Tinikits, Inc. is the manufacturer of miniature models, especially of automobiles with historical interest

Tinikits, Inc. is the manufacturer of miniature models, especially of automobiles with historical interest. The company is developing new standard costs. Trent Roswell suggests that the new standards for materials should not include any waste for liquid plastics that spill out of the molds. "After all," he says, "we're trying to be a world class company. When we build in waste, we tell the workers it's okay to waste some." Betty Farrell, another manager, disagrees. "If we don't allow for some normal human error," she says, "we'll have a mighty unhappy work force. Also, I think that these kinds of perfection standards exploit the workers. I certainly wouldn't want to be held up to perfection every day—what could I do but fail?"



The argument continued. Finally, the standards were prepared. All standards were prepared according to normal expected performance, except that for materials, an ideal standard was used. Betty, still maintaining the unfairness of the system, refused to hold her workers accountable for materials quantity variances.

Do you think it's fair to use ideal standards to evaluate a department or workers ? Is it unethical for Betty to refuse to support the standards? Explain.


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Norwel company manufactures miniature circuit boards used in wireless phones and personal organizers

Norwel company manufactures miniature circuit boards used in wireless phones and personal organizers. On January 2, 2014, Norwel purchased a circuit board stamping machine at a retail price of $12,000. Norwel paid 5% sales tax on this purchase. Norwel paid a contractor $1,400 for a specially wired platform for the machine, to ensure non-interrupted power to the machine.

Norwel estimates the machine will have a 4-year useful life, with a residual value of $2,000 at the end of 4 years. Norwel uses straight-line depreciation and employs the half-year convention in accounting for partial-year depreciation (that is, it takes a half year of depreciation in the first year of an asset’s useful life). Norwel’s fiscal year ends on December 31.

1) At what amount should Norwel record the acquisition cost of the machine?

2) What journal entry should Norwel record in 2014?

3) At what amount will the machine be reported in Norwel’s balance sheet at December 31, 2014?

4) On July 1, 2015, Norwel decides to outsource its circuit board operations to Boards-R-Us Inc. As part of his plan, Norwel sells the machine (and the platform) to Boards-R-Us for $7,000. What is the impact of this disposal on Norwel’s 2015 income before taxes?

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