New York City College of Technology City University of New York

FMGT– 4710 – Section E084 – Financial Analysis for Facilities Managers II – Spring 2019

The following questions are from your text book: (10 points each)

1. How does the Sarbanes-Oxley Act impact a company’s management?

In the exciting white-knuckle world of accounting, The Sarbanes-Oxley Act (SOX) was introduced in 2002
to protect shareholders/stakeholders of publicly-traded companies by improving corporate governance.
It is a highly regulatory and interventionist act, impacting a company’s management by ensuring that
companies would not again falsely manipulate their public image, integrity, and financial standing in
order to dupe potential shareholders into making risky investments. SOX brought a whole new
systematic way of assuring the public that companies would not wheel out their ‘old tricks’ to pull the
wool over the public’s eyes when it came to disclosing their true financial health. SOX did this by
requiring the CEO and CFO actually look over and approve the ‘books’ so they couldn’t absolve
themselves using an idiot defense and thus be held liable, establishing independent third-party auditing
firms, providing greater protection toward whistleblowers, and restricting the ability of companies
personally overseeing the auditing process, among other things. All things considered, SOX is simply a
reactive accounting/auditing reformation borne of the dependency of companies on their good standing
with the public for them to grow and expand (and thus bringing on the strong temptation to fib like a
child with a hand in the cookie jar).

2. What are the bases of the ISO 14000 family of standards?

It must be said that the ISO 14000 family of standards is when a third-party organization gives you a
certification in the name of the International Organization for Standardization (ISO) which is based in
Geneva, Switzerland. A certification that says that your companies/government’s facilities adhere to the
environmental standards codified by the ISO. In effect, this family of standards is meant to encourage a
cleaner environment for everyone and for companies to perhaps become more knowledgeable about
alternative energy and how they can become more efficient and save money in their operations.

3. What is ISO 9000, and why is it an important designation for competing globally?

Whereas the ISO 14000 family of standards concerns the management of environmental programs in a
mutually beneficial way, the ISO 9000 family of standards concerns the standardization of quality control
systems. Since the ISO 9000 standards is specifically designed international use, it is recognized by many
countries with well over a hundred “member bodies” with full voting rights on technical and policy
issues. An important distinction to make is that these standards concern the quality of products and not
services, swinging the purview of these standards toward the manufacturing and industrial sectors of
the economy; cars, engines, equipment, furniture, clothing and etc.

4. How would you describe the following accounts: Finished Goods, Work in Process, and
Materials?

The best way to describe finished goods is to compare it to an apple pie. An apple pie is composed of
many ingredients, with direct (milk, butter, sugar, apples) and indirect (cooking pan, gas for heat)
components all converging to become one finished product. What are hidden costs are really just
factory overhead. A Rolex watch is a finished good that is made with raw materials, overhead, and a
workforce to put it all together. A work in process means that value/cost of a partially finished product.
The work in process is an asset that gives you an idea of what the finished good will actually be worth
but it’s not yet done. It’s to give you a good estimation. Materials can be direct materials or indirect
(overhead). Materials are simply the bare ingredients people need to make a product.

5. How do “cost of goods sold” and “cost of goods manufactured” differ for a manufacturer?

A manufacturer doesn’t buy products but makes them, thus the term cost of goods manufactured
replaces purchases in determining the cost of goods sold. The distinction simply lies in the fact that
manufacturers are not merchants but producers, thus causing their accounting terminology to be
distinct from cost of goods sold. Selling is another matter entirely.

6. Briefly, what are the duties of the following employees?

a. Purchasing agent: Responsible for buying the materials needed by a manufacturer.
b. Receiving clerk: Responsible for supervising the receipt of incoming shipments. All incoming
materials must be checked as to quantity and quality and sometimes as to price.
c. Storeroom keeper: Responsible for being in charge of the materials after they have been
received, must see that the materials are properly stored and maintained.
d. Production supervisor: Responsible for supervising the operational functions within the
department, assigned to prepare/approve the requisitions designating the quantities and
kinds of material needed for the work to be done in the department.

7. Proper authorization is required before orders for new materials can be placed. What is the
difference between a purchase requisition and a purchase order?

A purchase requisition is a form that notifies the purchasing agent that additional materials are needed.
It’s akin to a request but not an order. They typically come from the storeroom keeper or someone in a
similar position of authority and responsibility. A purchase order, on the other hand, builds upon the
purchase requisition in that the purchase requisition grants authority for a purchase order to proceed
and it is when you actually request the vendors (as a purchasing agent) for the products requested.

8. What kind of information and data are needed to calculate the economic order quantity?

In order to ascertain the economic order quantity (EOQ) one has to determine the cost placing an order
and the cost of carrying inventory in stock to arrive at determining the most optimal and cost-efficient
quantity to be ordered.

9. What is a modified wage plan?

They are wage plans that combine some features of the hourly rate and piece-rate plans. There is a
base-pay rate doled out for those who do not meet and exceed the company product quota. For those
who meet and surpass the quota, additional pay will be distributed. This system is meant to award hard
working employees and direct the focus of upper management to subpar and struggling employees.

10. What is the maximum amount one can contribute to a 401K, 403B, and most 457 plans in 2019?
(Look this up on the internet for current max.)
It depends on age. $16,500 for employees under 50 and $22,000 over 50.

Bonus Question
E2-14 JIT and cost control (similar to Recall and Review 3) (8 points)

Matsui Industries produces 5,000 units each day, and the average number of units in work in process is
25,000.

1. Determine the throughput time.

25,000 units/ 5,000 units = 5 days.

2. If the same daily output can be achieved while reducing the work in process by 50%, determine
the new throughput time.

12,500 units/ 5,000 units = 2.5. days.

3. Assuming the above doubling of the velocity of production, an average annual caring cost of
15%. And an average work in process inventory of $500,000, determine
a. The current annual carrying cost and

Carrying cost percentage x average WIP = Annual carrying cost = Annual carrying cost

15% x (1/2 x $500,000) = $375,000

b. The projected new annual carrying cost

$375,000