GB 519 Decision Making and Measurement Unit 6 Discussions

I have included assignment below and attached file to ensure instructions has been received.

Unit 6 Discussion 1

Comparing Costing Methods and Ethical Decision-making

Read the scenario and respond to the questions below:

Stacy Lynn, Inc. (SLI) is a manufacturer of rice cookers. The rice cookers sell for $45 per unit; the sales were 3,600 units in the current year. SLI has 400 units available for sale at the end of the current year and is projecting sales of 4,400 units next year. SLI is planning the same production level for the current year as last year - 4,000 units. The variable manufacturing costs for SLI are $16 and the variable selling costs are only $.50 per unit. The fixed manufacturing costs are $100,000 per year and the fixed selling costs are only $500 per year. Assume that beginning inventory was zero (0).

Stacy Ann Lynn, the great grand-daughter of the company?s founder is the current CEO/President of the company, which is still a family owned business. The past several years have been especially difficult due to price-pressure from Chinese imports. At the moment, all that Stacy believes she can do is to try to keep the company running until the economy improves. But, the company needs an immediate infusion of cash. So, she has decided to ask her bank for a large line of credit to maintain operating viability for the foreseeable future.

Additional Financial Information for SLI

Based on the information provided in the narrative and the financial statement above, please post a substantive response to the following parts of this Unit 6 Discussion:

A. If Stacy Lynn wants to show the bank the maximum profit over the previous 2-year period, which costing method should she present?

B. The bank requires that all financial statements conform to Generally Accepted Accounting Principles (GAAP). Based on that requirement, which costing method should she present?

C. Based on the scenario for Discussion 1 in this unit, what are the legal and ethical issues facing Stacy Lynn?

Unit 6 Discussion 2

Employee Compensation and Management Level Financial Control

Wages and salaries are a major component of an organization?s financial decision-making.

• How might an organization craft compensation and other rewards if employees meet or exceed performance expectations, but discourage budgetary slack? Why or why not?

