You are a CPA and serve as an independent director on a manufacturing companys audit...
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Accounting
You are a CPA and serve as an independent director on a manufacturing companys audit committee. The board of directors assigned you to examine the companys managerial accounting system. You found several issues listed below:
1. The company classified an executives salary as manufacturing costs. The executive is in charge of the companys production.
2. Based on the companys budgeted production and actual sales and purchases, the company had substantially overproduced the products during the period.
3. The costs of direct materials increased in the period. The company switched to FIFO from the weighted average cost method in the period.
4. The company overestimated the percentage of completion of ending work in process inventory with respect to conversion costs.
5. The company substantially cut advertising expenses in the period.
6. The company has different products. The sales revenues are mainly attributable to the sale of high-volume products. The company switched to ABC from the traditional approach in applying manufacturing overhead in the period.
Required: Discuss the implications of these issues for the companys external financial reporting.
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