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Mariah L.
Senior Lecturer, Accounting; University of South Carolina, 13 years
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Marketing
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Question:

Macon's business ran an advertisement on the radio in his hometown last month. The Ad Rep ensured him it would hit his demographic and increase sales by at least 10%. It turns out sales were flat. The Sales Rep returns to see if Macon would like to run another ad making the argument, "you already spent that money last month, it would be silly not to follow up with additional coverage. Perhaps it was a busy month plus those pesky Internet stations are making it difficult for us to know for sure how many listeners we have." Should he do it again?

Mariah L.
Answer:

Without knowing the exact cost it most likely not a good idea. The previous ad is a sunk cost and therefore irrelevant, can't get that money back. Unless the Sales Rep can show specific data as to demographics and market share, I would not run this ad again.

Accounting
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Question:

Macon owns a manufacturing plant which makes custom boats (long production process). His manager comes to him enraged because of the amount of Direct Labor incurred during the week with only one completely to show for it. Macon tells him to please run a report as to what it is in the WIP account; why would Macon want to see that information? Might it sway his manager's opinion of the employee's productivity?

Mariah L.
Answer:

I think it would sway his opinion because the manager is not considering the Equivalent Units of production and what work is still in the WIP. In a longer production process the WIP is imperative both for Cost of Goods Sold and for judging performance. A simple look at how much was in the WIP at the beginning of the period, how much was added and how much is there currently will give a better picture.

Business
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Question:

Macon's friend, who is taking Principles of Accounting, says to him, "I feel really good about the upcoming test. I understand how to classify a Balance Sheet and while I don't fully understand how to construct an Income Statement or Statement of Retained Earnings, I feel like most of the points will be allocated to the Balance Sheet." Is there a flaw in his friend's thinking?

Mariah L.
Answer:

YES. If given a trial balance his friend may not know some of the tougher accounts, like Unearned Revenue not to mention that without a correct Net Income which flows to Retained Earnings, the Balance Sheet can never (properly) balance.

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