Question
In regards to the below scenario: What does cost control mean? Is it possible that these expenses are justifiably reduced because of cost control measures
In regards to the below scenario: What does cost control mean? Is it possible that these expenses are justifiably reduced because of cost control measures taken by the company? If so, what cost control measures could a company take to reduce the estimate of bad debt expense and warranty expense?
Scenario: Nancy Tercek, the financial vice president, and Margaret Lilly, the controller, of Romine Manufacturing Company are reviewing the financial ratios of the company for the years 2017 and 2018. The financial vice president notes that the profit margin on sales ratio has increased from 6% to 12%, a hefty gain for the 2-year period. Tercek is in the process of issuing a media release that emphasizes the efficiency of Romine Manufacturing in controlling cost. Margaret Lilly knows that the difference in ratios is due primarily to an earlier company decision to reduce the estimates of warranty and bad debt expense for 2018. The controller, not sure of her supervisors motives, hesitates to suggest to Tercek that the companys improvement is unrelated to efficiency in controlling cost. To complicate matters, the media release is scheduled in a few days.
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