CHAPTER 11 DISCUSSION QUESTIONS Q11-1 Yes, to the extent that it is practical to measure the value added or the productivity of a worker However, measurement of the contribution of each individual is never exact Also, a business cannot pay more for materials or labor than the sales price will recover Materials, workers, and machines produce products and services There must be a difference between revenue and costs consumed; otherwise, the business cannot survive Q11-2 Productivity may be defined as the measurement of production performance using the expenditure of human effort as a yardstick In a broader sense, it may be described as the efficiency with which resources are converted into commodities and/or services that people want Q11-3 Productivity is important to a firm because high productivity reduces the unit cost of the output and makes the firm more competitive It is important to workers because their real earnings should be increased when productivity is high Productivity is important to society because increased productivity enables society to get more and better output from the basic resources of the economy Q11-4 To measure labor efficiency, it is necessary to establish a standard of performance This means determining how much a worker should be able to produce, or how much a work crew should be able to produce The standard is determined by time and motion study, test runs by skilled workers, and averages of past performance by skilled workers Q11-5 The purpose of an incentive wage plan is to induce a worker to produce more, resulting in a higher wage and reduced conversion cost per unit Frequently, machine output is limited by worker performance If employee performance can be increased, machine cost per unit of production will decrease An incentive wage plan may also reduce loafing, indifference, and carelessness, and may generate a cost-conscious labor force Q11-6 Generally, hourly earnings go up with increased production, and labor cost per unit of output is reduced High production rates also reduce overhead cost per unit of output, which is often the most significant savings Q11-7 (a) During periods of curtailed activity, it is just as necessary to keep costs down as it is when operating at full capacity Assuming that the incentive wage plan resulted in greater labor efficiency and lower costs per unit at full capacity, then the labor cost per unit should be lower in a slack period if the incentive wage scale is continued A shorter workweek or some other system of sharing the work would be indicated (b) Ordinarily, it is not a propitious time to initiate an incentive wage plan when a plant is operating far below capacity, because the worker is already fearful of something less than full employment If a reasonable day’s work is being received for the going rate of pay, postponement of the incentive plan is indicated However, there is a natural tendency for workers to reduce output during such periods, thereby increasing costs, with a tendency to bring about further reduction in the volume that can be sold With full explanation and understanding of the situation, the incentive wage could be introduced with a plant operating at 60% capacity Q11-8 In the straight piecework plan, each worker is paid a certain amount for each unit produced, while being guaranteed a base hourly wage In the 100% bonus plan, each worker is paid for the standard time to complete the job or units if the job or units are finished in standard time or less In the group bonus plan, workers in a group are paid their standard hourly wage If the group produces units in excess of the standard, the workers are paid for the time saved 11-1 11-2 Q11-9 Q11-10 Q11-11 Q11-12 Q11-13 Q11-14 Chapter 11 An organizational or gainsharing incentive plan is designed to provide incentive pay to all employees by way of an organization-wide plan that rewards for improved productivity The basic concept underlying the relationship involved in the cumulative average time learning curve model is that every time the cumulative quantity of units produced is doubled, the cumulative average time per unit is reduced by a given percentage The learning curve theory is used to solve problems such as determining labor costs in bids for government contracts, determining lot costs for various stages of production runs, predicting labor-hour requirements, permitting the calculations of standard labor cost variances, assisting