127. A restaurant is deciding whether it wants to update its image or not. It currently has a cozy
appeal with an outdated décor that is still in good condition, menus and carpet that need to be
replaced anyway, and loyal customers. Identify the following for the restaurant management:
a. Costs that are relevant to this decision.
b. Costs that would not be differential to this decision.
c. Any qualitative factors that should be considered.
128. You have been employed as an entry-level management accountant for a little under a
year. You suspect that your immediate supervisor is involved in a significant fraud involving
diverting of company assets to personal use. Briefly describe the steps you might take to resolve
this dilemma.
129. Healthy Dog, Inc., currently manufactures three different types of scientifically balanced
dog food. The firm is considering eliminating one of the three products. What factors should be
taken into account in making this decision?
130. Comstock Mining Company mines iron ore for production into various metal products.
During recent years, the company has had large fluctuations in its inventories of metal ingots.
Much of the volatility of the inventory levels is due to the variability of demand by the company’s
largest customers, automobile manufacturers. For large orders, the company has the technology
to quickly shift production from one product to another. Explain how the company can improve its
inventory control system and give the advantages of whatever you recommend.
131. JIT is a large, publicly held Corporation. The company does about 80% of its work in
government contracts. All contracts use a cost plus fixed fee basis; costs of jobs are agreed upon
by contract. Any overruns will result in losses to the company. The company controller, Brendan
Behan CPA, CMA, is discussing two current jobs with the Job Supervisor, Ashlee Beth. Job 100 is
currently coming in under budget, but due to construction problems, Job 102 is 20% over budget.
Behan is considering the possibility of having employees who work on Job 102 record their time to
Job 101. What are the implications of this decision?
132. The owner of a small retail business asks, “Why do I need cost accountants? My CPA
produces financial statements, which are sufficient for me to discover my costs. Look at my
Income Statement. I expect sales to increase by 10% next year, so I am planning on a 10%
increase in profits. I don’t need a cost accountant to tell me that.”
Use your knowledge of the concept of differential costs and explain why a cost accountant would
question the conclusion that a 10% increase in sales would yield a 10% increase in profit.
133. Create a diagram of the value chain by putting the following components into the correct
order: a) purchasing; b) marketing and sales; c) research and development; d) customer service;
e) distribution; f) design; g) production.
134. Explain the difference between a value chain, a supply chain, and a distribution chain.
135. Compare financial accounting and cost accounting using the following concepts: users of
the information; important criteria; who establishes or defines the system; and how to determine
an accounting treatment.
136. The IMA Code of Ethics describes three basic steps a cost accountant should take when
faced with an ethical conflict: Discuss, clarify, and consult. Describe each of these three steps.
137. Respond to this comment: “Since cost accountants just prepare accounting data for
internal management, cost accountants do not need to be concerned with GAAP or IFRS.”
138. What are characteristics of information used in decision making? I
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139. The Finger Curl is a small but prosperous hair cutting salon. Sally Henry, the manager of
the salon, has been asked by several clients if she will ever offer other “hair related” services (e.g.,
perm, dye, etc). After careful thought, Henry is considering expanding her offerings. However, in
order to do so, she will have to hire one additional stylist at a salary of $26,000 per year. Other
expenses will increase as follows: rent by 20%, supplies and utilities by 25%, and miscellaneous
expenses by 10%. Her revenues from additional services are likely to be $55,000 for the next year
(i.e., 2013). The Finger Curl’s income statement for the most recent year is presented below.
Required:
a. Based on your financial analysis, should Sally Henry go ahead with the expansion?
b. What other factors must Henry consider before making a final decision?
a. Based on your financial analysis, should Sally Henry go ahead with the expansion?
b. What other factors must Henry consider before making a final decision?
