MANAGERIAL ACCOUNTING OF GREEN COMPANY

QUESTION

ETHICS CHALLENGE [LO2]

The top management of General Electronics, Inc., is well known for “managing by the numbers.” With an

eye on the company’s desired growth in overall net profit, the company’s CEO (chief executive officer)

sets target profits at the beginning of the year for each of the company’s divisions. The CEO has stated

her policy as follows: “I won’t interfere with operations in the divisions. I am available for advice, but the

division vice presidents are free to do anything they want so long as they hit the target profits for the year.”

In November, Stan Richart, the vice president in charge of the Cellular Telephone Technologies Divi-

sion, saw that making the current year’s target profit for his division was going to be very difficult. Among

other actions, he directed that discretionary expenditures be delayed until the beginning of the new year.

On December 30, he was angered to discover that a warehouse clerk had ordered $350,000 of cellular

telephone parts earlier in December even though the parts weren’t really needed by the assembly depart-

ment until January or February. Contrary to common accounting practice, the General Electronics, Inc.,

Accounting Policy Manual states that such parts are to be recorded as an expense when delivered. To

avoid recording the expense, Mr. Richart asked that the order be canceled, but the purchasing department

reported that the parts had already been delivered and the supplier would not accept returns. Because the

bill had not yet been paid, Mr. Richart asked the accounting department to correct the clerk’s mistake by

delaying recognition of the delivery until the bill is paid in January.

Required:

1. Are Mr. Richart’s actions ethical? Explain why they are or are not ethical.

2. Do the general management philosophy and accounting policies at General Electronics encourage or

discourage ethical behavior? Explain.

SOLUTION

1. Green Company’s costs for the month of August were as follows: direct materials, $27,000; direct labor, $34,000; selling, $14,000; administrative, $12,000; and manufacturing overhead, $44,000. The beginning work in process inventory was $16,000 and the ending work in process inventory was $9,000. What was the cost of goods manufactured for the month?

Answer

3 points

Question 2

1. Consider the following costs incurred in a recent period:

2. What was the total amount of the period costs listed above for the period?
3. Answer

3 points

Question 3

1. The following inventory balances relate to Lequin Manufacturing Corporation at the beginning and end of the year:

2. Lequin’s total manufacturing cost was $543,000. What was Lequin’s cost of goods sold?
3. Answer

3 points

Question 4

1. Corcetti Company manufactures and sells prewashed denim jeans. Large rolls of denim cloth are purchased and are first washed in a giant washing machine. After the cloth is dried, it is cut up into jean pattern shapes and then sewn together. The completed jeans are sold to various retail chains.

Which of the following terms could be used to correctly describe the cost of the soap used to wash the denim cloth?

Answer

3 points

Question 5

1. The variable cost per unit is constant and does not depend on how many units are produced.

AnswerTrue
False

3 points

Question 6

1. Which two terms below describe the wages paid to security guards that monitor a factory 24 hours a day?

Answer

3 points

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Links to Test Questions and AnswersRead question 1Read answers for question 1Read question 2Read answers for question 2Read question 3Read answers for question 3Read question 4Read answers for question 4Read question 5Read answers for question 5Read question 6Read answers for question 6

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