Because bankers, suppliers, stockholders, and other external parties use financial accounting information to help make decisions that affect the company, the company's managers should un
Trang 1INTRODUCTION
11 Everyday Planning and Control
(a) Plans for taking a course in college include the amount of time to devote to it and to other courses. These plans follow the lines indicated in the chapter. Students formulate objectives for grades, for the knowledge to
be gained for its own sake, for future courses, and so on. They evaluate their personal strengths and weaknesses to determine how much work to do Examinations provide feedback on the sufficiency of work being done; test results might indicate that more, less, or the same amount of work should be devoted to the course. Such evaluations can be made whether the major objective is to gain knowledge or just to obtain a particular grade (b) Planning for a long automobile trip involves such matters as the amount
of time to be spent on the road, the desired time of arrival, the cost of various services along the way (gas and oil, lodging, food, tolls, etc.), the value of taking various routes, and so on. Each of these factors can be affected by the objectives of the trip. A trip home from college is usually made because the student would rather be at home than at school, so time in route is more critical than if one were simply touring the country between school and home. The costs involved in various alternative routes and
schedules are important whatever the purpose of the trip, and influence decisions regarding route, lodgings, and food
During a long trip, you would examine results to see if you were meeting your objectives. If the trip were taking too long, some actions might be indicated, such as taking a shorter but less scenic route, or more costly but faster toll roads. Again, evaluations of strengths and weaknesses are
important; financial resources, the quality of the car, one's ability to drive under different conditions, and the possibility of emergencies
developing are a few concerns that you need to consider in selecting a route (c) Decorating one's own apartment is very much goaldirected; the apartment
or room must satisfy several demands. It must be pleasant to live and
entertain in, yet it must be within one's means. Once the tenant has set objectives, the remaining steps include formulating plans to meet them, such
as examining colors, types of furniture, lighting, floor covering, pictures and other wall decorations to see if they fit the objectives
Provided that the selected elements meet price requirements, the work can proceed; but as it does, evaluations will be made regarding the effects being created. A picture or rug that looked perfect in the store might look terrible in the room and modifications will be needed. Some decisions made during the planning process may be irrevocable; the cost of installing wall towall carpeting is committed, while a piece of furniture might be
exchanged. Furniture and pictures can be moved once they are obtained, but a
Trang 2new doorway broken through a wall cannot easily be shifted a few feet to the left
(d) The lines of reasoning are about the same as with the other items. The coach must evaluate the available resources (players), plan how to gain the best results from them, ensure that the players follow the plans, evaluate the results of using particular plans, and modify plans. For example, a coach
of a football team may stress a running game or a passing game, depending on the talents of the players. If the players tend to be fast but small, one defensive arrangement may be better than others
It is also necessary to examine the environment—in this case, the other teams that will be played. The plan for a particular game will depend
largely on the team being played and on weather conditions. If the opponent rarely passes, the coach might bring defenders closer to the line of
scrimmage to stop the runners. As play progresses (interim evaluations), the coach might see weaknesses in the other team and develop a different
strategy
Note to the Instructor: When studying a new subject, students benefit from seeing that they already have a basic framework from which to proceed. Though this question is not about businesses or other organized economic entities, it focuses attention on the universality of processes described in the chapter. Each activity has objectives and goals, requires formulating plans, entails the evaluation of available resources and consideration of alternatives, goes on over time during which interim results will become known, can be evaluated in reference to plans, and may require modifications
of planned actions. You might want to interject questions or comments
relating more specifically to organized economic activities. Several parts
of the question deal specifically with economic problems, at least to the extent that financial considerations are important
12 Ethics
(a) Wright has violated both the confidentiality and integrity standards.
He has disclosed confidential information and has used it to profit, or at least as a repayment for his sister's favors. He has also acted in a way that discredits the profession and has accepted gifts (tips from his sister) that influenced his actions
(b) Roberts has violated the competence, integrity, and objectivity
standards. He failed the competence standard by not preparing a report that used all relevant information. He failed to communicate unfavorable
information, actively subverted the organization's objectives by trying to influence it to accept a project it should reject, and probably did so in the hope of a quid pro quo from his superior. These acts violate the integrity standard. He did not disclose all relevant information, nor communicate it fairly and objectively. The objectivity and competence standards appear to overlap in the area of reporting and disclosure, but Roberts seems to have hit a trifecta.
