1. Business Decision Case Elizabeth Flanigan and Associates is an engineering and design firm that specializes...
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1. Business Decision Case Elizabeth Flanigan and Associates is an engineering and design firm that specializes in developing plans for recycling plants for municipalities. The firm uses a job costing system to accumulate the cost associated with each design project. Flanigan employs three levels of employee: senior engineers, associate engineers, and clerical staff. The salary cost of the senior en- gineers and the associate engineers is assigned to each project as direct labor. The salary cost of the clerical staff is included in overhead, along with the cost of engineering supplies, automobile travel, and equipment depreciation. The cost of airline travel, motels, building permits, and fees from other consultants is charged to each project as direct materials. Overhead is applied to projects using a predetermined overhead rate based on total engineering hours. The rate for 20X0 is $5 per hour. The six different salary levels for 20X1 for the employees of Elizabeth Flanigan and Associates are listed below. The hourly rate is determined by dividing the yearly salary by 2,000 hours per year. Senior engineer Level 1: $44.000 per year ($22 per hour) Level 2 $36,000 per year ($18 per hour) Associate engineer Lovel 3: $30,000 per year ($15 per hour) Level 4: $24,.000 per year (S12 per hour) Clerical staft Level 5: $16,000 per year (S8 per hour) Level 6: $14,500 per year (57.25 per hour) The billings that are sent to the municipalities for engineering services utilize cost-plus billing. Typically, the total costs accumulated for a project (direct materials, direct labor, and overhead) are multiplied by 140% to determine the amount of the billing. The difference between the billed amount and the accumulated cost is the "plus" in cost plus. During March 20X1, Flanigan accumulated the following information related to Job 295 for Johnson Creek City: Senlor engineer hours Level 1 52 84 Level 2 Associate engineer hours Level 3 106 44 Level 4 Clerical hours Level 5 20 Level 6 Building permits Airline travel and motel $1,500 S865 Required What amount should be billed to Johnson Creek City for March 20X1? b. How much profit was earned on Job 295 during March 20X1? a. EYK3-2. Corporate Social Responsibility Problem The CSR box in this chapter discusses CH2M Hill's ef- forts to offer summer programs at no cost introducing underrepresented groups to STEM education. The company's stated goal is twofold: to increase the pool of future engineering talent and to build better communities. Some would look at these efforts as costly programs with no tangible financial benefit. There is certainly no guarantee that these children will work for CH2M Hill in the future, or even that they will choose careers in engincering. In fact, these efforts may end up supplying talent for CH2M Hill's competitors and driving up future engineering wages. What do you think? EYK3-3, Ethies Case Metal Creations, Inc., is a custom manufacturer that uses a job order costing system. Currently, Metal Creations has 35% excess capacity in its factory. Charlie Rollins, the president, has instituted a campaign to obtain new customers. Rollins has offered the salespeople a bonus equal to 25% of the gross profit on work for new customers. The average gross profit rate has been 30% of the contract price. Steve Starling, the sales manager for Metal Creations, wants to submit a proposal to a new customer that undercuts the usual pricing structure by 30%. As a result, this job would have no gross profit using the regular job order costing system. Instead, Starling suggests that the overhead rate applied to this job should be only 40% of the normal overhead rate, resulting in a gross profit of 28%. Starling suggests that the controller should handle this contract herself, and that no one else in the organization should know about it, especially the other salespeople, because the creative approach to overhead application might create problems. Required Does taking an order at a significantly reduced price create an ethical problem? Does altering the accounting for a particular order create an ethical problem? Does asking the controller to handle the contract and keep the accounting confidential create an ethical problem? 1. Business Decision Case Elizabeth Flanigan and Associates is an engineering and design firm that specializes in developing plans for recycling plants for municipalities. The firm uses a job costing system to accumulate the cost associated with each design project. Flanigan employs three levels of employee: senior engineers, associate engineers, and clerical staff. The salary cost of the senior en- gineers and the associate engineers is assigned to each project as direct labor. The salary cost of the clerical staff is included in overhead, along with the cost of engineering supplies, automobile travel, and equipment depreciation. The cost of airline travel, motels, building permits, and fees from other consultants is charged to each project as direct materials. Overhead is applied to projects using a predetermined overhead rate based on total engineering hours. The rate for 20X0 is $5 per hour. The six different salary levels for 20X1 for the employees of Elizabeth Flanigan and Associates are listed below. The hourly rate is determined by dividing the yearly salary by 2,000 hours per year. Senior engineer Level 1: $44.000 per year ($22 per hour) Level 2 $36,000 per year ($18 per hour) Associate engineer Lovel 3: $30,000 per year ($15 per hour) Level 4: $24,.000 per year (S12 per hour) Clerical staft Level 5: $16,000 per year (S8 per hour) Level 6: $14,500 per year (57.25 per hour) The billings that are sent to the municipalities for engineering services utilize cost-plus billing. Typically, the total costs accumulated for a project (direct materials, direct labor, and overhead) are multiplied by 140% to determine the amount of the billing. The difference between the billed amount and the accumulated cost is the "plus" in cost plus. During March 20X1, Flanigan accumulated the following information related to Job 295 for Johnson Creek City: Senlor engineer hours Level 1 52 84 Level 2 Associate engineer hours Level 3 106 44 Level 4 Clerical hours Level 5 20 Level 6 Building permits Airline travel and motel $1,500 S865 Required What amount should be billed to Johnson Creek City for March 20X1? b. How much profit was earned on Job 295 during March 20X1? a. EYK3-2. Corporate Social Responsibility Problem The CSR box in this chapter discusses CH2M Hill's ef- forts to offer summer programs at no cost introducing underrepresented groups to STEM education. The company's stated goal is twofold: to increase the pool of future engineering talent and to build better communities. Some would look at these efforts as costly programs with no tangible financial benefit. There is certainly no guarantee that these children will work for CH2M Hill in the future, or even that they will choose careers in engincering. In fact, these efforts may end up supplying talent for CH2M Hill's competitors and driving up future engineering wages. What do you think? EYK3-3, Ethies Case Metal Creations, Inc., is a custom manufacturer that uses a job order costing system. Currently, Metal Creations has 35% excess capacity in its factory. Charlie Rollins, the president, has instituted a campaign to obtain new customers. Rollins has offered the salespeople a bonus equal to 25% of the gross profit on work for new customers. The average gross profit rate has been 30% of the contract price. Steve Starling, the sales manager for Metal Creations, wants to submit a proposal to a new customer that undercuts the usual pricing structure by 30%. As a result, this job would have no gross profit using the regular job order costing system. Instead, Starling suggests that the overhead rate applied to this job should be only 40% of the normal overhead rate, resulting in a gross profit of 28%. Starling suggests that the controller should handle this contract herself, and that no one else in the organization should know about it, especially the other salespeople, because the creative approach to overhead application might create problems. Required Does taking an order at a significantly reduced price create an ethical problem? Does altering the accounting for a particular order create an ethical problem? Does asking the controller to handle the contract and keep the accounting confidential create an ethical problem?
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