Reference no: EM133207188 , Length: Word Count: 2 Pages

Question 1 - Terri Ronsin had recently been transferred to the Home Security Systems Division of National Home Products. Shortly after taking over her new position as divisional controller, she was asked to develop the division's predetermined overhead rate for the upcoming year. The accuracy of the rate is important because it is used throughout the year and any overapplied or underapplied overhead is closed out to Cost of Goods Sold at the end of the year. National Home Products uses direct labor-hours in all of its divisions as the allocation base for manufacturing overhead.

To compute the predetermined overhead rate, Terri divided her estimate of the total manufacturing overhead for the coming year by the production manager's estimate of the total direct labor-hours for the coming year. She took her computations to the division's general manager for approval but was quite surprised when he suggested a modification in the base. Her conversation with the general manager of the Home Security Systems Division, Harry Irving, went like this:

Ronsin: Here are my calculations for next year's predetermined overhead rate. If you approve, we can enter the rate into the computer on January 1 and be up and running in the job-order costing system right away this year.

Irving: Thanks for coming up with the calculations so quickly, and they look just fine. There is, however, one slight modification I would like to see. Your estimate of the total direct labor-hours for the year is 440,000 hours. How about cutting that to about 420,000 hours?

Ronsin: I don't know if I can do that. The production manager says she will need about 440,000 direct labor-hours to meet the sales projections for the year. Besides, there are going to be over 430,000 direct labor-hours during the current year and sales are projected to be higher next year.

Irving: Terri, I know all of that. I would still like to reduce the direct labor-hours in the base to something like 420,000 hours. You probably don't know that I had an agreement with your predecessor as divisional controller to shave 5% or so off the estimated direct labor-hours every year. That way, we kept a reserve that usually resulted in a big boost to net operating income at the end of the fiscal year in December. We called it our Christmas bonus. Corporate headquarters always seemed as pleased as punch that we could pull off such a miracle at the end of the year. This system has worked well for many years, and I don't want to change it now.

Later: Terri goes back to her cubicle. Terri knows that she should not reduce the direct labor-hours in the overhead rate computation to 420,000 direct labor-hours. She is confident in her computations, and knows that the 440,000 estimate is accurate. Terri also knows that the production manager, Susan, has the most information about direct-labor hours necessary in the coming year, and she provided Terri with the 440,000 estimate. But Terri is new to the division, and new to her role. This was one of her first assignments in her role, and she wants to impress Irving, her new boss.

Required -

1. Explain how shaving 5% off the estimated direct labor-hours in the base for the predetermined overhead rate usually results in a big boost in net operating income at the end of the fiscal year.

Consider your ethics course SM131 and chapter 1 IMA ethical standards when answering the following questions

2. Who else has a stake in Terri's decision? What is at stake for those key parties, including those who disagree with Terri? What is important to them? ( I am looking for at least four!)

3. What are the main arguments Terriis trying to counter? That is, what are the reasons and rationalizations Terri needs to address? (Here you will try to anticipate what Irving will say when you confront him).

4. What arguments or levers can Terri use to influence Irving? (this should be your anticipated response based on question #3 above.)

5. Draft an Action Plan for Terri: What is Terri's most powerful and persuasive response to the reasons and rationalizations she needs to address? To whom should the argument be made? When and in what context?

In order to ensure that everyone comes to class prepared, youwill be prepare a 1-page summary level response to a question about the case. Feel free to use bullets and incomplete sentences to get as much across is a small amount of room. This write up should be one page, , 12-point Times New Roman, double-spaced. My goal with this assignment is to give you an opportunity to show me how much you know about the topic and how it is applied to the case in question.

Question 2 - Case requirements - In order to ensure that everyone comes to class prepared, you are assigned a 1-page summary level response to the questions in the case. These write ups should be one page 12-point Times New Roman, double-spaced. Due 10/1/2020 5: OOPM P.S.TMy goal with this assignment is to give you an opportunity to show me how much you know about the topic and how it is applied to the case in question. Feel free to use bullets instead of complete sentences to make the most the space you have! Each student will be graded for accuracy and reviewed by other classmates for additional feedback.

You will also review the submission of 2 different classmates. You will be randomly assigned the case submission of other students for which you will need to provide feedback and rate their submission as either meets expectations, exceeds expectations or fails to meet expectations. Your feedback will be scored by the recipient as to how helpful it is to the original author of the case submission. Be specific about what you like and specific about what you think could be improved! "