Hiring Management Accountants According to Professional Practice Standards

In the present case, George has been appointed as the management accountant however he does not hold the requisite degree for the same profession rather George is the licensed plumber. Merely because George is having sound knowledge of pipes, he cannot be appointed as the management accountant of the Fridges-R-Fun.

The institute of management has issued a statement containing the statement of ethical professional practice that contains certain standards to be complied by all its members. In hiring George as the management accountant following standards were jeopardise.

Since, George is not the certified management accountant; he is not competent to be appointed at the same designation as he does not hold the required knowledge and skills to deal with the matters of management accounting.

Since George is the relative of the general manager of the company, it will be difficult for him to keep the sensitive matters confidential. If the management accountant of the company is related to the managerial personnel of such company it will affect the confidentiality of the organisation.

The professional relations and personal relations of management accountant with the managerial person will raise the conflicts of interest (IMA, 2018). 

Quality costs are majorly four types they are preventive costs, appraisal costs, internal failure costs and external failures (Hansen, Mowen & Guan, 2007). These costs are incurred by the firm with the aim of managing the quality of the products that it is dealing in. It generally happens that if preventive and appraisal costs are incurred at the correct time it will save the time and cost to work on internal and external failures (Ahmed Al-Dujaili, 2013). Since preventive measures will minimise the occurrence of defects in the product and the appraisal costs are related on the activities that helps in maintaining the quality of products or services. Internal failures costs are those costs that are incurred to fix the defects identified before delivering the final product to the customer. External failure cost is incurred to fix the defect of the products that are identified by the customers once they receive the project.

In the instant case of Fridges-R-Fun, no preventive and appraisal cost was incurred in the 1^st year and due to this the internal as well as external failures were incurred more in this year. In the next year the firm implemented new practices under which emphasis was given to the preventive and appraisal measures therefore the overall quality costs increased in year 2. However, the quality cost has declined in year 3 since the quality cost is generally a long term investment and hence it takes time to reap the advantages. Therefore, the incurrence of preventive and appraisal costs has resulted in reduced chances of internal and external failures. 

Four Types of Quality Costs and Their Importance

John believes that the cost of fixing internal and external failure is less than the cost of taking preventive and appraisal measures and hence there is no need to incur preventive and appraisal costs. However, Paul is of the view that quality cost is a sort of long term investment and it takes time to reap its benefits and the preventive and appraisal cost is necessary to be incurred to save the products from internal and external failure. 

If Ringo’s decision is used then in year 4, the quality cost will reduce as a result of reduction in the possibility of internal or external failure because of spending of money on preventive and appraisal measures which will prevent and detect the product discrepancies on time.

If Ringo’s decision is not undertaken then the changes of internal and external failure of product will again increase in year 4 since no inspection or testing activity will be taken up before delivering the final product to the customer. 

The differences in actual and expected delivery expense is due to the under absorbed variable overheads. Using the high low approach, the predetermined variable overhead rate is $ 10 per unit. However actual overheads are incurred at the high rate.

Due to the consumption of more machine hours for the welding function in the business, the overhead recovery rate is determined using the machine hours and the assembly function is carried more on manual basis as shown by higher labour hours for the same. Hence assembly overhead is allocated to different jobs on the basis of labour hours consumed.

If the estimated variable overhead is increased for the welding function it would not affect the overheads in the areas of assembly function as assembly cost is allocated to the units on the basis of labour hours.

KPIs helps in measuring the performance of the business. From the study of article by Schrage and Kiron Fridges-R-Fun cannot be said to the advanced user of KPIs as its KPIs are requires the amended principles to be adopted. They are as follows:

The focus of the business must not only be on sales. Rather, it must focus more on quality management and customer satisfaction that will ultimately increase the sales of business.

May be reviewed by management once a year:

KPIs are to be reviewed as per their sensitiveness and relevance for the business. Some KPIs are required to be required to be reviewed weekly or monthly while others may require annual review (Kaplan & Norton, 2001).

Are private information and such information should not be shared among employees:

KPIs are required to be shared with the employees of the organisation so that they can have idea of what is expected from them and how it is to be achieved (Schrage & Kiron, 2018).

Cost plus pricing method is used to price the products and services of the business but this strategy suffers from certain limitations that are discussed below:

• In stand-alone projects, the control over cost and efficiency is generally discouraged.
• Cost plus prices does not guarantee to cover all the costs and not also to earn the profits.
• Under this method, the willingness of the customer to pay is ignored and also the competitive prices are ignored and the ignorance of such factors results in completely off base pricing decisions (Dholakia, 2018).

Value based pricing methods gives due regards to the value offered to the customers to satisfy their needs through the products dealt by firm. This method emphasises on improving the quality of products offered to the customers and does not require the price to be based on cost involved in the production or the historical prices as identified by firm’s competitors (Hinterhuber, 2004).

References:

Ahmed Al-Dujaili, M.A., 2013. Study of the relation between types of the quality costs and its impact on productivity and costs: a verification in manufacturing industries. Total Quality Management & Business Excellence, 24(3-4), pp.397-419.

Dholakia, U., 2018. When Cost -Plus Pricing is a good idea. Available at: < https://hbr.org/2018/07/when-cost-plus-pricing-is-a-good-idea> Accessed on: 08.08.2018.

Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., 2010. Managerial accounting. Issues in Accounting Education, 25(4), pp.792-793.

Hansen, D., Mowen, M. and Guan, L., 2007. Cost management: accounting and control. Cengage Learning.

Hinterhuber, A., 2004. Towards value-based pricing—An integrative framework for decision making. Industrial Marketing Management, 33(8), pp.765-778.

IMA, 2018. Ethics Centre. Available at: < https://www.imanet.org/career-resources/ethics-center?ssopc=1> Accessed on: 0.08.2018.

Kaplan, R.S. and Norton, D.P., 2001. Transforming the balanced scorecard from performance measurement to strategic management: Part I. Accounting horizons, 15(1), pp.87-104.

Schrage, M. & Kiron, D., 2018. Leading with next-generation Key Performance Indicators. Available at: < https://sloanreview.mit.edu/projects/leading-with-next-generation-key-performance-indicators/> Accessed on: 0.08.2018.