13 Who Needs Financial Accounting?
Because bankers, suppliers, stockholders, and other external parties use financial accounting information to help make decisions that affect the company, the company's managers should understand what that information is,
Trang 3understanding is particularly important to the topmost managers, whose
responsibilities encompass the entire entity. But lowerlevel managers also need such an understanding, not only because they may aspire to the higher level positions, but also because the decisions made by managers at all levels are the source of the economic events that are reported in the typical financial accounting statements made available to outsiders
Note to the Instructor: You might wish to use this question to review the types of external parties whose decisions affect the future of the entity and how those decisions relate to decisions made by management. For example, you might discuss, in general terms of course, how a decision to bring out a new product might require not only additional funding (a decision of a banker
or potential stockholder) but also dealing with new suppliers (who are
concerned with the company's credit rating and liquidity) and new customers (who are concerned about the company's stability). It may not be too early
to point out that many large companies operate subunits as near independent entities, and that the managers of those subentities might report to the larger entity as if it were "the outside world." Finally, some instructors might wish to point out that since, as the chapter states, some of the
reports used in managerial accounting (income statement, balance sheet, cash flow statement) are similar to reports studied in financial accounting, a manager must learn the basic elements of such reports during the study of one subject or another
14 Conventional versus WorldClass Manufacturing
(a) Product warranty costs should be lower because a WCM will make fewer defective products
(b) Salaries of quality control inspectors should be lower because a WCM will have its workers inspect as they go, rather than having separate inspections. Nor will a WCM inspect incoming materials and components
because it will deal only with vendors whose quality has been demonstrated (c) Amounts paid to vendors for parts and components should be higher because a WCM will not search out the lowest prices, but will seek high quality components delivered when needed
(d) Wage rates for direct laborers should be higher because a WCM's workers will be multiskilled and should therefore command premium wages (e) Total supervisory salaries should be lower because a WCM's workers will not need as much supervision
(f) Warehousing costs should be lower because a WCM will produce as needed and so will not require storage space for materials or finished
product
15 Value Chain
(a) Acme Motors’ quality costs should decrease. Acme will need to spend less on inspecting incoming goods for quality. There should be less waste on the production line due to poor quality parts
(b) Quality costs for the suppliers will increase. Eventually the
Trang 4by the suppliers. The net result to Acme Motors is decreased internal quality costs somewhat offset by the increased prices charged by the suppliers
16 Review of Financial Statement Preparation (40 minutes)
1 Freeport Company Income Statement
for the Year 20X2
Sales $225,000
Cost of goods sold 145,000
Gross margin $ 80,000
Operating expenses:
Depreciation $ 20,000
Interest 3,500
Other 35,000
Total operating expenses 58,500
Income before taxes $ 21,500
Income taxes (@ 40%) 8,600
Net income $ 12,900
as of December 31, 20X2
Assets
Current assets:
Cash (a) $ 13,500
Accounts receivable (b) 30,000
Inventory (c) 30,000
Total current assets $ 73,500 Property, plant, and equipment: (d)
Cost 290,000
Less accumulated depreciation 124,000
Net property, plant, and equipment 166,000 Total assets $239,500 Equities
Current liabilities:
Accounts payable (e) $ 18,000
Taxes payable 8,600
Total current liabilities 26,600
Longterm debt:
Bonds payable, 7%, due 20X5 50,000
Total liabilities $ 76,600 Stockholders' equity:
Common stock, no par value, 5,000 shares
authorized, issued, and outstanding 100,000
Retained earnings 62,900
Total stockholders' equity 162,900 Total liabilities and stockholders’ equity $239,500
Trang 5Balance, beginning of year $ 10,000
Collections on account 220,000
Total available 230,000
Disbursements:
For accounts payable $132,000
Expenses 35,000
Taxes 11,000
Fixed assets 30,000
Interest ($50,000 x .07) 3,500
Dividends 5,000
(216,500)
Balance, end of year $ 13,500
(b) Computation of accounts receivable
Balance, beginning of year $ 25,000
Sales 225,000
250,000
Collections (220,000)
Balance, end of year $ 30,000
(c) Computation of inventory
Beginning inventory $ 35,000
Purchases 140,000
Cost of goods available 175,000
Cost of goods sold (145,000)
Ending inventory $ 30,000
(d) Computation of property, plant, and equipment
Accumulated Cost Depreciation Balance, beginning of year $260,000 $104,000 New equipment 30,000
20X2 depreciation 20,000 Balance, end of year $290,000 $124,000 (e) Computation of accounts payable
Balance, beginning of year $ 10,000
Purchases 140,000
150,000
Payments to suppliers (132,000)
Balance, end of year $ 18,000
(f) Computation of retained earnings
Balance, beginning of year $ 55,000
Net income 12,900
Dividends declared (5,000)
Balance, end of year $ 62,900
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Note to the Instructor: The time spent to cover this assignment might be used in the following ways
1. Reviewing basic material on financial reporting, such as the following: (a) The singlestep and multiplestep income statement formats
(b) The combined statement of income and retained earnings that reports activity on a single statement, leaving the balance sheet for "positions." (c) Disclosure details, such as classes of fixed assets, depreciation, and inventory methods, etc
(d) The distinction between the accrual and cash bases of accounting
2. Leading the students into questions of managerial accounting, such as: (a) Does the income statement you have prepared help you determine what income would be in 20X2 if sales had been higher (lower) than expected?
