6. Manufacturing cycle times 7. Quality E1-24A Prepare a Cost of Quality Report (Learning Objective 7) The CEO of Salty Snackfoods is concerned about the amount of resources currently spent on customer warranty claims. Each box of snacks is printed with the guarantee "Satisfact guaranteed or your money back." Since the claims are so high, she would like to evaluate what costs are being incurred to ensure the quality of the product. The following information was collected from various departments within the company: $400,000 Total appriasal costs Warranty claims.. 94,000 Cost of defective products found at the inspection point....... 26,000 Training factory personnel....... 175,000 Recall of Batch #59374 Inspecting products halfway through the production process. 55,000 Cost of disposing of rejected products.... 12,000 Preventive maintenance on factory equipment.. 7,000 Production loss due to machine breakdowns.. 15,000 Inspection of raw materials.... 5,000 Requirements 1. Prepare a Cost of Quality Report. In addition to listing the costs by category, determine the percentage of the total costs of quality incurred in each cost category. 2. Do any additional subjective costs appear to be missing from the report? 3. What can be learned from the report? E1:25A Classify costs and make a quality-initiative decision (Learning Objective 7) Chihooli manufactures radiation-shielding glass panels. Suppose Chihooli is considering spending the following amounts on a new TQM program: Strength-testing one item from each batch of panels.. $65,000 Training employees in TQM..... 30,000 Training suppliers in TQM......... 40,000 Identifying preferred suppliers who commit to on-time delivery of perfect quality materials ....... 60,000 Chihooli expects the new program to save costs through the following: Avoid lost profits from lost sales due to disappointed customers ...... $90,000 Avoid rework and spoilage ..... 55,000 Avoid inspection of raw materials ...... Avoid warranty costs .......... 45,000 15,000 Requirements 1. Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. 2. Should Chihooli implement the new quality program? Give your reason.g. Firms adopt to conduct business on the internet. h. Firms acquire the certification to demonstrate their commitment to quality. i. is a philosophy that embraces the concept that the lower the company's waste, the lower the company's costs. i. is a data-tagging system that enables companies to release financial and business information in a format that can be quickly, efficiently, and cost-effectively accessed, sorted, and analyzed over the internet. k. Canadian companies were expected to adopt. for all publicly traded companies by 2011, which differs from the ASPE that companies are currently required to use. 1. Toyota first pioneered an inventory philosophy in which a product is manufactured to fill customer orders; companies are able to substantially reduce the quantity of raw materials and finished goods inventories m. is a management philosophy of delighting customers with superior products and services by continually setting higher goals and improving the performance of every business function. E1-21A Summarize the Sarbanes-Oxley Act (Learning Objective 5) You just obtained an entry-level job as a management accountant at an international firm based in Winnipeg. Other newly hired accountants have heard of the Sarbanes-Oxley Act of 2002 (SOX) but do not know much about it. (They attended a different university.) Write a short memo to your colleagues discussing the reason for SOX, some of the specific require- ments of SOX that will affect your company, and why this is applicable to the Canadian firm that you work for. E1-224 Lean production cost-benefit analysis (Learning Objective 6) Check sum: Total costs of lean Wild Rices manufactures snowboards. Mohammad Al-Zoubi, the CEO, is trying to production are $60,000. decide whether to adopt a lean production model. He expects that adopting lean pro- duction would save $97,000 in warehousing expenses and $46,000 in spoilage costs. However, adopting lean production will require several one-time up-front expenditures: (1) $15,090 for an employee training program, (2) $37,000 to streamline the plant's production process, and (3) $8,000 to identify suppliers that will guarantee zero defects and on-time delivery. Requirements 1. What are the total costs of adopting lean production? 2. What are the total benefits of adopting lean production? 3. Should Wild Rides adopt lean production? Why or why not? Scanned with CamScanner CHAPTER 1 E1-23A Differentiate between traditional and lean production (Learning Objective 6) Briefly describe how lean production systems differ from traditional production systems using each of the following dimensions: 1. Inventory levels 2. Batch sizes 3. Set-up times 4. Physical layout of plant 5. Roles of plant employees4. Recognize and communicate professional limitations that would preclude responsible judgment or successful performance of an activity. 5. Mitigate actual conflicts of interest. Regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts. 6. Provide decision support information and recommendations that are accurate, clear, concise, and timely. 7. Abstain from engaging in or supporting any activity that might discredit the profession. 8. Disclose all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations. 9. Inform all relevant parties regarding the appropriate use of confidential information. Monitor subordinates' activities to ensure compliance. 10. Perform professional duties in accordance with relevant laws, regulations, and techni- cal standards. 11. Refrain from engaging in any conduct that would make it difficult to carry out duties ethically. 12. Keep information confidential except when disclosure is authorized or legally required 13. Disclose delays or deficiencies in information, timeliness, processing, or internal con- trols in conformance with organization policy and/or applicable law. E1-20A Define key terms (Learning Objective 5) Complete the following statements with one of the terms listed here. You may use a term more than once, and some terms may not be used at all. Scanned with CamScanner Introduction to Managerial Accounting 39 CHAPTER 1 E-commerce Shift to service economy Future Sarbanes-Oxley Act of 2002 Just in time ISO 9001:2008 Present Lean production Supply-chain management IFRS ERP Cross-functional teams Total quality management XBRL a. is a language that uses a standardized coding system companies use to tag each piece of financial and business information in a format that can be quickly and efficiently accessed over the internet. b. involves the exchange of information with suppliers to reduce costs, improve quality, and speed delivery of goods and services from suppliers to the company and its customers. c. The was enacted to restore trust in publicly traded corporations, their management, their financial statements, and their auditors. d. The goal of is to meet customers' expectations by providing them with superior products and services by eliminating defects and waste throughout the value chain. e. Most of the costs of adopting ERP, expanding into a foreign