Question

Melody is an accountant at Centric, a large international firm where she works on potential acquisitions. When Centric is preparing to acquire a company, Melody is involved in filing the necessary paperwork with the Securities and Exchange Commission (SEC).

Melody has been dating Robert for two years; they are now discussing marriage. Robert works as a salesperson for an exercise equipment distributor.

Over the past two years, Melody has talked with Robert about what she’s doing at work. She does not go into great detail, but does occasionally mention company names. Melody has given her company phone passcode to Robert so he can answer calls for her or look things up for her when she’s the one driving. Robert has read some of her emails by using the phone passcode. He has also eavesdropped on a few phone conversations she has had when a colleague calls her from work with a question.

Unbeknownst to Melody, Robert has been sharing the information he has gotten from her with his stockbroker friend, Matt. Robert will call Matt to give him a “heads up” that Melody’s company is going to be acquiring another company soon.   Matt will then place an order to buy the stock of the company and will later split the profits with Robert.

Melody has not shared any information intentionally, nor has she directly profited from it.

REQUIRED:

Using the IMA Statement of Ethical Professional Practice on page 10 as an ethical framework, answer the following questions: (You can type in your answers after each question.)

1. What is (are) the ethical issue(s) in this situation? (2 pts.)

2. What are Melody’s responsibilities as a management accountant? (2 pts.)

3. Has Melody violated any part of the IMA Statement of Ethical Professional Practice? Support your answer by determining which standards have been violated. Explain. (2 pts.)

4. Suppose Melody has discovered what Robert and Matt are doing. What do you think she should do? (2 pts.)

Part 2 on next page! (MULTIPLE PARTS INCLUDED)

PART 2: Cost Classifications & Cost Assignment: Chapter 1

Total Points:   26 pts.

TA GRADING NOTES: Mark incorrect responses. Each correct amount in the correct column is worth ½ pt. Post student’s score to Bb.

Tiki, Inc. began production in January 2019 of a new aluminum patio table.    The new table set, which includes a table and four chairs, has been very popular with their customers this past year. The company produced 2,500 patio table sets in 2019.

REQUIRED: Part 1: (Worth 15 pts.)

Complete Part 1 using the answer sheet prepared below. For each annual cost item listed below, place the dollar amount under the appropriate headings.   As examples, the first two in the list below have been completed for you. Note that each item is classified in two ways: first, as either variable or fixed with respect to the number of units (table sets) produced and sold; and second, as either a selling and administrative cost or a product cost. If the listed cost is a product cost, it should be classified as direct or indirect with respect to the table set (which is the cost object).

                                                                                                       Cost Behavior              Period Costs                 Product Costs

Cost Item	Variable	Fixed	Selling & Administrative Costs	Direct	Indirect
Example: Direct materials used: $120,000 (aluminum, glass, etc.)	$120,000			$120,000
Example: Administrative office salaries: $30,000		$30,000	$30,000
1.    Sales commission: $20,000
2.    Depreciation, factory building: $10,000
3.    Depreciation, administrative office equipment: $4,000
4.    Indirect materials, factory: $7,000
5.    Factory labor (cutting and assembly): $140,000
6.    Advertising: $10,000
7.    Insurance, factory: $2,000
8.    Administrative office supplies (billing): $3,000
9.    Property taxes, factory: $12,000
10. Utilities, factory: $30,000
11. Factory supervision: $45,000
12. Lease cost, factory equipment: $10,000
13. Property taxes, administrative building: $3,000
14. Executive salaries: $160,000
15. Factory maintenance salaries: $60,000

Part 2: (Worth 5.5 pts.) Compute the average product cost per patio table set (show all computations):

Part 3: (Worth 5.5 pts.) Due to increase demand, assume that production will increase in 2020 to 3,000 patio table sets. Would you expect the average product cost per table set to increase, decrease, or remain unchanged? Explain. Do not just answer “increase”, “decrease”, or “remain unchanged.”

         

    Determine the new average product cost per table set if 3,000 units are produced next year in 2020.

Answer 1

Part 1:

		Cost Behavior		Period	Product
		Variable	Fixed	Selling and Administrative	Direct	Indirect
1.	Direct materials used	$120,000			$120,000
2.	Administrative Office Salaries		$30,000	$30,000
3.	Sales Commission	20,000		20,000
4.	Depreciation : Factory Building		10,000			$10,000
5.	Depreciation: Administrative Office Equipment		4,000	4,000
6.	Indirect Materials: Factory	7,000				7,000
7.	Factory Labor	140,000			140,000
8.	Advertising		10,000	10,000
9.	Insurance: Factory		2,000			2,000
10.	Administrative Office Supplies	3,000		3,000
11.	Property Taxes: Factory		12,000			12,000
12.	Utilities: Factory	30,000				30,000
13.	Factory Supervision		45,000			45,000
14.	Lease Cost: Factory Equipment		10,000			10,000
15.	Property Taxes: Administrative Building		3,000	3,000
16.	Executive Salaries		160,000	160,000
17.	Factory Maintenance Salaries		60,000			60,000
Total		$320,000	$346,000	$ 230,000	$260,000	$176,000

Part 2 :

Average cost per patio table = $ ( 260,000 + 176,000) / 2,500 units = $ 174.40

Part 3:

Average product cost will decrease due to economies of scale. While variable cost per unit will remain constant, fixed cost per patio will decrease, leading to decrease in average cost per unit.

New average product cost = $ ( 297,000 / 2,500 * 3,000 + 139,000) / 3,000 units = $165.13