Amanda McNall, is the corporate controller of Scott Quarry. Scott Quarry operate

Question

Amanda McNall, is the corporate controller of Scott Quarry. Scott Quarry operates 12 rock crushing plants in Scott County, Kentucky, that process huge chunks of limestone rock extracted from underground mines.

Given the competitive landscape for pricing. Scott's managers pay close attention to costs. Each plant uses a process-costing system, and at the end of every quarter, each plant manager submits a production report and a production-cost report. The production report includes the manager's estimate of the percentage of completion of the ending work in process as to direct materials and conversion costs, as well as the level of processed limestone inventory. McNall uses these estimatesto compute the cost per equivalent unit of work done for each input for the quarter. Plants are ranked from 1 to 12, and the three plants with the lowest cost per equivalent unit for direct materials and conversion costs are each given a bonus and recognized in the company newsletter.

McNall has been pleased with the success of her benchmarking program. However, she has recently received anonymous emails that two plant managers have been manipulating their monthly estimates of percentage of completion in an attempt to obtain the bonus.

1) Why and how might managers manipulate their monthly estimates of percentage of completion and level of inventory?

2) McNall's first reaction is to contact each plant controller and discuss the problem raised by the anonymous communications. Is that a good idea?

3) Assume that each plant controller's primary reporting responsibility is to the plant manager and that each plant controller receives the phone call from McNall mentioned in requirement 2. What is the ethical responsibility of each plant controller (a) to Amanda McNall and (b) to Scott Quarry in relation to the equivalent-unit and inventory information each plant provides?

4) How might McNall learn whether the data provided by particular plants are being manipulated?

Explanation / Answer

Ans.

1) Manager can manuplate their monthly estimates of percentage of completion and level of inventory as it is related to the process costing system and all the process related data is under the control of the Manager and for the personal benifit it can be done to earn more bonus.

where it is difficult to find out the exact variance in the process costing that is why under each process the data is mnuplated.

2) Yes it is a good idea to contact each plant controller and discuss the problem raised by the anonymous communications which is received by a mail. Where it is written that "two plant managers have been manipulating their monthly estimates of percentage of completion in an attempt to obtain the bonus".

Firstly if this information is delivered by anonymous then it may be correct or may be incorrect then it is the primery function to discuss the same with the each plant controller as this is related to internal control of management.

3) The ethical responsibility of each plant controller to

a) Amanda McNall

The plant controller is responsible to provide all the correct information of the production. If there is any manuplation then he must inform to the Amanda McNall about the same.

b) Scott Quarry

The plant controller is responsible for all the accounting function of the company within the plant and make right decision regarding of the production in relation to the equivalent-unit and inventory information each plant must be provided by the Plant controller to the Scott Quarry.

4) McNall can easily learn by taking the physical verification of the plant, she can check all the detail of the workplace by this method. All the information regarding to the workplace can only be asertained by the McNall if she does the same.

If data is manuplated then it would be taken into account and strict action be taken for the defaulter.

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