Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 26

Assigning Responsibility

Davidson Communications produces mobile phones. In Building 404, the phones are assembled and then sent to Building 405 where they are inspected, packaged, and shipped to the customer. On Thursday, the production supervisor in Building 405 asked the Building 404 manager to stop production. One of the electronic testing machines needed emergency maintenance. The Building 404 manager refused, saying, "I’m paid to maintain production. If I stop, I’m penalized and could lose my bonus."

?As a result, the testers in Building 405 tested a smaller sample than usual. Because of this, the return rate on the day’s production was much higher than usual. The cost of returns and warranty repairs was $75,000.

Required

As top management, to whom would you assign the responsibility for the $75,000 of returns and warranty costs?

Step 1 of 2

Cost accounting

This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.