in the evaluation of a manager’s performance, and providing a basis for cost control The financial accounting aspect is concerned with a record of earnings of each employee and payment of the workers Financial accounting records income, FICA, and other payroll taxes and deductions withheld; provides for disbursing funds to workers and to taxing and other agencies; reports to each employee at least annually the amount of wages earned and the amounts withheld for various purposes; and records the payroll liability and payment each payroll period The cost accounting aspect is concerned with time worked on each job or in each cost center, in order to determine the labor hours and labor cost of production An efficient labor force begins with the design of the product and an analysis of production techniques and job requirements With the personnel department adequately informed about job specifications, It is the function of this department to secure the personnel qualified to each job The production planning department keeps the work flowing smoothly The timekeeping, payroll, and cost accounting departments contribute to the total efficiency by accounting for the time purchased and by making payment for the work as well as charging the cost to the proper department and product (a) Determining labor hours worked by each employee is primarily for payroll purposes and financial accounting Q11-15 Q11-16 Q11-17 Q11-18 Q11-19 (b) Determination of labor hours consumed on each job or in a department is a part of cost determination for a job or process It should also be a measure of labor efficiency, since hours consumed and productive output can be compared (a) The clock card shows the amount of time an employee spent in the plant each day of a payroll period It is evidence that the employee’s time has been purchased (b) The time ticket shows the amount of time an employee spends each day on each job or in each department It is an itemized invoice of the time that the employee sells to the employer Since the clock cards show the time employees are in the plant, the first step is to make sure no error exists on the time tickets If the total time shown on the time tickets is correct, then the workers spent time in the plant when not working or not assigned to specific jobs or departments, or when assigned to maintenance or repair work For the time that is idle or assigned to indirect labor, a charge is made to Factory Overhead Bar codes are symbols that can be processed electronically to identify numbers, letters, or special characters Bar-coded employee identification cards or badges, and task identifications can be used to replace clock cards and time tickets to collect payroll data and to measure worker activity Appendix One method would be to charge the premium costs directly to the products in the same manner as straight-time labor costs This would be appropriate when particular jobs have to be rushed to completion A second method would be to treat the premium as an overhead element to be charged to all production through the allocation of overhead It would be appropriate when the overtime is a recurring condition normally incident to the level of operations Appendix The bonus and vacation pay should be accrued over the benefited time period When the bonus Chapter 11 and vacation pay are paid, the accrued liability account is debited and the cash and withholding accounts are credited Q11-20 Appendix The recommended method in computing costs under a pension plan is to determine actuarially the eventual pension payments to covered employees and to charge these future payments as a cost of current production over the expected period of active service of covered employees Costs based on past services should be written off over some reasonable period 11-3 on a systematic and rational basis that does not distort the operating results of any one year These costs are incurred in contemplation of the present and future services not only of the individual employee, but also of the organization as a whole Benefits of the plan—such as improved morale, removal of superannuated employees, and attraction of more desirable personnel—are expected to improve the operating efficiency of a company 11-4 Chapter 11 EXERCISES E11-1 ORANGE CITY CANNING COMPANY Labor Schedule for Jaime Vasquez For First Week in June Hours worked Units produced Standard production (40 × 30) Efficiency ratio (1,440 ÷ 1,200) Base