of Product XYZ, while a batch of Product FTP requires a more time-consuming
set-up. Product XYZ is produced in large batches, while Product FTP is produced in small
batches. Customers who purchase XYZ make relatively large purchases (in terms of the number
of units purchased) while customers who purchase FTP make relatively small purchases (in
terms of the number of units purchased). Both products are shipped in a similar way, with each
shipment requiring a similar amount of work.
If this firm allocates manufacturing overhead based on production volume, what
result would you expect? Be specific in your answer.
b.
How could the firm improve its allocation system?
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