Reference no: EM131814513

Ollie Mace is the controller of SDC, an automotive parts manufacturing firm. 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 $3,000,000. Each division is physically and managerially independent, except for the constant surveillance of Sam Dilley, the firm's founder.

The AIS for each division evolved according to the needs and abilities of its accounting staff. Mace is the first controller to have responsibility for overall financial management. Lilley wants Mace to improve the AIS before he retires in a few years so that it will be easier to monitor division performance. Mace decides to redesign the financial reporting system to include the following:

* 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 day of the following month to provide enough time to take corrective actions to affect the next month's performance. Company-wide financials reports should be available at the same time.

* 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.

* The system should generate meaningful budget data for planning 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 equipment. He does not foresee a need for more than 10 control accounts within each of these categories. From his observation to date, 100 subsidiary accounts are more than adequate for each control account.

No division has more than five major product groups. Mace forces a maximum of six costs centers within any product group, including both the operating and non operating groups. He views general divisional costs as non-revenue-producing product group. Mace estimates that 44 expenses accounts plus 12 specific variance accounts will be adequate.

Required

Design a chart of accounts for SDC. Explain how you structured that 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.