1. Madison Corporation has a single facility that it uses for
manufacturing, sales, and administrative activities. Should
the company's building depreciation charge be expensed in its
entirety or is a
is the different accounting procedure appropriate? Explain.
There is a more appropriate accounting procedure for the
problem. Although Madison Corporation has a single facility,
depreciation of that said facility should be allocated to each
manufacturing, sales and administrative activities. Especially
when recording and summarizing activities done by accountants
shows the cost of goods sold and other administrative expenses
separately and as accurately as possible. With this said, the
depreciation and other expenses related to the facility should
be allocated to each activities.
2. In discussing the operation of his automobile, a
once observed that gasoline is a fixed cost because
per gallon is relatively stable. Insurance, on the
hand, is a variable cost
because the cost per mile varies inversely with the
miles driven. Comment on the doctor's observation.
doctor
the cost
other
number of
The gasoline cost should rise as he drives and its cost will
vary depending on how far and often he drives. While his
insurance will remain fixed whether he drives his car or not.
Therefore, the gasoline cost is a variable cost while the
insurance is a fixed cost.
3. One of the many changes in the business environment in
recent years that has had significant impact on cost
management practices is a "focus on the customer". You are
part of the management team in a medium-size Internet service
company. The company is just three years old and is growing
dramatically, doubling its customer base every six months.
Required:
A. Describe your typical customer's needs and service
expectations.
- A typical customer’s needs are fast internet speed,
convenient mode of payment and an affordable price.
B. How has the doubling of your firm's customer base every six
months affected its ability to maintain this focus on the
customer? If this dramatic growth continues, what are some
specific actions your firm can take to retain its goal of
"focus on the customer"?
- While the customers are doubling, more will contact the
customer service that will result in busy lines. Also,
internet speed will be affected, the more people use
their service the slower it will be. Lastly, more
customers also means more expenses are expected in
retaining and improving their services.
- Ofcourse, with doubling customers the company should hire
more employees until they reach the most efficient
number. They can also invest in automated computers and
machinery to adapt to rising demands. Also, they should
make payment by their customers online. Through this,
they will cut short in payroll by hiring significantly
fewer information technology specialists that will handle
any bugs in the online payment. With this, less expenses
will be made so they can offer lower prices to be “price
competitive” in the market.
4. The controller of one division of 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.
Required: Is finding ways to increase profits as described
above unethical? Why or why not? Who is to blame, if anyone.
The ways of “increasing profit” mentioned above is unethical.
The controller is prioritizing his self interest more than the
company. By not delaying activities for the improvement of the
firm, it gives the illusion of more profits because those
expenses will not be shown in the income statement as
deductions. With this said, the firm is purposely stagnated in
order to make an illusion of “higher profit”.
5. The management of DGM Marble Manufacturing has identified
activity centers to which overhead costs are assigned. The
following data are available:
Activity Centers
Costs
Activity Drivers
Utilities
P400,000
80,000 machine hours
Scheduling and
Setup
379,950
800 setups
Material Handling 828,000
1,800,000 pounds of
materials
The company’s products and other operating statistics are the
following:
A. Ceramic
Tiles
B. Granite
Tiles
C. Onyx
Tiles
Prime costs
P120,000
P130,000
P150,000
Machine hours
40,000
20,000
20,000
Number of setups
150
400
250
Pounds of materials
800,000
500,000
500,000
Number of units
produced
60,000
35,000
60,000
Direct labor hours
35,000
26,000
50,000
Provide the following based on the procedures of
Activity-Based Costing (ABC) system. (2 items x 10 points)
a. Pool rates
Utilities:
P400,000/80,000 = P5 per machine hours
Scheduling and setup
P379,950/800 = P474.94 per Setups
Material Handling
P828,000/1,800,000 = P0.64 per pounds of materials
b. Overhead cost allocated to each product of DGM Marble
Manufacturing
A. Ceramic Tiles
B.
C.