Reference no: EM133392259

Question: TAC Industries sells heavy equipment to large corporations and to federal, state, and local governments. Corporate sales are the result of a competitive bidding process, where TAC competes against other companies based on selling price. Sales to the government, however, are determined on a cost-plus basis, where the selling price is determined by adding a fixed markup percentage to the total job cost.

Tandy Lane is the cost accountant for the Equipment Division of TAC Industries Inc. The division is under pressure from senior management to improve income from operations. As Tandy reviewed the division's job cost sheets, she realized that she could increase the division's income from operations by moving a portion of the direct labor hours that had been assigned to the job order cost sheets of corporate customers onto the job order costs sheets of government customers. She believed that this would create win-win for the division by (1) reducing the cost of corporate jobs and (2) increasing the cost of government jobs whose profit is based on a percentage of job cost. Tandy submitted this idea to her division manager, who was impressed by her creative solution for improving the division's profitability.