wage Weekly earnings ($9 × 40 × 120%) Effective hourly rate ($432 ÷ 40) Labor cost per unit ($432 ÷ 1,440) E11-2 (1) Hours × hourly rate Units above standard Hours saved Value of time saved 80% of value of time saved Earnings (2) Efficiency ratio: 860 800 Monday Tuesday Wednesday $64.00 $64.00 $64.00 10 15 50 75 $ 4.00 $ 6.00 $ 3.20 $ 4.80 $64.00 $67.20 $68.80 $200.00 = 107.5% Earnings: 107.5% × $8 hourly rate × 40 hours = $344 (3) 40 1,440 1,200 120% $ $ 432 $10.80 $ 30 Earnings: ($8 hourly rate + 5% rate increase) × 24 hours = $8.40 × 24 hours = $201.60 Actual Hours 48 48 48 48 48 % Bonus 5.70 4.75 6.40 7.50 8.10 6.45 Base Earnings $ 720 666 720 684 648 $3,438 Amount Total Bonus Earnings $ 41.04 $ 761.04 31.64 697.64 46.08 766.08 51.30 735.30 52.49 700.49 $222.55 $3,660.55 Overhead ConCost version per Cost per Unit Unit $2.087 $3.391 2.021 3.284 1.951 3.201 1.920 3.170 1.882 3.132 (2) Assuming each employee receives the base wage of $9 per hour and that all members of the crew worked the same number of hours during the week, earnings per worker would be $366.06 for the week ($3,660.55 ÷ 10) % Excess 11.4 9.5 12.8 15.0 16.2 12.9 Labor Regular Bonus Total Cost Group (Hrs Saved Group per Wage @$12.50) Earnings Unit $600 $ $600.00 $1.304 600 600.00 1.263 600 15.00 615.00 1.250 600 25.00 625.00 1.250 600 37.50 637.50 1.250 Standard Actual Production Production Excess 16,000 17,824 1,824 14,800 16,206 1,406 16,000 18,048 2,048 15,200 17,480 2,280 14,400 16,733 2,333 76,400 86,291 9,891 Standard Hours for Units Units Produced Produced 460 46.0 475 47.5 492 49.2 500 50.0 510 51.0 Hours Day Worked Monday 80 Tuesday 74 Wednesday 80 Thursday 76 Friday 72 Total 382 E11-4 (1) Day Monday Tuesday Wednesday Thursday Friday E11-3 Chapter 11 11-5 11-6 Chapter 11 E11-5 20A productivity ratio = 20A standard hours for work done ÷ 20A total actual direct and indirect labor hours = 643,823 ÷ 1,525,324 = 422089 Hours needed for 20B production at 20A productivity ratio = 20B standard hours for work done ÷ 20A productivity ratio = 558,510 ÷ 422089 Less 20B total actual direct and indirect labor hours Hours saved 1,323,204 1,284,983 38,221 Value of wages saved = hours saved × 20B average hourly pay plus labor fringe benefits = 38,221 × $14.70 = $561,849 Employee gainsharing incentive total = value of wages saved × 50% = $561,849 × 50% = $280,924.50 Gainsharing incentive per employee = total gainsharing incentive ÷ number of eligible employees = $280,924.50 ÷ 755 employees = $372.09 E11-6 16 batch batches batches batches batches $60,000 $48,000 $38,400 $30,720 $24,576 (80% (80% (80% (80% of of of of $60,000) $48,000) $38,400) $30,720) E11-7 Bridge Number × Cumulative Average Required Weeks per Bridge 100 80 (100 weeks × 80%) 64 (80 weeks × 80%) 51.2 (64 weeks × 80%) additional bridges must be built in order to bring the cumulative average below 52 weeks Chapter 11 11-7 E11-8 (1) The schedule below demonstrates the 80% learning curve that the company expects to experience in producing the time devices: Cumulative Lots × Cumulative Average Time 90.00 hours 72.00 57.60 46.08 = Cumulative Time 90.00 hours 144.00 230.40 368.64 At an 80% learning factor, the cumulative time to produce lots should be 368.64 hours At a standard labor rate of $9 per direct labor hour, the standard amount for total direct labor cost should be set at $3,317.76 (368.64 × $9) (2) The company should establish the standard for direct labor time equal to the marginal direct labor time required to produce the eighth lot, providing steadystate production occurs after the eighth lot To assure that this standard time will be accurate, the company should: (a) Keep accurate records through the first lots to determine if an 80% learning factor is experienced (b) Continue to keep accurate records for each successive production lot to provide a basis for: Conformance to expectations about labor time (i.e., steady state production after lots), or Determining when steady-state production does occur E11-9 APPENDIX (1) Overtime premium charged to production worked on during the overtime hours: Work in Process Payroll (40 hours × $9) + (6 hours × 1.5 × $9) (2) 441 441 Overtime premium charged to factory overhead: Work in Process (46 hours × $9) Factory Overhead Control (6 hours × × $9) Payroll 414 27 441 11-8 Chapter 11 E11-10 APPENDIX Subsidiary Record Factory Overhead Control Bonus Pay Vacation Pay Liability for Bonus Liability for Vacation