Concept explainers
Communications
Jamarcus Bradshaw, plant manager of Georgia Paper Company’s papermaking mill, was looking over the cost of production reports for July and August for the Papermaking Department. The reports revealed the following:
Jamarcus was concerned about the increased cost per ton from the output of the department. As a result, he asked the plant controller to perform a study to help explain these results. The controller, Leann Brunswick, began the analysis by performing some interviews of key plant personnel in order to understand what the problem might be. Excerpts from an interview with Len Tyson, a paper machine operator, follow:
Len: We have two papermaking machines in the department. I have no data, but I think paper machine No. 1 is applying too much pulp and, thus, is wasting both conversion and materials resources. We haven't had repairs on paper machine No. 1 in a while. Maybe this is the problem.
Leann: How does too much pulp result in wasted resources?
Len: Well, you see, if too much pulp is applied, then we will waste pulp material. The customer will not pay for the extra product; we just use more material to make the product. Also, when there is too much pulp, the machine must be slowed down in order to complete the drying process. This results in additional conversion costs.
Leann: Do you have any other suspicions?
Len: Well, as you know, we have two products—green paper and yellow paper. They are identical except for the color. The color is added to the papermaking process in the paper machine. I think that during August these two color papers have been behaving very differently. I don't have any data, but it just seems as though the amount of waste associated with the green paper has increased.
Leann: Why is this?
Len: I understand that there has been a change in specifications for the green paper, starting near the beginning of August. This change could be causing the machines to run poorly when making green paper. If this is the case, the cost per ton would increase for green paper.
Leann also asked for a database printout providing greater detail on August’s operating results. September 9 Requested by: Leann Brunswick Papermaking Department—August detail
Prior to preparing a report, Leann resigned from Georgia Paper Company to start her own business. You have been asked to take the data that Leann collected, and write a memo to Jamarcus Bradshaw with a recommendation to management. Your memo should include analysis of the August data to determine whether the paper machine or the paper color explains the increase in the unit cost from July. Include any supporting schedules that are appropriate. Round any calculations to the nearest cent.
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Chapter 17 Solutions
Financial And Managerial Accounting
- Ethics in Action In August, Lannister Company introduced a new performance measurement system in manufacturing operations. One of the new performance measures is lead time, which is determined by tagging a random sample of items with a log sheet throughout the month. The log sheets recorded the time that the sample items started production and the time that they ended production, as well as all steps in between. At the end of the month, the controller collected the log sheets and computed the average lead time of the tagged products. This number was reported to central management and was used to evaluate the performance of the plant manager. Because of the poor lead time results reported for August, the plant was under extreme pressure to reduce lead time in September. The following memo was intercepted by the controller. Date: September 3 To: Hourly Employees From: Plant Manager During last month, you may have noticed that some of the products were tagged with a log sheet. This sheet records the time that a product enters production and the time that it leaves production. The difference between these two times is termed the lead time. Our plant is evaluated on improving lead time. From now on, I ask all of you to keep an eye out for the tagged items. When you see a tagged item, it is to receive special attention. Work on that item first, and then immediately move it to the next operation. Under no circumstances should tagged items wait on any other work that you have. Naturally, report accurate information. I insist that you record the correct times on the log sheet as the product goes through your operations. How should the controller respond to this discovery?arrow_forwardThe following is a list of costs incurred by several manufacturing companies: a. Annual picnic for plant employees and their families b. Cost of fabric used by clothing manufacturer c. Cost of plastic for a toy manufacturer d. Cost of sewing machine needles used by a shirt manufacturer e. Cost of television commercials f. Depreciation of copying machines used by the Marketing Department g. Depreciation of microcomputers used in the factory to coordinate and monitor the production schedules h. Depreciation of office building i. Depreciation of robotic equipment used to assemble a product j. Electricity used to operate factory machinery k. Factory janitorial supplies I. Fees charged by collection agency on past-due customer accounts m. Fees paid to lawn service for office grounds n. Maintenance costs for factory equipment o. Oil lubricants for factory plant and equipment p. Pens, paper, and other supplies used by the Accounting Department q. Repair costs for factory equipment r. Rent for a warehouse used to store work in process and finished products s. Salary of a physical therapist who treats plant employees t. Salary of the manager of a manufacturing plant u. Telephone charges by corporate office v. Travel costs of marketing executives to annual sales meeting w. Wages of a machine operator on the production line x. Wages of production quality control personnel Instructions Classify each of the preceding costs as a product cost or period cost. Indicate whether