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Chapter 16: Q1TI_5 (page 865)
Identify the following characteristics as primarily related to financial accounting (FA) or managerial accounting (MA):
5. Summary reports prepared quarterly or annually.
The correct answer to this question is financial accounting
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Question:Applying ethical standards
Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company’s five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing \(13,000 in invoices until January 1.
b. Record as sales \)115,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of the next year’s sales are included in this year’s sales.
d. Reduce the estimated Bad Debts Expense from 5% of Sales Revenue to 3%, given the company’s continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. How might these inconsistencies affect the company’s creditors and stockholders?
3. What should Wallace do if Cauvet insists that she follow all of these suggestions?
Calculating income and cost per service for a service company
Buddy Grooming provides grooming services for pets. In April, the company earned \(16,300 in revenues and incurred the following operating costs to groom 660 dogs:
Wages Expense \) 4,061
Grooming Supplies Expense 1,675
Building Rent Expense 900
Utilities Expense 305
Depreciation Expense—Equipment 55
Requirements 1. What is Buddy’s operating income for April?
Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:
c. Cost of electricity at the paper mill
Explain the differences between planning, directing, and controlling.
Winnebago Industries, Inc. is a leading manufacturer of recreational vehicles (RVs), including motorized and towable products. The company designs, develops, manufactures, and markets RVs as well as supporting products and services. The RVs are sold to consumers through a dealer network. On the August 29, 2015, balance sheet, Winnebago reported inventory of approximately \(112 million. Of this amount, approximately \)12 million, about 11%, was Finished Goods Inventory (Notes to Consolidated Financial Statements, Note 3). Suppose Winnebago motor homes have an average sales price of $96,000 and cost of goods sold is 89% of sales. Thor Industries, Inc., a major competitor, has an average cost of goods sold of 86% of sales. For year ending August 29, 2015, Winnebago sold 9,097 motor homes (Form 10-K, Item 1 Business).
Requirements
1. Why would the Finished Goods Inventory be such a relatively small portion of total inventory?
2. What is the average cost of goods sold (in dollars) for a Winnebago motor home? What is the average gross profit?
3. If Winnebago could reduce production costs so that the average cost of goods sold is equal to their competitor’s average cost of goods sold, how much more profit would Winnebago earn on each motor home sold?
4. Based on 2015 sales, how much would operating income increase if the company reduced the average cost of goods sold to equal their competitor’s average cost of goods sold?
5. How could managers at Winnebago use managerial accounting to reduce costs and increase profits?
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