(b) Was there a need for shortterm borrowing during 20X2?
(c) Were the purchases of fixed assets wise?
17 Review of the Statement of Cash Flows (25 minutes)
Freeport Company
Statement of Cash Flows for the Year 20X2
Net cash flow from operating activities:
Net income $12,900
Adjustments for noncash items included in income:
Depreciation 20,000
Increase in accounts receivable (5,000)
Decrease in inventory 5,000
Increase in accounts payable 8,000
Decrease in taxes payable ( 2,400)
Net cash provided by operations 38,500
Cash flow for investing activities
purchase of new plant and equipment (30,000) Cash flow for financing activities
payment of dividends (5,000) Net increase in cash $ 3,500
Beginning cash balance 10,000
Ending cash balance $13,500
One profitable area for class discussion is the relationship of profit and cash flow. The company earned $12,900, but its cash increased by only
$3,500. You might point out that the company's cash flow from operations was considerable ($38,500), but that purchases of plant and equipment and the payment of dividends were the principal reasons for the lesser increase in cash
Trang 71. St. Francis Company
Income Statement
For the Year 20X2
Sales $960,000 Cost of goods sold 480,000 Gross margin 480,000 Operating expenses:
Depreciation $80,000
Interest 24,000
Salaries and wages (f) 180,000
Other (g) 146,000 430,000 Income before taxes 50,000 Income taxes (40%) 20,000 Net income $ 30,000
2. St. Francis Company Balance Sheet
As of December 31, 20X2 Assets
Current assets:
Cash (a) $ 84,000
Accounts receivable (b) 260,000
Inventory (c) 200,000
Prepaid expenses 12,000
Total current assets $556,000 Property, plant, and equipment:
Cost (d) $760,000
Less accumulated depreciation (d) 340,000 420,000 Total assets $976,000 Equities
Current liabilities:
Accounts payable (e) $100,000
Taxes payable 20,000
Accrued expenses 14,000
Total current liabilities 134,000
Longterm liabilities:
Bonds payable, 6%, due 20X4 400,000
Total liabilities $534,000 Stockholders' equity:
Common stock, $10 par value, 24,000 shares
authorized, issued and outstanding $240,000
Retained earnings:
Balance at beginning of year $182,000
Net income 30,000
212,000
Dividends 10,000
Balance at end of year 202,000
Total stockholders' equity 442,000 Total liabilities and stockholders’ equity $976,000
Trang 8Balance, beginning of year $ 40,000
Collections on account $860,000
Issuance of common stock 80,000
$940,000
Total available 980,000
Disbursements:
Accounts payable $420,000
Other expenses 130,000
Prepaid expenses 12,000
Salaries and wages 190,000
Taxes 50,000
Plant and equipment 60,000
Interest ($50,000 x .07) 24,000
Dividends 10,000
(896,000)
Balance, end of year $ 84,000
(b) Computation of accounts receivable
Balance, beginning of year $160,000
Sales 960,000
1,120,000
Collections (860,000)
Balance, end of year $260,000
(c) Computation of inventory
Beginning inventory $240,000
Purchases 440,000
Cost of goods available 680,000
Cost of goods sold (480,000)
Ending inventory $200,000
(d) Computation of property, plant, and equipment
Accumulated Cost Depreciation Balance, beginning of year $700,000 $260,000 New equipment 60,000
Depreciation expense 80,000 Balance, end of year $760,000 $340,000 (e) Computation of accounts payable
Balance, beginning of year $ 80,000
Purchases 440,000
520,000
Payments to suppliers (420,000)
Balance, end of year $100,000
Trang 9Balance, beginning of year $ 24,000
Payments (190,000)
(166,000)
Balance, end of year ( 14,000)
Salaries and wages expense for the year $180,000
(g) Computation of other expense
Prepaid expenses, beginning of year $ 16,000
Other expenses, paid in cash 130,000
Total, other expenses $146,000
19 Review of the Cash Flow Statement (20 minutes)
St. Francis Company Statement of Cash Flows for the Year 20X2 Net cash flow from operating activities:
Net income $30,000
Adjustments for noncash expenses and
revenues included in income:
Depreciation 80,000
Increase in accounts receivable (100,000)
