Managerial Accounting: Creating Value in a Dynamic Business Environment 12th Edition by Ronald Hilto

competitors would be helpful.
References
Essay Difficulty: 3 Hard Learning Objective: 01-08 Explain how
investments in capacity affect managerial
decision making.
 104.
Award: 1.00 point
1. Auditions for actors and actresses
2. Development of promotional materials for use by local newspapers
3. Focus groups to evaluate ideas for potential television comedy series
4. Production of DVDs for release to big box stores and online video outlets
5. On-location shooting of scenes
6. Fine-tuning and rewrites of scripts
7. Set design and construction for a new medical drama
Required:
A. Evaluate the seven activities as upstream (pre-production), production, or downstream (post-
production) in nature.
B. Generally speaking, which activities (upstream, production, or downstream), if any, can
management ignore if the company is to be successful in achieving its key strategic goals?
A.
1. Upstream (pre-production) 5. Production
2. Downstream (post-production) 6. Upstream (pre-production) and production
3. Upstream (pre-production) 7. Upstream (pre-production)
4. Downstream (post-production) 
B. None. All are important and must be considered.
References
Essay Difficulty: 1 Easy Learning Objective: 01-08 Explain how
investments in capacity affect managerial
decision making.
 105.
Award: 1.00 point
Unused or excess capacity is a key component of contemporary management accounting.
Required:
Define the term "excess capacity" and explain how it would relate to a coffee shop.
Excess capacity is the difference between the amount of a resource supplied and the amount of a
resource used at a given output activity level.
A coffee shop may have excess capacity in terms of servers, brewers, and the number of brewed
beverages available to customers.
References
Essay Difficulty: 3 Hard Learning Objective: 01-08 Explain how
investments in capacity affect managerial
decision making.
 106.
Award: 1.00 point
Tae Franklin is the sales manager of Darius Enterprises, a very profitable distributor of office
furniture to local businesses. A recent economic downturn has created an extremely tight cash
position, and the company has been hurt by the bankruptcy of two key customers.
In late October, anticipating an economic recovery, Franklin began an extensive remodeling of the
company's sales floor. Construction costs, decorating, and equipment purchases are projected to
cost $250,000.
Darius has a policy that individual expenditures in excess of $200,000 must be approved by the
firm's board of directors. Franklin, unfortunately, missed the deadline to have the board consider this
project at its regular September meeting. Not wanting to wait until the next meeting in December,
he subdivided the project in two parts—construction and decorating ($190,000) and equipment
purchases ($60,000)—neither of which needed board approval because of the dollar amounts
involved.
The project was recently completed and sales have begun to recover. Customers have raved about
the new sales area, noting that it is far superior to those of Darius's competitors.
Required:
A. Would Franklin's approach of subdividing the project in two parts have any effect on the
company's financial statements? Briefly explain.
B. Briefly discuss whether Franklin behaved in an ethical manner.
C. Which, if any, of the following standards of conduct would have applicability to Franklin's conduct:
competence, confidentiality, integrity, or credibility? Briefly explain.
A. Although some extra processing is involved because of the "separate" projects, the same total
costs will be incurred for the same assets. Thus, there is no impact on the financial statements,
which serve to summarize financial activity.
B. Franklin behaved in an unethical manner. Even though business is recovering and customers
seem more than satisfied with the new sales area, Franklin knowingly bypassed stated company
policy. The project is being done in a single phase, and is comprised of construction, decorating,
and equipment acquisition. This is really one project; yet his accounting treatment implies
otherwise.
C. Two standards are relevant here. Integrity holds that managers refrain from engaging in any
conduct that would prejudice the ethical performance of duties. Additionally, credibility recognizes
that managers have a responsibility to communicate information fairly and objectively, and disclose
all relevant information that could reasonably be expected to influence a user's understanding of
the reports and data presented.
References
Essay Difficulty: 3 Hard Learning Objective: 01-11 Describe the