Exam 1: Cost Management and Strategic Decision Making Evaluating Opportunities and Leading Change

Benefit-cost analysis is a technique for identifying opportunities for improvement and measuring the effects of proposed improvements by comparing both the costs and benefits of a proposal.

Match the following operations with appropriate elements of an organization's value chain. Value Chain Element -Writing of software programs at IBM's Lotus Division.

Management accountants have a responsibility to communicate only unfavorable professional judgments or opinions.

Greg Piff, a new assistant sales manager was faced with a dilemma. His supervisor, Kathleen Holbrook, instructed him to prepare an invoice for $300,000 in the name of General Builders, a regular customer. Upon refusing to comply with the request because no order was received, Holbrook explained to Piff that this was normal practice during the end of the year in order to meet or exceed the annual sales target. Holbrook also clarified that the goods will not be physically delivered to the customer and a reverse entry will be made in the accounting records during the next year. Piff is unsure about what is to be done because the amount is significant. He recollected that Holbrook had promised to give him a favorable review if he complied with the instruction. Piff has come to seek your advice as a professional, regarding the proper way to handle the situation in order to minimize the effects of any repercussions his actions may have. Required: (a) Does Greg have an ethical responsibility to take a course of action? (b) What course of action would you take? What course of action should Piff take? (c) Why is it important that such actions are curbed?

Briefly explain this statement: Cost Management is important to organizations because it is more than measuring and reporting product and service costs. It is a philosophy, an attitude and a set of techniques to create more value at lower costs.

Strategy is an organization's overall plan or policy to achieve its goals.

Match the following operations with appropriate elements of an organization's value chain. Value Chain Element -Inspection of incoming chip parts at IBM.

Email response to customers' questions and complaints is an example of the customer service aspect of the value chain.

Use the following to answer questions: Perry's Sandwich Department had the following summarized results for the month ending April 30: -If an additional 2,000 sandwiches were sold at the regular price, during additional store opening hours, identify the most appropriate conclusion in the report to management.

Cost accounting and cost management are the same functions and operations.

Teams are replacing individual decision makers in many organizations.

The eight-step process for implementing change in a successful organization begins with:

Match the following operations with appropriate elements of an organization's value chain. Value Chain Element -Updating Pottery Barn's electronic Internet catalogue of sporting goods and spring merchandise.

Which of the following would not be a member of a cross-functional team?

Castagna also observes that reworking a defective product consumes more labor time than making a unit from scratch. As a result, for every three units reworked, Mussell forgoes the production and sale of two units. Required: (a) Do you agree with Julie King that it is cheaper to scrap than rework a defective unit? Show your computations. (b) How can the cost information generated by Castagna be useful in reducing the number of defectives? Julie King, the production manager of Mussell Corporation is frustrated by the company's policy of not scrapping defective units but reworking them. She has pointed out several times to senior management that some units are beyond rework and should be scrapped. According to her, in most cases, it would be cheaper to scrap and build a new unit from scratch rather than trying to rework a defective unit. However, Paul Oasis, the CEO, is not convinced. She wants her controller, Mandie Castagna, to gather some information. After researching the problem, Castagna provides the following information:

Laurie Riley is a purchasing agent for a motorcycle manufacturer. Laurie is evaluating two potential suppliers of seats for the company's motercycles. One supplier (A) quotes a price of $165 per seat and assures 100% quality and delivery standards. The second supplier (B) quotes a price of $135 per seat but does not give any written assurances on quality or delivery. Riley is not sure which supplier should be awarded the contract. Assume you are the management accountant for the motorcycle manufacturer. Riley asks you to prepare an estimate of the related costs of buying the seats from supplier B. She tells you that the estimate is needed because unless dollar estimates are attached to nonfinancial factors, such as lost production costs, her supervisor will not give it full attention. Riley provides you with the following information: ● Production output is 2,000 motorcycles per year based on 250 production days a year. ● Production time per day is 8 hours at a cost of $4,000 per hour to run the production line. ● Lost production time due to poor quality is 1%. ● Satisfied customers purchase, on average, three motorcycles during a lifetime. ● Satisfied customers recommend the product, on average, to 5 other people. ● Marketing estimates that using the seat from supplier B will result in 5 lost customers per year from repeat business and referrals. ● Average contribution margin per motorcycle is $5,000. Required: Estimate the costs of buying motorcycle seats from supplier B. (Note: This problem requires you to think creatively and make reasonable estimates; therefore, there is more than one correct answer.)

Ignoring income taxes and assuming that cost of goods sold is a constant percentage of sales, calculate the maximum amount that would be economically optimal to spend on a security system if pilferage could be completely eliminated. Home Retail, Inc. wishes to appraise its security system in an effort to reduce pilferage for the coming period. The following details are estimated for the current period:

Use the following to answer questions: Perry's Sandwich Department had the following summarized results for the month ending April 30: -An example of a qualitative factor that should be considered in the benefit-cost analysis of opening the store for additional hours is:

Quantitative information is always more important than qualitative information in benefit-cost analysis.

Which of the following would be found in a high risk, high return strategic mission?