Discussion Questions for Profitable Expectations: An Accountant Rising to the Challenge

Chapters 35 - 41 I need answers for questions 4, 7,8,and 9

1. Were Rich, Chris, and Kelsey confident that the new model will provide accurate and relevant information to them? Why is their level of confidence in the cost information important?

The creators of the new model, Rich, Chris, and Kelsey, were highly confident in its ability to provide accurate and relevant information. This was because they knew intimately how their arenas operate, their challenges, and how their portion of the model should be designed. Following the model's creation, each was allowed to critique it and offer suggestions for improvement.

2. What did the Major suggest about allocating general and administrative expenses to products, calculating target margins, and measuring profit? Explain the logic behind these suggestions.

The Major proposed assigning general and administrative expenses as a percentage of cumulative activity costs, including an appropriate weighted average cost of capital. This would provide a rolled-up price for each product/customer to measure profit, which can be calculated as a percentage of either activity cost or value added to eliminate cost distortion.

3. What did Jim learn from the IMAs Statement on Management Accounting on the conceptual basis for managerial cost models?

Jim discovered from the IMA's Statement of Management Accounting that general and administrative expenses are associated with converting vendor materials into products and selling and distributing them. It is important to note that the costs are unrelated to the materials purchased from vendors and should not be attributed to them.

4. How did Jim incorporate the fact that equipment time times crew size didnt account for all the direct labor hours incurred during the models test period?

5. How did Marcella get comfortable with PlumbCo Cost Model v.1.? What would it take for you to get comfortable with it?

Marcella learned about PlumbCo's cost model by listening to Jim's clear explanation and demonstration. She then tested the model by proposing various decision scenarios, and each time, the model provided a financially reasonable and understandable solution.

6. What insights can the model provide Chris? How can Chris use those insights to improve the business?

Chris has the ability to utilize the model to compare the equipment hours earned for each activity center and compare them to the actual equipment hours. This will provide PlumbCo with insight into its equipment efficiency or how well the equipment is performing compared to the standard. Additionally, Chris can use the model to keep track of PlumbCo's capacity utilization by comparing actual equipment hours to capacity hours, resulting in a capacity utilization percentage. This percentage can be monitored over time and used to improve capital equipment management. Lastly, the model allows Chris to measure labor efficiency by multiplying actual equipment uptime with the standard crew size.

7. How did Marcella make sure that everyone bought in to the models results? Do you think that her method was effective?

8. What are the new models implications for Kelseys department? How important are the proposed changes probably going to be for the companys overall profitability?

9. What else did you learn from reading these chapters that was interesting and/or surprising?

Quality Control manages inspections, while Material Handling manages in-process movements. The workload for reviewing and handling materials depends on the number of equipment hours. I had not previously considered the cost of QC work, but the model's calculation method is straightforward and efficient.

Thankyou :)