Problem 2-20 (30 minutes)
1. Mr. Richart’s first action was to direct that discretionary expenditures be
delayed until the first of the new year. Providing that these
“discretionary expenditures” can be delayed without hampering
operations, this is a good business decision. By delaying expenditures,
recognition of the delivery until the bill is paid in January. This action is
dubious. Asking the accounting department to ignore transactions
strikes at the heart of the integrity of the accounting system. If the
accounting system cannot be trusted, it is very difficult to run a business
or obtain funds from outsiders. However, in Mr. Richart’s defense, the
rather than as an expense. If the correct accounting policy were
followed, there would be no reason for Mr. Richart to ask the accounting
department to delay recognition of the delivery of the raw materials.
This flawed accounting policy creates incentives for managers to delay
deliveries of raw materials until after the end of the fiscal year. This
Problem 2-24 (45 minutes)
1.
Selling or
Cost Behavior
Administrative
Product Cost
Cost Item
Variable
Fixed
Cost
Direct
Indirect
Direct materials used (wood, glass) …..
$430,000
$430,000
Administrative office salaries ……………
$110,000
$110,000
Factory supervision ………………………..
70,000
$ 70,000
Sales commissions …………………………
60,000
60,000
Depreciation, factory building …………..
105,000
105,000
Depreciation, admin. office equipment .
2,000
2,000
Indirect materials, factory ……………….
18,000
18,000
Factory labor (cutting and assembly) …
90,000
90,000
Advertising …………………………..………
100,000
100,000
Insurance, factory ……………..…………..
6,000
6,000
Administrative office supplies ……………
4,000
4,000
Property taxes, factory ……………………
20,000
20,000
Utilities, factory …………………………….
45,000
45,000
Total costs ………………..…………………
$647,000
$413,000
$276,000
$520,000
$264,000
Case 2-25 (30 minutes)
1. The scattergraph of janitorial labor cost versus the number of units
