$$ Exercise $125$

Managerial Accounting and Decision Making

$($LO $1-1,1-2,1-3)$

Give an example of managerial accounting information that could help a manager make each of the following decisions.

The president of Budget Rent a Car is deciding whether to add luxury cars to the rental car fleet.

The production manager in a Volvo Trucks plant is deciding whether to have routine maintenance performed on a machine weekly or biweekly.

The manager of a Target store is deciding how many security personnel to employ for the purpose of reducing shoplifting.

The Miami$-$Dade County board of representatives is deciding whether to build an addition onto one of the couProblem $130$

Balanced Scorecard; Airline

$($LO $1-3)$

Susan Lopez, a consultant with Deloitte & Young, has just begun an engagement at Four Corners Airlines, which is based in Santa Fe$,$ New Mexico. The company has fallen on hard times of late despite record profits for the rest of the airline industry. Management is somewhat set in its ways and could probably use some $$new blood,$$ as the most recent hire to the firm$$s executive team was $12$ years ago.

In Lopez$$s first meeting with the team, the airline$$s chief executive officer commented that $$all that mattered in this industry were load factors$$the percentage of seats sold on scheduled flights. If load factors were adequate, everything else would take care of itself.$$ Lopez noted that while this measure was important, other, broader facets of operation were significant as well. She asked if any of the management team had heard of the balanced scorecard, and received dead silence as a response.

Based on her experiences with other engagements, including two that involved airlines, Lopez was convinced that the balanced scorecard could provide benefits in helping to solve the airline$$s woes. After a presentation about the philosophy of the balanced scorecard, Four Corners Airlines$$ management team accepted her idea, feeling that a shift in operating philosophy was needed for survival.

Required:

What is a balanced scorecard, and what are its typical key elements?

Lopez wants to assemble a committee to prepare the airline$$s balanced scorecard. List several of the company$$s functional areas $($e$.$g$.,$ marketing$)$ that should be represented on the committee.

Identify a number of measures to evaluate the key elements that you specified in requirement $1.$ Measures would include items such as load factors, number of passenger complaints, percentage of on$-$time arrivals, and so forth.

Do you see any problems with management$$s prior focus on only one measure $($i$.$e$.,$ load factor$)?$ Briefly explain.

$$ Exercise $228$

Cost Classifications

$($LO $2-2,2-8,2-9)$

Consider the following costs that were incurred during the current year:

Tire costs incurred by Ford Motor Company.

Sales commissions paid to the sales force of Dell Inc.

Wood glue consumed in the manufacture of Rooms To Go furniture $($assume that the cost of glue used is insignificant$).$

Hourly wages of refinery security guards employed by ExxonMobil.

The salary of a financial vice president of Hewlett Packard.

Advertising costs of Coca$-$Cola.

Straight$-$line depreciation on factory machinery of Boeing Corporation.

Wages of assembly$-$line personnel of Whirlpool Corporation.

Delivery costs incurred by Ben & Jerry$$s for a shipment of their ice cream to a grocery store.

Newsprint consumed in printing at The New York Times.

Plant insurance costs of Texas Instruments.

LED costs incurred in light$-$bulb manufacturing of GE Lighting.

Required:$$Evaluate each of the preceding and determine whether the cost is $($a$)$ a product cost or a period cost, $($b$)$ variable or fixed in terms of behavior, and $($c$)$ for the product costs only, whether the cost is properly classified as direct material, direct labor, or manufacturing overhead. Item $1$ is done as an example.

$1.$ Tire costs: Product cost, variable, direct material

$$ Problem $243$

Schedules of Cost of Goods Manufactured and Sold; Income Statement

$($LO $2-1,2-3,2-5,2-6)$

$2.$ Cost of goods sold: $$580,000$

The following data refer to San Fernando Fashions Company for the year $20$x$2$:

Sales revenue $$950,000$

Work$-$in$-$process inventory, December $3130,000$

Work$-$in$-$process inventory, January $140,000$

Selling and administrative expenses $150,000$

Income tax expense $90,000$

Purchases of raw material $180,000$

Raw$-$material inventory, December $3125,000$

Raw$-$material inventory, January $140,000$page $71$

Direct labor $200,000$

Utilities: plant $40,000$

Depreciation: plant and equipment $60,000$

Finished$-$goods inventory, December $3150,000$

Finished$-$goods inventory, January $120,000$

Indirect material $10,000$

Indirect labor $15,000$

Other manufacturing overhead $80,000$

Required:

Prepare San Fernando Fashions$$ schedule of cost of goods manufactured for the year.

Prepare San Fernando Fashions$$ schedule of cost of goods sold for the year.

Prepare San Fernando Fashions$$ income statement for the year.

Build a spreadsheet: Cons