market, or improving quality are incurred in the_ _; but most of the benefits occur in the f. serves the information needs of people in accounting as well as people in mar- keting and in the warehouse.12. Nova Scotia Securities Commission employee 13. External auditor (public accounting firm) 14. Internal auditor E1-16A Classify roles within the organization (Learning Objective 3) Complete the following statements with one of the terms listed here. You may use a term more than once, and some terms may not be used at all. Audit committee Board of directors CEO CFO Treasurer Controller Cross-functional teams COO Scanned with CamScanner PTER 1 The and the report to the CEO. b. The internal audit function reports to the CFO or and the is directly responsible for financial accounting, managerial accounting, a; c. The. tax reporting. d. The CEO is hired by the e. The is directly responsible for raising capital and investing funds. f. The _ is directly responsible for the company's operations. . Management accountants often work with h. A subcommittee of the board of directors is called the E1-17A Professional organizations and certification (Learning Objective 4) Describe areas of focus in contemporary managerial accounting. E1-18A Ethical dilemma (Learning Objective 4) Mary Gonzales is the controller at CarTown, a car dealership. She recently hired Anik Cousineau as a bookkeeper. Cousineau wanted to attend a class on Excel spreadsheets, so Gonzales temporarily took over Cousineau's duties, including overseeing a fund for topping off a car's gas tank before a test drive. Gonzales found a shortage in this fund and con- fronted Cousineau when she returned to work. Cousineau admitted that she occasionally uses this fund to pay for her own gas. Gonzales estimated that the amount involved is close to $300. Requirements 1. What should Gonzales do? 2. Would you change your answer to the previous question if Gonzales was the one recently hired as controller and Cousineau was a well-liked, long-time employee who indicated that she always eventually repaid the fund? E1-19A Classify ethical responsibilities (Learning Objective 4) Comment on each of the following responsibilities to which a professional accountant should adhere. How do they relate to ethical practice? 1. Refrain from using confidential information for unethical or illegal advantage. 2. Maintain an appropriate level of professional expertise by continually developing knowl- edge and skills. 3. Communicate information fairly and objectively.II'IUOCIIICIIOII [u ldlld'clll nuuuunuus EXERCISES Group A m ManagerS' responsibilities (Learning Objective 1) Categorize each of the following activities according to which management responsibility it fulfills: plannlng. dlrectlng. controlling. or decision making. Some activities may fulfill more than one responsibility. .1. Management conducts variance analysis by comparing budget to actual. 1:. Management reviews hourly sales reports to determine the level of staffing needed to service customers. c. Management decides to increase sales by 10% next year. d. Management uses information on product costs to determine sales prices. e. To lower product costs. management moves production to Mexico. Dene key terms (Learning Objectives 1 8: 2) Complete the following statements with one of the terms listed here. You may use a term more than once. and some terms may not be used at all. Budget Creditors Managerial accounting Planning Controlling Financial accounting Managers Shareholders a. Companies must follow IFRS or ASPE in their systems. b. Financial accounting develops reports for external parties such as and c. When managers evaluate the company's performance compared to the plan. they are performing the responsibility of management. d. are decision makers inside a company. . provides information on a company's past performance to external parties. f. systems are not restricted by IFRS or ASPE but are chosen by comparing the costs and the benefits of the system. - g. Choosing goals and the means to achieve them is the __ function of management. h. systems report on various segments or business units of the company. I. statements of public companies are audited annually by public accountants. Identify users of accounting information (Learning Objective 3} For each of the following users of financial accounting information and managerial account- ing information, specify whether the user would primarily use frnancral accounting Informa- tion. managerial accounting information, or both. 1. Potential shareholders . 2. Loan officer at the company's bank '._ . 3. Manager of the Sales Department v 4. Bookkeeping Department - -. -_ .. -. 5. Managers at regional offices - r - 6. Canada Revenue Agency agent 7. Current shareholders 8. Toronto Stock Exchange analyst 9. News reporter 10. Company controller C. n....- -2 JE_-_L___ IM 30 CHAPTER 1 The CEO believes the company can earn sales profits from this expansion (before consider- ing the costs in the preceding paragraph) of $1,624,000. Requirement Use cost-benefit analysis to determine whether EZ-Rider should expand into Germany.SUMMARY PROBLEM 3 EZ-Rider Motorcycles is thinking about expanding into Germany. If gas prices increase, the com- pany expects more interest in fuel-efficient transportation, such as motorcycles. As a result, the company is considering setting up a motorcycle assembly plant on the outskirts of Berlin. EZ-Rider Motorcycles estimates it will cost $850,000 to convert an existing building to motorcycle production. Workers will need training, at a total cost of $65,000. The additional costs to organize the business and to establish relationships are estimated to be $150,000.SUMMARY PROBLEM 2 The CEO of Edmonton Auto Parts (EAP) is concerned with the quality of its products and the amount of resources currently spent on customer returns. The CEO would like to analyze the costs il'lCUl'l'Ed in conjunction with the quality of the product. . . The following cost Information was collected from various departments wrthrn the company; ___________________________________________.___._____ Warranty returns ............................................................................................. $120,000 Training personnel .......................................................................................... 10,000 Litigation on product liability claims ................................................................. 175,000 Inspecting 10% of final products ..................................................................... 5,000 Rework .......................................................................................................... 10.000 Production loss due to machine breakdown ....................................................... 45,000 Inspection of raw materials .............................................................................. $ 5,000 M Requirements 1. Prepare a Cost of Quality Report. In addition to listing the costs by category, determine the percentage of the total cost of quality incurred in each cost category. 2. Do any additional subjective costs appear to be missing from the report? 3. What can be learned from the report