QUIZ
Chapter 4: Ethics
Blow Molding and Injection Molding are two manufacturing methods that are used to create plastic products. These are made using thermoplastics, which typically come as plastic pellets. The pellets are fed into a heated cylinder and are mixed using large augers, which then moves the melted plastic forward with rotation. Depending on the type of product the company is making, it will be using one of these molding types to design its plastic parts.
American Plastics, Inc. produces plastic containers through a blow molding process. Blow molding is a manufacturing process that begins with melting down plastic and forming it into a parison. The parison is a tube-like piece of plastic with a hole in one end through which compressed air can pass. The parison is then clamped into a mold and air is blown into it. The air pressure then pushes the plastic out to match the mold. Unlike injection molding, blow molding makes hollow plastic parts like plastic bottles and other containers.
The company uses process costing because its products are generally homogeneous and are produced in large batches.
John Reeves, controller at American Plastics, Inc., is supervising a physical count of all the inventory on hand at the end of the fiscal year, September 30, 2016. There has been a recent sharp decline in sales so he knows it will be tough year. An earthquake struck central Italy in late August 2016 where a major supplier for American Plastics is located. The supplier sustained major damage in the earthquake, preventing the supplier from delivering critical parts to American Plastics in September. The shortage of raw materials has caused a decline in sales revenue for the last month of the fiscal year end since production has stalled due to the lack of the critical parts from the supplier. American Plastics income will therefore be lower than projected for 2016.
If annual income targets are not met, the company will not be paying bonuses to its employees this year. John thinks that the decline in sales revenue is a temporary situation due entirely to the earthquake since the supplier has assured him that they will be able to supply American Plastics with all of the parts it needs by the end of November 2016 (in the next fiscal year).
As John supervises the physical count on the last day of the fiscal year, he edits some inventory records to show more inventory items on the floor on September 30, 2016 than are actually in inventory.
John justifies his action by thinking that the missed sales will actually be made up in the next fiscal year in October and November 2016 when the supplier gets back on track with shipments. The decrease in sales revenue the company experienced in September 2016 is only a temporary timing difference. John is concerned that if bonuses are not paid to employees due to this timing difference, then American Plastics could lose some of its best employees to competitors that are offering higher wages. American Plastics has always used the bonuses as a key component of its talent recruiting and retention strategy. John has even verbally promised bonuses to key employees he has recruited during 2016, as have other managers.
Requirements:
Use the IMA Statement of Ethical Professional Practice, Exhibit P-6 on page 10 of your textbook, as an ethical framework to answer the following questions.
1. What are the ethical issues in this situation? Explain how you think these ethical issues are applicable in the specific circumstances of this case.
2. How would recording more units than are actually in inventory impact the 2016 balance sheet and income statement? How would it impact the 2017 balance sheet and income statement?
3. Does this information (in Part 2) influence your analysis of whether John has violated any ethical principles? Why or why not? Do you believe that John is justified in his thinking that it is only a timing difference and no one (including the company) is harmed by his actions. Is what John's doing legal? Explain.
Chapter 4: Process Costing
Tortilla chips are produced through three different departments: mixing and cutting, baking and frying, and seasoning and packaging. In the mixing and cutting department, all materials are added at the beginning of the process. In this department, the dough is formed by combining maize flour, sugar, salt and starch in a mixer. Once the dough is formed, it will pass through a set of circular blades that will break the dough into smaller pieces and then it is rolled out into a large thin sheet. This will ensure that all the tortilla chips pieces are of uniform thickness. The sheets of dough will then pass under another set of rollers that will cut the dough into the traditional triangle shape.
Click on the link below to see a video of the process for making tortilla chips.
https://www.youtube.com/watch?v=QzIdZGOR9vo
Data from the weekly period (week 37) for the mixing and cutting department is provided below.
Beginning work in process inventory:
Units in beginning work in process inventory 1.250 cases
Materials costs $29,000
Conversion costs $9,060
Percentage complete with respect to materials 100%
Percentage complete with respect to conversion 80%
Units started into production during the week 5,000 cases
Materials costs added during the week $121,250
Conversion costs added during the week $38,409
Ending work in process inventory:
Units in ending work in process 1,000 cases
Percentage complete with respect to materials 100%
Percentage complete with respect to conversion 40%
Note: SHOW ALL WORK FOR CREDIT.
1. What are the total units started and completed during the week?
2. What are the total units transferred out during the week?
3. What are the equivalent units for materials for the week in the first processing department?
4. What are the equivalent units for conversion costs for the week in the first processing department?
5. The cost per equivalent unit for materials for the week in the first processing department is closest to:
6. The cost per equivalent unit for conversion costs for the first department for the week is closest to:
7. The cost per equivalent whole unit for the week in the first processing department is closest to:
8. The total cost assigned to beginning inventory is closest to:
9. The total cost transferred from the first processing department to the next processing department during the week is closest to:
10.The cost of ending work in process inventory in the first processing department according to the company's cost system is closest to: