Assume you are the division controller for Auntie M’s Cookie Company. Auntie M has introduced a new chocolate chip cookie called Full of Chips, and it is a success. As a result, the product manager responsible for the launch of this new cookie was promoted to division vice president and became your boss. A new product manager, Bishop, has been brought in to replace the promoted manager. Bishop notices that the Full of Chips cookie uses a lot of chips, which increases the cost of the cookie. As a result, Bishop has ordered that the number of chips used in the cookies be reduced by 10%. The manager believes that a 10% reduction in chips will not adversely affect sales, but will reduce costs, and hence improve margins. The increased margins would help Bishop meet profit targets for the period and because Bishop is in line for a big promotion, he believes that by achieving these higher sales, he will fare better for a promotion. To confirm, Bishop has enlisted you to help evaluate it. After reviewing the cost of production reports segmented by cookie brand, you notice that there has been a continual drop in the materials costs for the Full of Chips brand since its launch. On further investigation, you discover that the chip costs have declined because the product manager continually reduced the number of chips in each cookie. Both you and Bishop report to the division vice president, who was the original product manager for the Full of Chips brand who was responsible for reducing the chip count in prior periods. Is this an ethical strategy for Bishop to pursue? What are the potential implications of this strategy? What options would you, as their controller, consider in taking in response to Bishop's plan?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Assume you are the division controller for Auntie M’s Cookie Company. Auntie M has introduced a new chocolate chip cookie called Full of Chips, and it is a success. As a result, the product manager responsible for the launch of this new cookie was promoted to division vice president and became your boss. A new product manager, Bishop, has been brought in to replace the promoted manager. Bishop notices that the Full of Chips cookie uses a lot of chips, which increases the cost of the cookie. As a result, Bishop has ordered that the number of chips used in the cookies be reduced by 10%. The manager believes that a 10% reduction in chips will not adversely affect sales, but will reduce costs, and hence improve margins. The increased margins would help Bishop meet profit targets for the period and because Bishop is in line for a big promotion, he believes that by achieving these higher sales, he will fare better for a promotion.
To confirm, Bishop has enlisted you to help evaluate it. After reviewing the cost of production reports segmented by cookie brand, you notice that there has been a continual drop in the materials costs for the Full of Chips brand since its launch. On further investigation, you discover that the chip costs have declined because the product manager continually reduced the number of chips in each cookie. Both you and Bishop report to the division vice president, who was the original product manager for the Full of Chips brand who was responsible for reducing the chip count in prior periods.
Is this an ethical strategy for Bishop to pursue? What are the potential implications of this strategy?
What options would you, as their controller, consider in taking in response to Bishop's plan?
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