What is the difference between a direct and indirect cost? Variable versus fixed cost? What are the differences in accounting for inventoriable (product) versus period costs?
What are the relationships among financial, management, and cost accounting?
1-34 Budgeting, ethics, pharmaceutical company. Chris Jackson was recently promoted to Controller of Research and Development (R&D) for BrisCor, a Fortune 500 pharmaceutical company that manufactures prescription drugs and nutritional supplements. The company’s total R&D cost for 2017 was expected (bud-geted) to be $5 billion. During the company’s midyear budget review, Chris realized that current R&D expen-ditures were already at $3.5 billion, nearly 40% above the midyear target. At this current rate of expenditure, the R&D division was on track to exceed its total year-end budget by $2 billion! In a meeting with CFO Ronald Meece later that day, Jackson delivered the bad news. Meece was both shocked and outraged that the R&D spending had gotten out of control. Meece wasn’t any more under-standing when Jackson revealed that the excess cost was entirely related to research and development of a new drug, Vyacon, which was expected to go to market next year. The new drug would result in large profits for BrisCor, if the product could be approved by year-end.