each product cost is a direct materials cost, a direct labor cost, or a factory overhead cost. Indicate whether each period cost is a selling expense or an administrative expense. Use the following tabular headings for preparing your answer, placing an X in the appropriate column:arrow_forwardEmery Manufacturing Company produces component parts for the farm equipment industry and has recently undergone a major computer system conversion. Jake Murray, the controller, has established a troubleshooting team to alleviate accounting problems that have occurred since the conversion. Jake has chosen Gus Swanson, assistant controller, to head the team that will include Linda Wheeler, cost accountant; Cindy Madsen, financial analyst; Randy Lewis, general accounting supervisor; and Max Crandall, financial accountant. The team has been meeting weekly for the last month. Gus insists on being part of all the team conversations in order to gather information, to make the final decision on any ideas or actions that the team develops, and to prepare a weekly report for Jake. He has also used this team as a forum to discuss issues and disputes about him and other members of Emerys top management team. At last weeks meeting, Gus told the team that he thought a competitor might purchase the common stock of Emery, because he had overheard Jake talking about this on the telephone. As a result, most of Emerys employees now informally discuss the sale of Emerys common stock and how it will affect their jobs. Required: Is Gus Swansons discussion with the team about the prospective sale of Emery unethical? Discuss, citing specific standards from the code of ethical conduct to support your position. (CMA adapted)arrow_forward
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- Big Apple Design Company specializes in designing commercial office space in Chicago. The firm’s president recently reviewed the following income statement and noticed that operating profits were below her expectations. She had a hunch that certain customers were not profitable for the company and asked the controller to perform a customer-profitability analysis showing profitability by customer for the month of March. Required: Put yourself in the position of Big Apple’s controller and write a memo to the president to accompany the customer-profitability graph. Comment on the implications of the customer-profitability analysis and raise four or more questions that should be addressed by the firm’smanagement team.arrow_forwardHorton Manufacturing Incorporated produces blinds and other window treatments for residential homes and offices. The owner is concerned about the maintenance costs for the production machinery because maintenance costs for the previous fiscal year were higher than he expected. The owner has asked you to assist in estimating future maintenance costs to better predict the firm's profitability. Together, you have determined that the best cost driver for maintenance costs is machine hours. The data from the previous fiscal year for maintenance costs and machine hours follow: Month Maintenance Costs Machine Hours $ 2,665 2,710 2,760 1 2 3 4 6 7 8 9 10 11 12 2,860 2,895 Maintenance cost 3,045 2,905 2,945 2,820 2,610 2,630 2,930 1,566 1,670 1,685 1,735 1,855 1,890 1,865 1,885 1,775 1,450 1,630 1,465 Required: 1. Use the high-low method to estimate the fixed and variable portions for maintenance costs. (In your calculations, round "slope (unit variable cost)" to 4 decimal places. Enter the…arrow_forwardHorton Manufacturing Incorporated produces blinds and other window treatments for residential homes and offices. The owner is concerned about the maintenance costs for the production machinery because maintenance costs for the previous fiscal year were higher than he expected. The owner has asked you to assist in estimating future maintenance costs to better predict the firm's profitability. Together, you have determined that the best cost driver for maintenance costs is machine hours. The data from the previous fiscal year for maintenance costs and machine hours follow: Month Maintenance Costs Machine Hours $ 2,695 2,740 2,790 2,890 2,925 3,025 2,935 1 2 3 4 56789012 10 11 2,975 2,850 2,640 2,660 2,960 Maintenance cost 1,620 1,730 1,745 1,795 1,790 1,890 1,810 1,845 1,835 1,480 1,690 1,495 Required: 1. Use the high-low method to estimate the fixed and variable portions for maintenance costs. (In your calculations, round "slope (uni variable cost)" to 4 decimal places. Enter the "slope…arrow_forward
- Bob Randall, cost accounting manager for Hemple Products, was asked to determine the costs of the activities performed within the company’s Manufacturing Engineering Department. The department has the following activities: creating bills of materials (BOMs), studying manufacturing capabilities, improving manufacturing process, training, employees, and designing tools. The general ledger accounts reveal the following expenditures for Manufacturing Engineering: Salaries $ 500,000 Equipment 100,000 Supplies 30,000 Total $630,000 The equipment is used for two activities: improving process and designing tools. The equipment’s time is divided by two activities: 40 percent for improving process and 60 percent for designing tools. The salaries are for nine…arrow_forwardPaul White has been studying his department’s profitability reports for the past six months. He has just completed a managerial accounting course and is beginning to question the company’s approach to allocating overhead to products based on machine hours. The current department overhead budget of $ 1,142,940 is based on 38,098 machine hours. In an initial analysis of overhead costs, Paul has identified the following activity cost pools.arrow_forwardThe president of Mission Inc. has been concerned about the growth in costs over the last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. The activity analysis revealed the following:arrow_forward
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