Pay Dr 201.60 Cr 134.401 67.202 134.40 67.20 ($10 + $32) × 40 hours × weeks = $6,720 ÷ 50 weeks = $134.40 ($10 + $32) × 40 hours × weeks = $3,360 ÷ 50 weeks = 67.20 E11-11 APPENDIX Factory Overhead Control ($35,000 × 28%) 9,800 Marketing Expenses Control ($8,000 × 28%) 2,240 Administrative Expenses Control ($7,000 × 28%) 1,960 Liability for Pensions ($50,000 × 7.8%) 3,900 Liability for Other Postretirement Benefits ($50,000 × 2.3%) 1,150 FICA Tax Payable ($50,000 × 7.5%) 3,750 Federal Unemployment Tax Payable ($50,000 × 8%) 400 State Unemployment Tax Payable ($50,000 × 4.6%) 2,300 Workers’ Compensation Insurance Payable ($50,000 × 1%) 500 Medical Insurance Payable ($50,000 × 4%) 2,000 CGA-Canada (Adapted) Reprint with permission E11-12 APPENDIX (1) The entry to record the payroll liability: Payroll regular wage = $60 hourly rate premium bonus pay × 40 hours = $60 Ober Rupp 250 180 200 200 125% 90% $240.00 $200.00 60.001 $300.00 $200.00 280.00 171.00 $ 20.00 $ 29.00 11-16 Chapter 11 P11-5 (Concluded) Emerson Efficiency System Units produced Standard production Efficiency ratio Bonus rate Regular wage Bonus wage Downtime pay (2 hours × $5.60) Total wages Wages per books Underpayment Suggs 240 300 80% 20% $224.002 $ 44.80 $268.80 233.20 $ 35.60 Ward 590 5701 103.5% 45% $212.803 95.76 11.20 $319.76 280.00 $ 39.76 600 units (st an dard production for 40 hours) = 15 units per hour 40 hours 15 units per hour × 38 productive hours = 570 units (standard production for 38 hours) 240 338 hours × $5.60 = $224.00 hours × $5.60 = $212.80 P11-6 (1) Hours worked (5 workers × 40 hours) Regular wage (200 hours × $6) Units produced Bonus Weekly earnings Unit labor cost ($1,252 ÷ 452) Unit factory overhead ($1,400 ÷ 452) Unit conversion cost *452 units produced 400 units standard 52 units above standard 52 units × $1 workers’ share = $52 bonus 200 $ 1,200 452 $52* $ 1,252 $2.7699 $3.0973 $5.8672 Chapter 11 11-17 P11-6 (Concluded) (2) Units Standard hours for units Actual hours Bonus, $6 × hours saved Total earnings Unit labor cost Unit factory overhead Unit conversion cost Monday Tuesday Wednesday Thursday Friday Total 72 81 95 102 102 452 361 40 40 1/2 40 47 1/2 40 51 40 51 40 226 200 — $ 240 $3.3333 $ $ 243 $3.0000 $ 45 $ 285 $3.0000 $ 66 $ 306 $3.0000 $ 66 $ 306 $3.0000 $ 1802 $ 1,380 $3.0531 $3.8889 $3.4568 $2.9474 $2.7451 $2.7451 $3.0973 $7.2222 $6.4568 $5.9474 $5.7451 $5.7451 $6.1504 400 units per 40 hours = 10 units per hour 10 units per hour ÷ workers = units per hour 72 units produced ÷ units per hour = 36 hours standard time If the group bonus is computed for the week, rather than daily, the bonus would be $6 × 26 hours saved, or $156 Then, $1,356 ÷ 452 units = $3 unit labor cost Overhead cost would be $1,400 ÷ 452 units, or $3.0973 per unit P11-7 (1) Employees Participating Works manager Production engineers Shop supervisors Storekeeper Factory office clerks 150 Factory workers THOMAS INC Quarterly Bonus Allotment At End of March Points Allowed for Each Employee 250 200 200 100 10 20 * 270,000 units actual production 240,000 units normal production 30,000 units excess over normal 30,000 units × $.50 = $15,000 $15,000 ÷ 4,800 points = $3.125 per point Total Points 250 400 1,000 100 50 3,000 4,800 Share per Point $3.125* 3.125 3.125 3.125 3.125 3.125 Total Share $ 781.25 1,250.00 3,125.00 312.50 156.25 9,375.00 $15,000.00 11-20 Chapter 11 P11-8 (Concluded) (3) The degree of learning that takes place in an industrial operation would be reduced by: (a) a low proportion of assembly labor to machine labor; (b) an operation of low complexity; (c) high employee turnover; (d) tedium; (e) poor working conditions P11-9 APPENDIX (1) Charge to work-in-process: Normal working hours = 40 hours × = 80 hours Let X = overtime hours X= $1.140−(80×$12) ($12×1.5) X = 10 hours Therefore, charge to work in process = 90 × $12 = $1,080 (2) (3) Factory overhead charge for Employee #1071: Company benefits paid by employer $273.20 Overtime premium 60.00 $333.20 ($1,140 – $1,080) The cost of idleness should be charged to the departmental factory overhead account P11-10 APPENDIX (1) Apr Payroll Accrued Payroll Employees Income Tax Payable (9.5%) FICA Tax Payable (7.5%) 14 Payroll Accrued Payroll Employees Income Tax Payable FICA Tax Payable 21 Payroll Accrued Payroll Employees Income Tax Payable FICA Tax Payable 28 Payroll Accrued Payroll Employees Income Tax Payable FICA Tax Payable 5,890.00 4,888.70 559.55 