This article presents problems which were prepared by the Board of Examiners of the American Institute of Certified Public Accountants and were presented as the second half of the certified public accountants' examination in accounting practice on May 10, 1956.
The 1935 annual meeting of the American Accounting Association was one of the most successful and enjoyable in its history. It was held on August 30, 31, and September 1, in Philadelphia, Pennsylvania, with the Wharton School of Finance and Commerce, University of Pennsylvania, as host. A motion was made from the floor and carried accepting the report of the Committee on Nominations and instructing the Secretary Treasurer to cast a unanimous ballot for election of the above named persons. One of the most interesting aspects of the convention was the plant visitation to the Fairless Works of U.S. Steel on Friday, September 2. About 110 members of the association visited the Fairless Works, making a complete tour of the plant in the normal production sequence. The Fairless Works is a fully integrated steel producing plant from the coking of coal through the production of finished hot- and cold-rolled sheets, bar mill and tin mill products. Among the products produced at the Fairless Works are carbon high-strength and alloy steel ingots, blooms, billets, slabs bars, hot- and cold-rolled sheets, black plates, and electrolytic coated tinplate.
Difficulty in utilizing cost control devices in the small business lies in a misunderstanding of the nature of cost control. Too often thinking on cost control is interwoven with some rather elaborate historical or standard cost system. Further, those who take the view that the income statement does not purport to and cannot present a picture of operating efficiency becloud the problem. Cost control has but one object and that is assisting management to attain its goals. It is axiomatic that an organization has control over its costs only when its management wants to control costs. Conversely, when management lacks interest in cost control, costs remain uncontrolled. It is management's function, among a great many others, to establish a profit goal. A wide awake management will look ahead and attempt to come to some conclusion as to what it is after and what it can reasonably hope to obtain. To achieve its profit goal, management must inaugurate a systematic plan of assuring proper expenditure and must establish upper and lower limits of expenditure. Finally, it will need to put its plan into effect at all levels of management from the top to the bottom of the organization.
An efficient intracompany pricing system should establish a price that: 1. Fosters a healthy interdepartmental competitive spirit. 2. Provides an adequate profit yard-stick for the measurement of departmental management. 3. Provides figures to top management for use in policy decisions to make or to subcontract. 4. In some cases minimizes federal income taxes. The four methods available are: (a) Price established by top management. (b) Cost, cost plus fixed percentage, and standard cost methods. (c) The retail price offered to the producing division's other customers. (d) Interdepartmental bargained price method. Ideally the standard cost method would appear to afford the best answer to the four basic requirements. Certainly a company already using standard costs would find little in the other available methods to warrant their use. In the absence of an adequate standard cost system, the bar-gained price method has much to recommend it particularly if a list price with class discounts is used to offset long and tedious negotiations.