Question 1

Morgantown Manufacturing produces electronic storage devices and uses the following three-part classification for its manufacturing costs: materials, labor, and support costs. Total support costs for June were $300 million and were allocated to each product on the basis of labor costs of each line. Summary data (in millions) for June for the most popular electronic storage device, the Giant Watt, was:
 $\begin{array}{lr}
\text { Material costs } & \$ 9,000,00 \
\text { Labor costs } & \$ 3,000,00 \
\text { Support costs } & \$ 8,500,00 \
\text { Units produced } & 40,000
\end{array}$
 
a. Compute the manufacturing cost per unit for each Giant Watt produced in June.
b. Suppose production will be reduced to 30,000 units in July. Speculate as to whether the unit costs in July will most likely be higher or lower than unit costs in June; it is not necessary to calculate the exact July unit cost. Briefly explain your reasoning.

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Question 2

The manager of a profit center of a large electronics manufacturing corporation made some projections regarding sales and profits for the upcoming fourth quarter of the year. The managers' performance evaluation and compensation depended significantly on his ability to meet budget goals. The manager discovered that the fourth quarter would have to be a particularly good quarter in order to meet these goals. He decided to implement a sales program offering liberal payment terms in order to pull some sales that would normally occur next year into the current year. Customers accepting delivery in the fourth quarter would not have to pay the invoice for 140 days. Also, he sold some equipment that was not being used and realized a significant profit on the sale.
Are these actions ethical? Why or why not?

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Question 3

The IMA Code of Ethics describes three basic steps a cost accountant should take when faced with an ethical conflict: Discuss, clarify, and consult. Describe each of these three steps.

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Question 4

) The Flamboyant Flirt is a small but prosperous hair cutting salon. Diane Stock, the manager of the salon, has been asked by several clients if she will ever offer other "hair related" services (e.g., perm, dye, etc.). After careful thought, Ms. Stock is considering expanding her offerings. However, in order to do so, she will have to hire one additional stylist at a salary of $26,000 per year. Other expenses will increase as follows: rent by 20%, supplies and utilities by 25%, and miscellaneous expenses by 10%. Her revenues from additional services are likely to be $55,000 for the next year (i.e., 2021). The Flamboyant Flirt's income statement for the most recent year is presented below. 
 $\begin{array}{c}
\text {The Flamboyant Flirt}\
\text { Income Statement for the Year Ended December 2020}\

\begin{array}{lr}
\text {Sales  Revenue}&&\$220,000\
 \text {Costs:}\
\text { Labor } & \$ 5,000 \
\text { Utilities } & 12,000 \
\text { Supplies } & 45,000 \
\text { Rent } & 18,000 \
\text { Miscellaneous } & 5,000 \
\text { Manager's Salary } & 30,000&162,000 \
\text { Operating Profits } &&\$58,000
\end{array}\end{array}$ 
a. Based on your financial analysis, should Diane Stock go ahead with the expansion?
b. What other factors must Ms. Stock consider before making a final decision?

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Question 5

The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column. That is, they do not match.
  
Required:
Match each business function with its representative cost driver.
 $$\begin{array} { | l | l | } 
\hline \text { Function } & \text { Insert letter d appropriate driver (A through F) } \
\hline \text { 1. Purchasing } & \
\hline \text { 2. Billing } & \
\hline \text { 3. Shipping } & \
\hline \text { 4. Cormputer Support } & \
\hline \text { 5. Personnel } & \
\hline \text { 6. Customer Service } & \
\hline
\end{array}$$

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Question 6

Place the letter of the appropriate business function of the value chain in Column 2 in the blank next to each cost item in Column 1.

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Question 7

Snacking Macs, Inc., currently manufactures three different types of scientifically balanced dog food. The firm is considering eliminating one of the three products. What factors should be taken into account in making this decision?

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Question 8

Clancy Mining Company mines iron ore for production into various metal products. During recent years, the company had large fluctuations in its inventories of metal ingots. Much of the volatility of the inventory levels is due to the variability of demand by the company's largest customers, automobile manufacturers. For large orders, the company has the technology to quickly shift production from one product to another. Explain how the company can improve its inventory control system and give the advantages of whatever you recommend.

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Question 9

Respond to this comment: "Since cost accountants just prepare accounting data for internal management, cost accountants do not need to be concerned with GAAP or IFRS."

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Question 10

Create a diagram of the value chain by putting the following components into the correct order: a) purchasing; b) marketing and sales; c) research and development; d) customer service; e) distribution; f) design; g) production.

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Question 11

A restaurant is deciding whether it wants to update its image or not. It currently has a cozy appeal with an outdated décor that is still in good condition, menus and carpet that need to be replaced anyway, and loyal customers. Identify the following for the restaurant management:
a. Costs that are relevant to this decision.
b. Costs that would not be differential to this decision.
c. Any qualitative factors that should be considered.

