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Discussion board # 1 Strategic Financial and Accounting Management

Please note that there are three posts needed to successfully complete the discussion board assignment. An initial post addressing the discussion board topic is due by end of day Saturday. Two response posts to at least one other student is due by end of day Tuesday.

Initial post:

Includes one substantive initial post using at least two scholarly or professional references with accompanying in-text citations to support any paraphrased, summarized, or quoted material.
your initial post should be at least 350 words.
Includes an open-ended, thought-provoking question posed to classmates.

Part 1:

A retail business, using the accrual method of accounting, owed merchandise creditors (accounts payable) $320,000 at the beginning of the year and $350,000 at the end of the year. How would the $30,000 increase be used to adjust net income in determining the amount of cash flows from operating activities by the indirect method? Explain.

Part 2:

Which type of cost system, process or job order, would be best suited for each of the following: (a) TV assembler, (b) building contractor, (c) automobile repair shop, (d) paper manufacturer, (e) custom jewelry manufacturer? Give reasons for your answers.

Part 3:

DBR Manufacturing rewards the company’s plant manager with a year-end bonus based on the increase in the plant’s operating income. For purposes of determining the manager’s bonus, should operating income be calculated using variable costing or absorption costing? Support your recommendation.

If no initial posts exist to allow for a response to be made, you may submit an additional initial post addressing another aspect of the unit topic.

Respond to post (C.P-W)

Response posts:

Includes at least two substantive responses that each include at least 1 scholarly, professional, or textbook reference with accompanying in-text-citation to support any paraphrased, summarized, or quoted material.
responses should be at least 200 words.

Part 1

In the accrual method of accounting, the increase in accounts payable from $320,000 to $350,000 is an essential factor to consider in determining the amount of cash flows from operating activities by the indirect method. The $30,000 increase in accounts payable needs to be adjusted to reflect the cash inflows and outflows during the year accurately (Warren et al., 2023).

To adjust net income, we need to consider the changes in working capital accounts, such as accounts payable. In this case, the increase in accounts payable represents an increase in the amount owed to merchandise creditors. From a cash flow perspective, the company has accrued expenses for merchandise purchases during the year but has yet to make the corresponding cash payments. Therefore, the $30,000 increase in accounts payable must be added to net income to calculate the cash flows from operating activities (Tsang et al., 2023).

By adding back the increase in accounts payable to net income, we are effectively reversing the accrual of expenses for merchandise purchases. This adjustment ensures that our cash flow statement accurately reflects the cash inflows and outflows related to operating activities. It is important to note that we use the indirect method to reconcile net income to net cash provided by operating activities, including adjustments for non-cash items such as changes in working capital accounts.

Overall, the $30,000 increase in accounts payable would be used to adjust net income by adding it back to determine the amount of cash flows from operating activities under the accrual method of accounting.

Part 2

(a) a job order cost system would be best suited for a TV assembler. This is because the assembly process for TVs involves multiple tasks that can be individually tracked and attributed to specific units. Each unit may require different components or procedures, and a job order cost system allows for allocating costs to each job or unit (Araujo et al., 2023).

(b) a job order cost system is also appropriate for a building contractor. A building contractor undertakes different projects, each with unique requirements and costs. Using a job order cost system, the contractor can accurately allocate costs to each task, track expenses, and determine the profitability of each job.

(c) An automobile repair shop would also best suit a job order cost system. The repairs and services an automobile repair shop provides are varied and specific to each vehicle. Using a job order cost system, the shop can allocate costs to each repair order, track expenses, and determine the profitability of each service provided.

(d) A paper manufacturer would be best suited for a process cost system. The production process for paper manufacturing involves continuous production with large volumes of homogeneous products. A process cost system allows for the accumulation of costs across the production process, spreading the costs evenly over the units produced.

(e) A custom jewelry manufacturer would best suit a job order cost system. Custom jewelry involves unique designs and specifications, requiring individual attention and customization. A job order cost system allows for allocating costs to each custom order, tracking expenses, and determining profitability per order.

Part 3

In determining the bonus for the plant manager of DBR Manufacturing, it is recommended to calculate operating income using absorption costing. Absorption costing considers variable and fixed manufacturing costs as part of the cost of goods sold. This method provides a comprehensive view of the plant's performance, considering all costs incurred in the production process (Warren et al., 2023).

When rewarding the plant manager based on the increased operating income, it is crucial to consider all cost elements associated with production. Absorption costing accurately represents the plant's productivity and efficiency by including fixed costs. This ensures that the bonus reflects the manager's ability to control and optimize all aspects of the manufacturing process, including fixed costs.

In contrast, variable costing focuses only on variable production costs, leaving fixed costs out of the calculation. This method may not provide a holistic view of the manager's performance or accurately reflect the plant's overall profitability. Excluding fixed costs may not incentivize the manager to effectively control and manage these costs, which is essential to determining the plant's financial success.

Therefore, it is recommended to calculate operating income using absorption costing to determine the manager's bonus. This approach aligns the manager's incentives with the organization's overall objective of maximizing profitability and encourages effective cost control across all aspects of production.

Thought-provoking question: Should a bonus be awarded to plant managers who excel in these areas, as their ability to build and manage a high-performing team directly impacts the plant's success?