Question

In: Accounting

Instructions Phillips Brothers Printers (PBP) provides printing services to a wide variety of customers. For most...

Instructions

Phillips Brothers Printers (PBP) provides printing services to a wide variety of customers. For most jobs, PBP submits a bid and uses the job cost system to accumulate costs, but bills the bid amount to the customers. They do have several customers who routinely have "out of the ordinary" jobs and PBP bills those on a cost-plus basis, with the customer paying the actual costs plus a predetermined profit percentage on the total cost.

Sally Phillips, controller for PBP, is approached by the company President who asks her to look for ways to charge more of the production costs to the cost-plus jobs. His logic is that since those customers will pay all the costs plus a profit, they can improve their overall profitability by shifting costs from bid jobs to cost-plus jobs.

Answer the following questions:


Is the President correct about the increase in overall company profits?


What classification of cost is most likely to be able to be increased on the cost-plus jobs? Why?


Is what the President proposes ethical? Why or why not?


What would you do if you were Sally? Why?


If Sally does go along with this proposal, are there risks to the company? What are they?


Solutions

Expert Solution

Q: Is the President correct about the increase in overall company profits?

A: Yes, shifting the production cost towards the contract with cost-plus billing will increase the overall profitability, proportionally by the profit percentage on such contracts.

Q: What classification of cost is most likely to be able to be increased on the cost-plus jobs? Why?

A: As it is stated in the question increasing the production cost on the cost-plus jobs will increase the "direct costs" because production is the primary activity performed to deliver the final product.

Q: Is what the President proposes ethical? Why or why not?

A: No, the President's proposal is not ethical. He is proposing an unethical activity by wrongfully shifting the cost allocations to earn higher profits.

Q: What would you do if you were Sally? Why?

A: As a controller of the company, she should explain both benefits (i.e. higher profitability) and risks (i.e. unethical activities, higher costs for several customers, risk of losing business). As a controller, she must discuss this proposal in detail with the President and other leadership and must not lose her integrity and prudent practices to follow the instructions of the President.

Q: If Sally does go along with this proposal, are there risks to the company? What are they?

A: Following are some of the risks:

  1. Opening the gates of unethical activities in the organization just for the sake of 'higher profit margins'.
  2. The company will be vulnerable to repercussions of financial misstatements. This will be caught in the Audit trials.
  3. Over-charging the customers may lead to losing business as there might be competitors offering same product/service at lower cost.
  4. Risk of law-suits and disputes.

ekkarill92 answered 6 months ago
Next > < Previous

Related Solutions

Instructions Phillips Brothers Printers (PBP) provides printing services to a wide variety of customers. For most...
Instructions Phillips Brothers Printers (PBP) provides printing services to a wide variety of customers. For most jobs, PBP submits a bid and uses the job cost system to accumulate costs, but bills the bid amount to the customers. They do have several customers who routinely have "out of the ordinary" jobs and PBP bills those on a cost-plus basis, with the customer paying the actual costs plus a predetermined profit percentage on the total cost. Sally Phillips, controller for PBP,...
Ink Spill, a printing company, provides printing services to its customers. Customers normally pay for printing...
Ink Spill, a printing company, provides printing services to its customers. Customers normally pay for printing services in advance. In October 2020, Ink Spill received $20,000 from customers for services to be provided in November 2020. A senior accountant at Ink Spill wants to record the full amount as a liability in the company’s Balance Sheet at the end of October 2020. Required: Should the $20,000 be recorded as a liability in the company’s Balance Sheet at the end of...
3-27. The Georgeville city government provides a wide variety of services to the community. Among them...
3-27. The Georgeville city government provides a wide variety of services to the community. Among them is the protection provided by the police force. In order to provide that force, it spends $3 million on salaries, $200,000 on vehicle costs, and $300,000 on supplies. The police force expects to have 7,000 measurable actions, consisting of 1,000 arrests, 4,000 traffic citations, and 2,000 responses to emergency calls. It has noted that the average cost for each one of these actions is...
Premier Printing provides printing services to many different corporate clients. Although Premier bids most jobs, some...
Premier Printing provides printing services to many different corporate clients. Although Premier bids most jobs, some jobs are negotiated on a “cost-plus” basis. Cost-plus means that the buyer is willing to pay the actual cost plus a return (profit) on these costs. Clara Jones, controller for Premier, has recently returned from a meeting where Premier’s president stated that he wanted her to find a way to charge more costs to any project that was on a cost-plus basis. The president...
LRF Printing provides printing services to many different corporate clients. Although LRF bids most jobs, some...
LRF Printing provides printing services to many different corporate clients. Although LRF bids most jobs, some jobs, particularly new ones, are negotiated on a “cost-plus” basis. Cost-plus means that the buyer is willing to pay the actual cost plus a return (profit) on these costs to LRF. Alice Reiley, controller for LRF, has recently returned from a meeting where LRF's president stated that he wanted her to find a way to charge more costs to any project that was on...
LRF printing provides printing services to many different corporate clients. Al plus basis. most some jobs...
LRF printing provides printing services to many different corporate clients. Al plus basis. most some jobs new ones, are negotiated on a "cost- Cost-plus means that the buyer is willing to pay the actual cost plus a return these costs to LRF Expand Your Critical Thinking 787 Alice Reiley controller for from a meeting where president stated th her to find a way to charge more to project o meet on goals this period. By charging more costs to the...
1. Salvatore LLC provides a wide variety of legal services and uses an activity?based costing system....
1. Salvatore LLC provides a wide variety of legal services and uses an activity?based costing system. Data from its activity?based costing system for all services follows: Activity cost pool Total cost Total activity Research $173,200 6,200 Hours of paralegal time Client meetings $345,300 3,900 Number of meeting hours Court filing fees $303,500 1,600 Number of cases Document preparation $145,600 4,900 Number of documents The cost pool activity rate for client meetings is A. $7.08 per meeting hour. B. $88.54 per...
6) Shawn owns and manages his single-member LLC which provides a wide variety of accounting services...
6) Shawn owns and manages his single-member LLC which provides a wide variety of accounting services to his clients. He is married and will file a joint tax return with his spouse, Georgia. His LLC reports $250,000 of net income, W-2 wages of $120,000, and assets with an unadjusted basis of $75,000. Their taxable income before the QBI deduction is $215,000 (this is also their modified taxable income). Determine their QBI deduction under Section 199A for 2019.
Texas Building Services provides cleaning services for a variety of clients. The company has two producing​...
Texas Building Services provides cleaning services for a variety of clients. The company has two producing​ departments, residential and​ commercial, and two service​departments, personnel and administrative. The company has decided to allocate all service department costs to the producing​ departments' personnel on the basis of number of employees and administrative on the basis of direct department costs. The budget for 20X2 shows the​ following: Personnel Administrative Residential Commercial Direct department costs $70,000 $100,000 $240,000 $400,000 Number of employees 3 5...
Garden Glory is a company that provides yard maintenance services to its customers.
Garden Glory is a company that provides yard maintenance services to its customers. Garden Glory offers many types of services such as grass cutting, shrubby maintenance, flowering planting, trimming, etc. Many of its customers have multiple properties [houses, office buildings, apartment complexes] that require gardening and lawn maintenance services. Garden Glory wants to maintain data on customers, properties, services offered and also track services provided. For services provided, they want to know what property, who that property belongs to and...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT