Beyond the numbers-Critical thinking
Business decision case A Texas Company manufactures skateboards. Because the company's business is seasonal, between August and December skilled manufacturing employees are laid off. To improve morale, the financial vice president suggested that 10 employees not be laid off in the future. Instead, she suggested that they work in general labor from August to December but still be paid their manufacturing wages of USD 10 per hour. General labor personnel earn USD 6.60 per hour. What are the implications of this plan for the assignment of costs to the various segments of the business?
Business decision case B Piero Company builds new homes. Sarah Richards is in charge of the construction department. Among other responsibilities, Sarah hires and supervises the carpenters and other workers who build the homes. Piero Company does not do its own foundation work. The construction of foundations is done by subcontractors hired by Leslie Larue of the procurement department.
To start the development of a 500-home community, Larue hired Dire Company to build the foundations for the homes. On the day construction was to begin, Dire Company went out of business. Consequently, construction was delayed six weeks while Larue hired a new subcontractor. Which department should be charged with the cost of the delay in construction? Why?
Business decision case C Ken Silva is the supervisor of Department 103 of Laguna Company. The annual budget for Silva's department is as follows:
Annual budget for Department 103
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Small tools
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$ 6,750
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Set up
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7,500
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Direct labor
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8,250
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Direct materials
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15,000
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Supplies
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3,750
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Supervision
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22,500
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Property taxes
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3,750
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Property insurance
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750
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Depreciation, machinery
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1,500
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Depreciation, building
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1,500
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Total
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$ 71,250
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Silva's salary of USD 15,000 is included in supervision. The remaining USD 7,500 in supervision is the salary of the assistant supervisor directly responsible to Silva. Identify the budget items that Silva controls. Broader perspective - Writing experience D Refer to "A broader perspective: Employee buyouts". Write a brief report explaining the effects of employee buyouts on employee motivation.
Group project E Macrofast Software, Inc., faces stiff competition in selling its products. Macrofast's top management feels considerable pressure from the company's stockholders to increase earnings.
Mac Washington, the vice president of marketing at the company's Production Software Division, received a memorandum from top management that said, in effect, "Increase your division's earnings or look for a new job".
Washington could think of only one way to increase earnings by the end of the year. The Production Software Division had several installations that should be completed early the following year, probably in February or March. For each of those jobs, he asked the customers to sign a Completed Installation document stating the job was completed to the customer's satisfaction. He did this because Macrofast's accounting department would record the revenue from the job when it received the Completed Installation document.
Several customers signed Completed Installation documents even though the jobs were not complete because Washington gave them a personally signed letter stating the Completion Installation document was not legally binding.
The scheme initially worked. Revenues were prematurely recorded for these jobs, sales and earnings for the year were up, Macrofast's top management was delighted with the results, and Washington was rewarded with a large bonus and a promotion to a vice presidency at corporate headquarters.
The following June, a staff accountant discovered the scheme when a customer called to complain that he was being billed for a job that was not yet completed. When the accountant produced the customer's Completed Installation document, the customer produced Washington's letter saying the document was not binding. The accountant did some detective work and unearthed the scheme. When she presented the results to her supervisor, the supervisor said, "This practice is unfortunate and is against company policy. But what is done is done. Do not worry about last year's financial statements. Just be sure it does not happen again."
a. In teams of four, discuss what the staff accountant should do.
b. Then, decide how your solution would change if all jobs had been completed to the customers' satisfaction.
c. As a team, write a memorandum to your instructor describing your solutions. The heading of the memo should contain the date, to whom it is written, from whom, and the subject matter.
Group project F Bleak Prospects, Inc., found that its market share was slipping. Division managers were encouraged to maximize ROI and made decisions consistent with that goal. Nonetheless, there were frequent customer complaints, with resulting loss of business. Moreover, Bleak depended on an established product line and was unable to find new products for expansion while its competitors seemed to be able to generate new products almost yearly. What would you suggest Bleak Prospects' management do to improve the situation? In groups of two or three students, write a memorandum to your instructor addressing this question. The heading of the memorandum should contain the date, to whom it is written, from whom, and the subject matter.
Group project G Management of Division A is evaluated based on residual income measures. The division can either rent or buy a certain asset. Will the performance evaluation technique have an impact on the rent-or-buy decision? Why or why not? In groups or three students, write a memorandum to your instructor addressing this question. The heading of the memorandum should contain the date, to whom it is written, from whom, and the subject matter.