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Question 12

Compare financial accounting and cost accounting using the following concepts: users of the information; important criteria; who establishes or defines the system; and how to determine an accounting treatment.

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Question 13

MegaStores is a large, publicly-held corporation. The company does about 80% of its work in government contracts. All contracts use a cost plus fixed fee basis; costs of jobs are agreed upon by contract. Any overruns will result in losses to the company. The company controller, Ricky Bowers CPA, CMA, is discussing two current jobs with the Job Supervisor, Leslie Dawn. Job 100 is currently coming in under budget, but due to construction problems, Job 102 is 20% over budget. Bowers is considering the possibility of having employees who work on Job 102 record their time to Job 101. What are the implications of this decision?

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Question 14

The Brogan family currently lives in a suburb of a major city. They have a lovely home close to major routes of transportation. Both Mr. and Mrs. Brogan have convenient commutes of 30 minutes or less. Because the school system in their town does not have a quality reputation, they currently send their daughter to private school, conveniently located less than one mile from their home. The family's current monthly living expenses are listed below:
 $$\begin{array} { l r } 
& \text { Monthly } \
& \text { Budget } \
\text { Mortgage, including taxes and insurance } & \$ 5,000\
\text { Other utilities, including water, heat and telephone } &500 \
\text { Costs of runirg automobiles } &800  \
\text { Cost of private school } & 2,000   \
\text { Total monthly budget } &\$8,300\
\end{array}$$ 
The Brogans are considering moving to a town approximately 20 minutes away. Because of the desirability of the local schools and strict zoning, housing is very expensive in this town. Their daughter would attend public schools. The Brogans estimate that their monthly mortgage, taxes and insurance would increase to $7,000 per month, while the cost of running automobiles would increase 20% and other utilities 10%. Mortgage interest costs are tax deductible and the Brogans are in the 25% tax bracket. Assume that $700 of the increase in their monthly budget is for mortgage interest. What are the costs and benefits of moving? Which can be quantified and which cannot?

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Question 15

Explain the difference between a value chain, a supply chain, and a distribution chain.

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Question 16

The controller of one division of IntroTel, a large diversified firm is compensated by salary plus bonus. The bonus is a significant part of total compensation and is based directly on the profits of the division. Thus, the controller has an incentive to find ways to increase profits, including the delay of discretionary expenses such as research and development, delay of maintenance and repair of manufacturing equipment, and delay of sales promotions.
Is finding ways to increase profits as described above unethical? Why or why not? Who is to blame, if anyone?

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Question 17

You have been employed as an entry-level management accountant for a little under a year. You suspect that your immediate supervisor is involved in a significant fraud involving diverting company assets to personal use. Briefly describe the steps you might take to resolve this dilemma.

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Question 18

What are characteristics of information used in decision making?

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Question 19

Dockside Sandal Company, a manufacturer of women's sandals, recently implemented a quality improvement program aimed at streamlining the manufacturing process. Bo Mattison, industrial engineer and a resident expert on process improvement, was assigned the task of implementing the program.
Mattison's first task was to educate all the employees involved with the production process. He sent a memo to representatives in product design and development, materials management (including purchasing), marketing, distribution, customer service and accounting, in addition to those in the production department, inviting them to attend an information session on the improvement program.
He began the meeting by thanking all those who were present (over 35 in number) and spent the first hour explaining the need for such a program. Soon after, the attendees were engaged in a discussion. Several questions were raised during the discussion. Among these, three questions stood out.
1. What is the need for including members from design, marketing, and other functional areas when the improvement program's focus is on streamlining the manufacturing process?
2. What is the role of the cost management expert in this program?
3. Finally, why should the machine operators be involved, as they are not engineers?
Consider the three questions that stood out in the discussion. Assume the role of Bo Mattison and prepare a response addressing the questions.

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Question 20

The owner of a small retail business asks, "Why do I need cost accountants? My CPA produces financial statements, which are sufficient for me to discover my costs. Look at my Income Statement. I expect sales to increase by 10% next year, so I am planning on a 10% increase in profits. I don't need a cost accountant to tell me that."
 $\begin{array}{c}
\text { Income Statement for the Year}\
\text {  Ending December 31}\
\begin{array}{lr}
\text { Sales Revenue }& \$ 457,234  \
\text { Cost of Goods Sold }&296,348 \
 \text { Gross Margin } &  160,886 \
 \text { Selling Costs } &  76,234 \
 \text { Administrative Costs } & 62,350 \
\text { Profit before Taxes }&\$22,302
\end{array}\end{array}$ 
Use your knowledge of the concept of differential costs and explain why a cost accountant would question the conclusion that a 10% increase in sales would yield a 10% increase in profit.

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Quiz 1: Cost Accounting: Information for Decision Making