Case: The Role of the Managerial Accountant in Recommending Cost Structures

BASED ON THE ATTACHED CASE ANSWER THESE QUESTIONS:

Responses must be supported with evidence from other journal articles and/or your text.

1. Assume that MWL has already harvested most of its own available timber. Identify the strengths MWL has in place for expanding operations to bid its services to other forest owners in the region.

2. Before expanding its operations and bidding on a particular job, the MWL controller anticipates his managers will have many questions, such as, “What is the overall scope and size of the job?” A properly designed cost management system can provide relevant information to support decision making when evaluating contracting opportunities. What additional questions can the controller anticipate from MWL’s managers?

3. Define the terms listed below. Locate in the case where the term is used and support whether the term was used correctly. Support your definition with evidence from journals or texts. Please note not all of the terms are used in this case so you don’t have to locate all of them, but you must define all the terms.

a. cost object

b. direct cost

c. indirect cost

d. cost allocation

e. cost behavior

f. variable cost

g. fixed cost

h. mixed (or semivariable) cost

i. cost driver

4. What does it mean to assign costs to cost objects? Why do managerial accountants recommend assigning costs to cost objects? Give three examples of possible cost objects for MWL. Support your cost objects with industry standards.

5. Refer to your answer to Question 4. For your stated cost objects, identify a minimum of six direct costs and six indirect costs that MWL managers may consider when bidding on contract logging projects. For each direct cost, identify a basis for assigning it to the cost object. For each indirect cost, identify a potential cost allocation base. Develop a table that identifies the cost, whether it is direct or indirect, and how the cost assignment or allocation base would be used.

6. Refer to your answer to Question 5. For each cost that you listed, identify a potential cost driver and classify its cost behavior as variable, fixed, mixed (or semivariable), or none of the above. If the cost driver is “none of the above,” can management make a change in the driver that will cause the behavior to become variable, fixed, or mixed?

7. Given the desire to move from transitioning from a strong reliance on the harvest of its own timber to establishing a competitive contract logging business, what effect will this decision have on developing both the operational budget and the capital budget? Identify and defend the potential changes that would affect the budgeting process, including other departments that would weigh in. [