441.75 4,920.00 4,083.60 467.40 369.00 5,900.00 4,897.00 560.50 442.50 4,880.00 4,050.40 463.60 366.00 Chapter 11 11-21 11-10 APPENDIX (Concluded) (2) Subsidiary Record Apr 30 Work In Process Factory Overhead Control Indirect Labor Payroll Apr 30 Factory Overhead Control FICA Tax ($22,000 × 7.5%) Federal Unemployment Tax ($22,000 × 8%) State Unemployment Tax ($22,000 × 4%) Vacation Pay ($22,000 × 8%) FICA Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable Liability for Vacation Pay (3) Apr 14 21 28 30 Payroll 5,890 Apr 4,920 30 5,900 4,880 2,640 24,230 2,230 22,000 24,230 Apr 14 21 28 Payroll Accrued Payroll Dr 16,400 5,600 Cr 5,600 22,000 4,466 1,650 176 880 1,760 1,650 176 880 1,760 Accrued Payroll 2,230.00 Mar.31 Bal 2,230.00 4,888.70 Apr 4,888.70 4,083.60 14 4,083.60 4,897.00 21 4,897.00 4,050.40 28 4,050.40 20,149.70 30 2,640.00 22,789.70 2,640.00 2,640 2,640 11-22 Chapter 11 C11-1 (1) Arguments used by each proponent: (a) 1,000-pieces-per-hour-rate: (1) Studies show that machines can be operated at this rate (2) Variances determined by this output rate will measure the ineffective use of the machines (3) This rate can be a target level to be strived for, and the changing variances will show progress toward this target (4) A goal of this nature will motivate the supervisor, and thereby the workers, to reach this rate of output (b) 750-pieces-per-hour-rate: (1) This rate of output has been attained by some workers (2) The 1,000-pieces-per-hour rate has not been attained, nor has any rate near to it been attained (3) The 600-pieces-per-hour rate is an average of actual performance and does not represent good economical performance (4) The standard cost should reflect production rates that can be attained when good economical performance occurs The 750-pieces-per-hour rate, capable of being achieved by some workers, would seem to be such a performance (5) The variances would measure the extent by which this economical level has been exceeded or the extent to which it has not been met (6) It should provide motivation for the supervisor to improve on the 600pieces-per-hour current rate and in turn motivate the employees to improve their performance (c) 600-pieces-per-hour rate: (1) This rate has been achieved by the department as a whole The standard costs should be set to reflect the ability of the whole department (2) The variances from standard cost based upon the 600-pieces-per-hour rate would measure the departures, favorable and unfavorable, from the current effective level of operations (3) For two thirds of the workers, the 750-pieces-per-hour rate would be difficult to attain and would tend to frustrate them, thus making even the present 600-pieces-per-hour rate difficult to maintain For all workers, the 1,000-pieces-per-hour rate could not be attained, thus lowering the morale of the department and probably lowering output below current levels (4) The 600-pieces-per-hour-rate, when passed down to the production worker, would be an appropriate goal for those three employees who are producing fewer than 600 pieces per hour Chapter 11 11-23 C11-1 (Concluded) (2) The purpose of standard costs and standard cost reporting is to measure the performance of a department against a level of cost incurrence that represents attainable good economical performance The variances indicate the periods when the performance varied (favorably or unfavorably) from this acceptable level To be used effectively, the rate to motivate the supervisor and, thereby, the workers to improve performance would depend upon the perceptions as to what is attainable It would also depend upon the reward structures within the firm Other variables would also affect what output rate would motivate improved performances The value picked (e.g., 1,000, 750, or 600) must be a compromise between the level that will have the most effective motivational result and that which will be an effective representation of the costs when the department is operating at an acceptable economical level The 1,000-pieces-per-hour rate should be rejected because it does not provide the basis for a measure of an acceptable cost level It would also be of questionable value from a motivational point of view, because it appears to be unattainable by the production workers The 750-pieces-per-hour rate is a possible choice It is capable of being achieved by some workers and as such may provide motivation to the supervisor to