Unit 6 Discussion 1 Comparing Costing Methods and Ethical Decision-making Read the scenario and respond to the questions below: Stacy Lynn, Inc. (SLI) is a manufacturer of rice cookers. The rice cookers sell for $45 per unit; the sales were 3,600 units in the current year. SLI has 400 units available for sale at the end of the current year and is projecting sales of 4,400 units next year. SLI is planning the same production level for the current year as last year - 4,000 units. The variable manufacturing costs for SLI are $16 and the variable selling costs are only $.50 per unit. The fixed manufacturing costs are $100,000 per year and the fixed selling costs are only $500 per year. Assume that beginning inventory was zero (0). Stacy Ann Lynn, the great grand-daughter of the company's founder is the current CEO/President of the company, which is still a family owned business. The past several years have been especially difficult due to price-pressure from Chinese imports. At the moment, all that Stacy believes she can do is to try to keep the company running until the economy improves. But, the company needs an immediate infusion of cash. So, she has decided to ask her bank for a large line of credit to maintain operating viability for the foreseeable future. Additional Financial Information for SLI Based on the information provided in the narrative and the financial statement above, please post a substantive response to the following parts of this Unit 6 Discussion: A. If Stacy Lynn wants to show the bank the maximum profit over the previous 2year period, which costing method should she present? B. The bank requires that all financial statements conform to Generally Accepted Accounting Principles (GAAP). Based on that requirement, which costing method should she present? C. Based on the scenario for Discussion 1 in this unit, what are the legal and ethical issues facing Stacy Lynn? Unit 6 Discussion 2 Employee Compensation and Management Level Financial Control Wages and salaries are a major component of an organization's financial decisionmaking. How might an organization craft compensation and other rewards if employees meet or exceed performance expectations, but discourage budgetary slack? Why or why not? 1. If Stacy Lynn wants to show the bank the maximum profit over the previous 2-year period, she will use absorption costing method to report her financial. This is so because absorption costing method reports a higher profit for the firm relative to variable costing. In the current period for instance, SLI reports a profit of $12,600 and $2,100 when it used absorption costing and variable costing respectively. These profits are calculated as shown in the two exhibits below. Exhibit I: Absorption costing Sales (3,6000x45) Less variable cost of goods sold: Beginning inventory Variable cost of goods manufactured (4,000 $41*) Variable cost of goods available for sale Closing inventory (400 16 ) Gross contribution margin Less selling costs: Fixed costs Variable (3,600x0.5) $162,000 0 164,000 164,000 16,400 147,600 14,400 500 1,800 Net operating income 2,300 12,100 *Manufacturing cost per unit Variable Fixed 100,000 / 4,000) - Exhibit II: Variable costing Sales Less variable cost of goods sold: Beginning inventory Variable cost of goods manufactured (4,000 $16) Variable cost of goods available for sale 162,000 0 64,000 64,000 $16 $25 $41 Closing inventory (400 16 ) Gross contribution margin Variable marketing and admin. expenses (3,600 $0.50) Less period costs: Selling costs Manufacturing Net operating income 6,400 57,600 104,400 1,800 102,600 500 100,000 100,500 2,100 The reason why we have different values in the two methods is because: When manufactured goods are more than sales (as in this case), the fixed manufacturing overhead is deferred in inventory causing a higher net operating income under absorption costing than under variable costing. 1. The bank requires that all financial statements conform to Generally Accepted Accounting Principles (GAAP). Based on that requirement, which costing method should she present? Absorption Costing Method Since the information is required by the bank, it means it's for external use. Generally Accepted Accounting Principles only requires absorption costing for external reporting, not internal reporting. External reports are generated for public consumptions; interested parties interact with the company through external reports. External reports are intended to reveal financial health and attract capital. 2. Based on the scenario for Discussion 1 in this unit, what are the legal and ethical issues facing Stacy Lynn? Legal Issues If Stacy Lynn reports the company's operating profit using variable costing to be used by the bank, it will amount to violation of GAAP. This is because GAAP requires a company to report operating profit for external uses using absorption costing method. Ethical issues The fact that Stacy Lynn is the great granddaughter of the business founder exposes her to ethical dilemma. Since she is the great granddaughter of the founder, means she is in the business to stay. Based on the current situation facing the business, it means the thought of appointing new president who might turn around the fortune of the business is not forthcoming. So the business will be run by Stacy Lynn come rain come shine. Unit 6 Discussion 2 How might an organization craft compensation and other rewards if employees meet or exceed performance expectations, but discourage budgetary slack? Compensation may be based on company performance as a whole and not pecked on individual performance. For instance, compensation should be in the form of profit sharing. Profit sharing is a cash bonus incentive payment plan where the total of all cash bonuses paid to all employees is determined by a formula involving the organization's reported profit. In a bottom-up budget environment, is it possible to completely eliminate budgetary slack? Why or why not? No. It does not eliminate but in fact creates budgetary slack. Every profit/cost center wants to make sure that they have enough cash for the activities that they want to do over the course of the period. Because of this, some unit managers might put in a little bit of extra cash into the budget so that it will be padded. 1. If Stacy Lynn wants to show the bank the maximum profit over the previous 2-year period, she will use absorption costing method to report her financial. This is so because absorption costing method reports a higher profit for the firm relative to variable costing. In the current period for instance, SLI reports a profit of $12,600 and $2,100 when it used absorption costing and variable costing respectively. These profits are calculated as shown in the two exhibits below. Exhibit I: Absorption costing Sales (3,6000x45) Less variable cost of goods sold: Beginning inventory Variable cost of goods manufactured (4,000 $41*) Variable cost of goods available for sale Closing inventory (400 16 ) Gross contribution margin Less selling costs: Fixed costs Variable (3,600x0.5) $162,000 0 164,000 164,000 16,400 147,600 14,400 500 1,800 Net operating income 2,300 12,100 *Manufacturing cost per unit Variable Fixed 100,000 / 4,000) - Exhibit II: Variable costing Sales Less variable cost of goods sold: Beginning inventory Variable cost of goods manufactured (4,000 $16) Variable cost of goods available for sale 162,000 0 64,000 64,000 $16 $25 $41 Closing inventory (400 16 ) Gross contribution margin Variable marketing and admin. expenses (3,600 $0.50) Less period costs: Selling costs Manufacturing Net operating income 6,400 57,600 104,400 1,800 102,600 500 100,000 100,500 2,100 The reason why we have different values in the two methods is because: When manufactured goods are more than sales (as in this case), the fixed manufacturing overhead is deferred in inventory causing a higher net operating income under absorption costing than under variable costing. 1. The bank requires that all financial statements conform to Generally Accepted Accounting Principles (GAAP). Based on that requirement, which costing method should she present? Absorption Costing Method Since the information is required by the bank, it means it's for external use. Generally Accepted Accounting Principles only requires absorption costing for external reporting, not internal reporting. External reports are generated for public consumptions; interested parties interact with the company through external reports. External reports are intended to reveal financial health and attract capital. 2. Based on the scenario for Discussion 1 in this unit, what are the legal and ethical issues facing Stacy Lynn? Legal Issues If Stacy Lynn reports the company's operating profit using variable costing to be used by the bank, it will amount to violation of GAAP. This is because GAAP requires a company to report operating profit for external uses using absorption costing method. Ethical issues The fact that Stacy Lynn is the great granddaughter of the business founder exposes her to ethical dilemma. Since she is the great granddaughter of the founder, means she is in the business to stay. Based on the current situation facing the business, it means the thought of appointing new president who might turn around the fortune of the business is not forthcoming. So the business will be run by Stacy Lynn come rain come shine. Unit 6 Discussion 2 How might an organization craft compensation and other rewards if employees meet or exceed performance expectations, but discourage budgetary slack? Compensation may be based on company performance as a whole and not pecked on individual performance. For instance, compensation should be in the form of profit sharing. Profit sharing is a cash bonus incentive payment plan where the total of all cash bonuses paid to all employees is determined by a formula involving the organization's reported profit. In a bottom-up budget environment, is it possible to completely eliminate budgetary slack? Why or why not? No. It does not eliminate but in fact creates budgetary slack. Every profit/cost center wants to make sure that they have enough cash for the activities that they want to do over the course of the period. Because of this, some unit managers might put in a little bit of extra cash into the budget so that it will be padded