Reference no: EM13582655

Ollie Mace has recently been appointed controller of S. Dilley & Company, a family-owned manufacturing firm founded 28 years ago. The firm manufactures automotive parts. Its four major operating divisions are heat treating, extruding, small parts stamping, and machining. Last year's sales from each division ranged from $150,000 to over $3,000,000. Each division is physically and managerially independent, except for the constant surveillance of S. Dilley, the firm's founder.

The accounting system for each division has evolved according to its needs and the abilities of its accounting staff. Mace is the first controller in the firm's history to have responsibility for overall financial management. Dilley expects to retire in a few years and wants Mace to improve the AIS before he retires so that it will be easier to monitor performance in each division.

Mace decides to redesign the financial reporting system to include the following features:

1.It should give managers uniform, timely, and accurate reports of business activity. Monthly reports should be uniform across divisions and be completed by the fifth of the following month to provide enough time to take corrective actions to affect the next month's performance. Company-wide financial reports should be available at the same time.

2.Reports should provide a basis for measuring the return on investment for each division. Thus, in addition to revenue and expense accounts, reports should show assets assigned to each division.

3.The system should generate meaningful budget data for planning and decision making purposes. Budgets should reflect managerial responsibility and show costs for major product groups. Mace believes that a new chart of accounts is required to accomplish these goals. He wants to divide asset accounts into six major categories, such as current assets and plant and equipment. He does not foresee a need for more than 10 control accounts within each of these categories. From his observations to date, 100 subsidiary accounts are more than adequate for each control account. No division now has more than five major product groups.

4.Mace foresees a maximum of six cost centers within any product group, including both the operating and non-operating groups. He views general divisional costs as a non-revenue- producing product group. Altogether, Mace estimates that approximately 44 expense accounts plus 12 specific variance accounts would be adequate.

Required

Design a chart of accounts for S. Dilley & Company. Explain how you structured the chart of accounts to meet the company's needs and operating characteristics. Keep total account code length to a minimum, while still satisfying all of Mace's desires.