bring other workers up to that level, thus achieving a departmental output of 750 pieces per hour It also may represent the appropriate basis for a standard cost because it is a possible acceptable level of performance It may also be a suitable departmental target established in connection with the introduction of the standard cost system The 600-pieces-per-hour rate is also a possible candidate The Punch Press Department has achieved this level, and three of the six employees have been able to achieve it It is, however, the current level of output and that may make it ineffective in motivating the department and its workers to improve the level of output As the basis for standard costs, it could represent an acceptable level of output; but it does not incorporate the possible improvement likely to be obtained in connection with an introduction of a cost system The 750-pieces-per-hour rate seems to be the best choice of the three alternatives More information about the conditions under which the engineering studies were done, the training and experience of the workers, and the trend of worker and department output in recent periods would be necessary, before the number could be chosen with some assurance that it would meet the stated objectives 11-24 Chapter 11 C11-2 (1) An advantage of the new payroll incentive plan is that it recognizes a problem, which should improve employee motivation Action taken by management will be perceived as a positive effort to resolve a problem, and employees may feel more a part of the group and behave as team members Some disadvantages, which could lower employee motivation, are that employees’ files are open to scrutiny by peers, and that employees may feel that they have to be a part of the “in group” to be assured recognition for wage increases The plan could degenerate into a popularity contest (2) Some advantages that should improve employee productivity are the incentives the plan provides for employees to perform efficiently and effectively, and the beneficial competition it promotes among employees, as long as it is in harmony with corporate goals A disadvantage that could lower employee productivity is that the plan could lead to collusion among groups of employees to keep productivity levels artificially low Employees could approve each other’s wage requests without appropriate merit The plan also could result in inefficiencies, because employees who have had their wage increases turned down may not work up to capacity due to a loss of interest (3) Some advantages that should improve goal congruence between the employee and the company are that the plan indicates the company’s interest in the needs of the employees, and that the plan may result in increased profit through improved productivity, which may lead to employees earning a larger income through increases in wages Some disadvantages that could lower goal congruence are that employees may mistrust a wage plan suggested and implemented by management, and that there may be an overemphasis on a limited range of performance measures (4) Some advantages that should improve administration of the plan are that procedures for requesting a wage increase and for its approval are clear and unambiguous, and the plan allows for relatively quick positive feedback and peer recognition Some disadvantages that could hamper plan administration are that there is a limited amount of management input and control, and that there will be additional record-keeping responsibilities associated with the voting procedures and maintenance of employee productivity records and personnel files Chapter 11 11-25 C11-3 (1) The basic premise of the learning curve is increased productivity as experience is gained in the performance of repetitive tasks Various inputs to the production process may be used more efficiently as cumulative output increases, but in most production processes the majority of cost savings associated with a learning phenomenon involve the use of human labor (2) (3) (3, 200 + 2, 240) ÷ 16 340 = = 85% learning rate 3, 200 ÷ 400 With a learning rate up to cumulative output of 32 units, average direct labor hours used to produce these 32 units should equal 85% of the average direct labor hours used to produce the first 16 units In short, average hours employed for each unit when 32 units are completed should equal: 340 × 85 = 289 hours per unit This implies a total of 289 × 32 = 9,248 hours