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Three Accounting Cases Problems

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Question;PROBLEM1-31;AccuSound Corporation;manufactures printed circuits for stereo amplifiers. A common product defect is;a ?drift? caused by failure to maintain precise heat levels during the;production process. Rejects from the 100 percent testing program can be;reworked to acceptable levels if the defect is drift. However, in a recent;analysis of customer complaints, Marie Allen, the assistant controller, and the;quality control engineer determined that normal rework does not bring the;circuits up to standard. Sampling showed that about half of the reworked;circuits will fail after extended amplifier operation. The incidence of failure;in the reworked circuits is projected to be about 10 percent over five years.;Unfortunately, there is;no way to determine which reworked circuits will fail, because testing will not;detect the problem. The rework process could be changed to correct the problem;but the cost-benefit analysis for the suggested change indicates that it is not;economically feasible. AccuSound?s marketing analyst has indicated that this;problem will have a significant impact on the company?s reputation and customer;satisfaction. Consequently, the board of directors would interpret this problem;as having serious negative implications for the company?s profitability.;Allen included the;circuit failure and rework problem in her report prepared for the upcoming;quarterly meeting of the board of directors. Due to the potential adverse;economic impact, Allen followed a long-standing practice of highlighting this;information. After reviewing the reports to be presented, the plant manager and;his staff complained to the controller that he should control his people;better. ?We can?t upset the board with this kind of material. Tell Allen to;tone that down. Maybe we can get it by the board in this meeting and have some;time to work on it. People who buy those cheap systems and play them that loud;shouldn?t expect them to last forever.?;The controller called;Allen into his office and said, ?Marie, you?ll have to bury this one. The;probable failure of reworks can be mentioned briefly in the oral presentation;but it should not be mentioned or highlighted in the advance material mailed to;the board.?;Allen feels strongly;that the board will be misinformed on a potentially serious loss of income if;she follows the controller?s orders. Allen discussed the problem with the;quality control engineer, who simply remarked, ?That?s your problem, Marie.?;Required;Discuss the ethical;considerations that Marie Allen should recognize in deciding how to;proceed.;Explain what ethical;responsibilities should be accepted by (a) the controller, (b);the quality control engineer, and (c) the plant manager.;What should Marie Allen do?;Explain your answer.;PROBLEM 1-32;Urban Elite Apparel;designs women?s apparel and sells it through retail outlets across the country.;All of the company?s clothing lines are manufactured by contract manufacturers;around the world. A division manager is responsible for each of the company?s;retail divisions. Each division?s controller, assigned by the corporate;controller?s office, manages the division?s accounting system and provides;analysis of financial information for the division manager. The division manager;evaluates the performance of the division controller and makes recommendations;for salary increases and promotions. However, the final responsibility for;promotion evaluation and salary increases rests with the corporate controller.;Each of Urban Elite;Apparel?s divisions is responsible for product design, sales, pricing;operating expenses, and profit. However, corporate management exercises tight;control over divisional financial operations. For example, all capital;expenditure above a modest amount must be approved by corporate management. The;method of financial reporting from the division to corporate headquarters;provides further evidence of the degree of financial control. The division;manager and the division controller submit to corporate headquarters separate;and independent commentary on the financial results of the division. Corporate;management states that the division controller is there to provide an;independent view of the division?s operations, not as a spy.;Required;Discuss the arrangements for;line and staff reporting in Urban Elite Apparel.;The division manager for Urban;Elite Apparel has a ?dual reporting? responsibility. The controller is;responsible both to the division manager, who makes recommendations on;salary and promotion, and to the corporate controller;who has the final say in such matters.;Identify and discuss the;factors that make the division controller?s role difficult in this type;of situation.;Discuss the effect of the dual;reporting relationship on the motivation of the divisional controllerCase 1-33;Progressive Applications;Corporation, a developer and distributor of business applications software, has;been in business for five years. The company?s main products include programs;used for list management, billing, and accounting for the mail order shopping;business. Progressive?s sales have increased steadily to the current level of;$25 million per year. The company has 250 employees.;Andrea Nolan joined;Progressive approximately one year ago as accounting manager. Nolan?s duties;include supervision of the company?s accounting operations and preparation of;the company?s financial statements. No one has noticed that in the past six;months Progressive?s sales have ceased to rise and have actually declined in;the two most recent months. This unexpected downturn has resulted in cash;shortages. Compounding these problems, Progressive has had to delay the;introduction of a new product line due to delays in documentation preparation.;Progressive contracts;most of its printing requirements to Web Graphic Inc., a small company owned by;Rob Borman. Borman has dedicated a major portion of his printing capacity to;Progressive?s requirements because Progressive?s contracts represent;approximately 50 percent of Web Graphic?s business. Nolan has known Borman for;many years, as a matter of fact, she learned of Progressive?s need for an;accounting manager through Borman.;While preparing;Progressive?s most recent financial statements, Nolan became concerned about;the company?s ability to maintain steady payments to its suppliers, she;estimated that payments to all vendors, normally made within 30 days, could;exceed 75 days. Nolan is particularly concerned about payments to Web Graphic;she knows that Progressive had recently placed a large order with Web Graphic;for the printing of the new product documentation, and she knows that Web;Graphic will soon be placing an order for the special paper required for;Progressive?s documentation. Nolan is considering telling Borman about;Progressive?s cash problems, however, she is aware that a delay in the printing;of the documentation would jeopardize Progressive?s new product.;Required;Describe Nolan?s ethical;responsibilities in this situation.;Independent of your answer to;requirement (1), assume that Nolan learns that Borman of Web Graphic has;decided to postpone the special paper order required for Progressive?s;printing job, Nolan believes Borman must have heard rumors about;Progressive?s financial problems from some other source because she has;not talked to Borman. Should Nolan tell the appropriate Progressive;officials that Borman has postponed the paper order? Explain your answer.;Independent of your answers to;the first two requirements, assume that Borman has decided to postpone the;special paper order because he has learned of Progressive?s financial;problems from some source other than Nolan. In addition, Nolan realizes;that Jim Grason, Progressive?s purchasing manager, knows of her friendship;with Borman. Now Nolan is concerned that Grason may suspect she told;Borman of Progressive?s financial problems when Grason finds out Borman;has postponed the order. Describe the steps that Nolan should take to;resolve this situation.

 

Paper#39055 | Written in 18-Jul-2015

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