Hello, I'm attempting to:

• Summarize the situation below and create an action plan that Sally Smithe can follow in this situation
• Evaluate how it is possible that standard costs are being abused.
• explain whether the standards are being set too high or too low
• Elaborate on a plan for dealing with Marty McFly
• CreateanactionplanthatStacyCumminscanfollowinthissituation

Here's the full details:

Sally Smithe, the newly hired controller at Merced Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Hardware Procurement Division. In looking over the past several years of quarterly income statements at the Hardware Procurement Division, she noticed that the first-quarter profits were always poor, the second-quarter profits were slightly better, the third-quarter profits again slightly better, and the fourth quarter always ended with a spectacular performance in which the Hardware Procurement Division managed to meet or exceed its target profit for the year. She also was concerned to find letters from the companys external auditors to top management warning about an unusual use of standard costs at the Hardware Procurement Division. When Ms. Smithe ran across these letters, she asked the assistant controller, Mark Underwood, if he knew what was going on at the Hardware Procurement Division. Mark said that it was common knowledge in the company that the vice president in charge of the Hardware Procurement Division, Marty McFly, had rigged the standards of his division in order to produce the same quarterly income pattern every year. According to company policy, variances are taken directly to the income statement as an adjustment to cost of goods sold. Favorable variances have the effect of increasing net operating income, and unfavorable variances have the effect of decreasing net operating income. McFly had rigged the standards so that there were always large favorable variances. Company policy was a little vague about when these variances have to be reported on the divisional income statements. While the intent was clearly to recognize variances on the income statement in the period in which they arise, nothing in the companys accounting manuals actually explicitly required this. So for many years McFly had followed a practice of saving up the favorable variances and using them to create a nice smooth pattern of growing profits in the first three quarters, followed by a big Christmas present of an extremely good fourth quarter. (Financial reporting regulations forbid carrying variances forward from one year to the next on the annual audited financial statements, so all of the variances must appear on the divisional income statement by the end of the year.) Ms. Smithe was concerned about these revelations and attempted to bring up the subject with the president of Merced Home Products but was told that we all know what McFlys doing, but as long as he continues to turn in such good reports, dont bother him. When Ms. Smithe asked if the board of directors was aware of the situation, the president somewhat testily replied, Of course they are aware.