used in the production of the first 32 units, or 9,248 – 3,200 – 2,240 = 3,808 hours used in the production of units 17 through 32 If the average hours per unit in this production batch is taken as the direct labor standard, the standard per unit becomes: 3, 808 hours = 238 hours per unit 16 units (4) (5) Bid price on order of 96 units: Raw materials (50 sq ft × $30) Direct labor (238 hours × $25) Variable factory overhead (238 hours × $40) Total variable manufacturing cost per unit Markup ($16,970 × 30%) Bid price per unit Number of units Total bid price $ 1,500 5,950 9,520 $ 16,970 5,091 $ 22,061 × 96 $2,117,856 Some applications of the learning curve in the planning and controlling of business operations are setting performance standards, preparing cost estimates in competitive bidding, determining budget allowances for labor and labor-related costs, scheduling labor requirements, and determining performance evaluations in which periodic progress reports are compared with accomplishments expected under the curve 11-26 Chapter 11 C11-4 Shortcomings: (1) Actual payroll hours are not approved by production management (2) There is inadequate segregation of duties within the Payroll Department (3) Personnel Department should not have access to payroll checks (4) Department supervisors should not distribute the payroll checks Suggested corrective action: (1) All incoming time cards should be signed by both the employee and supervisor (2) The payroll clerk preparing the input for data processing should not the reconciling, but rather a second clerk should reconcile the payroll journal to the time cards (3) An employee of supervisory level should authorize voiding of computergenerated checks and the subsequent preparation of a manual replacement check (4) Replacement checks should be processed following good internal control procedures (5) All payroll checks, including unsigned replacement checks, should then be given to the Accounting Department rather than to the Personnel Department for storage in a secure location until payday No Accounting Department employee with payroll record-keeping responsibility should have access to the undistributed checks (6) On payday, checks should be distributed, preferably by a Treasurer’s Department employee or by an Accounting Department employee who does not have record-keeping responsibilities C11-5 (The requirement does not ask for a list of responsibilities Osborne has violated, but, merely, which of the fifteen responsibilities apply to Osborne’s situation.) Management accountants have a responsibility to: Competence: Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information (Osborne knows that if he consents to Wallace’s request, the resulting maintenance job cost reports would be materially misstated and would present false and misleading information.) Integrity: Refrain from engaging in any activity that would prejudice their ability to carry out their duties ethically (Osborne is being asked to be a party to an activity that would erode his ability to carry out his duties ethically.) Communicate unfavorable as well as favorable information and professional judgments or opinions (Osborne is being asked to thwart communication of unfavorable information.) Chapter 11 11-27 11-5 (Concluded) Refrain from engaging in or supporting any activity that would discredit the profession (Preparing deliberately misleading maintenance job cost reports clearly would be a discredit to the profession.) Objectivity: Communicate information fairly and objectively (Osborne would violate this responsibility if the maintenance job cost reports are altered.) Disclose fully all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, comments, and recommendations presented (The shifting of cost among maintenance jobs would violate this ethical responsibility.) ... timekeeping, payroll, and cost accounting departments contribute to the total efficiency by accounting for the time purchased and by making payment for the work as well as charging the cost to the proper... payment each payroll period The cost accounting aspect is concerned with time worked on each job or in each cost center, in order to determine the labor hours and labor cost of production An efficient... per unit is reduced by a given percentage The learning curve theory is used to solve problems such as determining labor costs in bids for government contracts, determining lot costs for various