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Beginner |
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6 |
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Available.
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$9.00
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I'm sorry, but I'm having a very difficult time using
the information on this cost report,” said Mr. Adam King, general
manager of the Audio Division of Jefferson Multi Media, Inc. (JMMI). “I
mean, salary totals and the average developmental cost per product may
be useful to you and the people in the central office, but I need to
know more detail. We have so many different types of activities in the
Audio Division that I need to know the unit cost for each if I'm going
to do anything about cost control.
Mr. King was discussing JMMI’s cost accounting system with Mr.
Michael Abbot, the company’s assistant controller. Mr. King had
requested the meeting because he felt he needed more information than
that contained on his division’s cost report, contained in Exhibit 1.
Interested in improving cost control methods in the Audio Division, Mr.
King argued that the average per-product cost calculation was not an
accurate measure of the division’s costs because the type and content
of a product varied greatly depending on the recording studio hours,
the special effects used, the concept and design activities, and the
amount of time and effort spent with the recording artist. According to
Mr. King, JMMI’s cost accounting system needed to be revised to
identify the specific unit costs of these various activities. During
the discussion, Mr. Abbott became interested in Mr. King's approach,
and agreed to help him design a cost accounting system that made these
distinctions.
BACKGROUND
In 1993, in conjunction with JMMI’s move toward decentralizing its
media activities, a divisional cost accounting system had been
developed. As one of the company’s largest divisions, the Audio
Division was among the first to implement the new system, which
required division general managers (DGMs) to monitor their division’s
expenditures. By involving DGMs in the budgeting and expenditure review
process, Ms. Nell Chamberlain, JMMI’s president, hoped to gain more
control over divisional costs and to improve the company’s overall
financial performance. . . .
Assignment:
1. What is the cost for each of the three products Mr. King chose at random? What explains the differences?
2. Which of the three systems is the best? Why?
3. What other systems, if any, would you propose?
4. What should Mr. King do?
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