Decrease in inventory 40,000
Decrease in prepaid expenses 4,000
Increase in accounts payable 20,000
Decrease in taxes payable (30,000)
Decrease in accrued payables (10,000)
Net cash provided by operations 34,000
Cash flow for investing activities:
Purchase of new plant and equipment (60,000)
Cash flow from financing activities:
Issuance of common stock $80,000
Payment of dividends (10,000)
Net cash inflow from financing activities 70,000
Net increase in cash $44,000
Beginning cash balance 40,000
Ending cash balance $84,000
110 Different Costs for Different Purposes (15 minutes)
1. Virtually zero; to be precise, the cost of gas to go the extra mile to the friend's house and back to your own house.
2. $7.50 for gas (150 miles/30 miles per gallon = 5 gallons at $1.50 =
$7.50).
Note to the Instructor: The concepts of allocated costs and
differential costs are introduced in Chapters 35, but students should have little difficulty understanding the points raised here. To concentrate on the main points, we did not list other costs that would vary with miles driven, such as oil and tires. Some students will see that some other costs would be incurred in making the trip as opposed to not making it. A few might think of opportunity costs in the form of lost income from a job, or of
Trang 10the alternative value of time spent driving instead of doing something more pleasant.
111 JIT (15 minutes)
Manager A said that the company could not time production just right, so buffer stocks are needed to prevent workers from falling idle
JIT principles do not permit extra inventory because it hides defects and
is wasteful. The company now pushes goods through, rather than pulling them through. Eliminating inventories at work stations will force the company to maintain high quality and "do it right the first time."
Manager B said that some current problems were caused by poor product design
JIT requires close cooperation between design and manufacturing, so that products will be relatively easy to make and will not fail because of design
or manufacturing flaws. Customers might be persuaded to buy standard
products if they can benefit. JIT does not permit any one area (design, production) to impose its perceived requirements on another area
The quality control manager discussed the sophistication of the company's inspections
JIT manufacturers do not use vendors whose shipments include defects, eliminating the nonvalueadding activity of inspecting incoming shipments. Workers inspect products as they proceed through the factory, so that no defectives go from one station to another. This practice eliminates the need for final inspections. The company now finds 10%15% defectives at the end
of the process, which greatly increases its costs
The production manager spoke about the functional arrangement of
machinery
JIT manufacturers use cells that perform all of the work on a product. This reduces the need to move product from one station to another, allows workers more flexibility in job assignments, and saves space. Workers should
do better under the JIT system because they learn more skills and become more valuable to the company.
112 Ethics (5 minutes)
Much as you might like to, you cannot tell your father to sell (and then
to sell short) without violating the Standards and becoming liable for
criminal prosecution under insider trading rules. (Most students will not know about insider trading.) The situation is a moral dilemma. And it is doubtful that your father will understand your failure to tell him when he loses most of his investment.
The confidentiality standards explicitly prohibit "disclosing
confidential information acquired in the course of their work . . . " and
"using or appearing to use confidential information . . . for unethical or illegal advantage either personally or through third parties." The latter provision probably applies even if the management accountant does not gain from the disclosure. (The person in the current situation could gain through