Accounts 18

Question One(25 marks) Based on module 7 – Budgeting Retail outlets purchase snowboards from Slopes Ltd. , throughout the year. However, in anticipation of late summer and early autumn purchases, outlets ramp up inventories from January through May. Outlets are billed when boards are ordered. Invoices are payable within 60 days. From past experience, Slopes’ accountant projects 20% of invoices are paid in the month invoiced, 50% are paid in the following month, and 30% of invoices are paid two months after the month of invoice. The average selling price per snowboard is $450. To meet demand, Slopes increases production from December through March, because the snowboards are produced a month prior to their projected sale. Direct materials are purchased in the month of production and are paid for during the following month (terms are payment in full within 30 days of the invoice date). Direct manufacturing labour and manufacturing overhead are paid monthly. Variable manufacturing overhead is incurred at the rate of $7 per direct manufacturing labour-hour. Variable marketing costs are driven by the number of sales visits. However, there are no sales visits during the months studied. Slopes, also incurred fixed manufacturing overhead costs of $5,500 per month and fixed non-manufacturing overhead costs of $2,500 per month. Projected Sales: January80 unitsApril100 units February120 unitsMay60 units March200 unitsJune40 units Direct Materials and Direct Manufacturing Labour Utilisation and Cost Unit per BoardPrice per UnitUnit Wood5$30Board feet Fiberglass6 5Yard Direct manufacturing labour5 25Hour The beginning cash balance for March, 2010, is $10,000. On June 1, 2009 Slopes had a cash crunch and borrowed $30,000 on a 6% one-year note with interest payable monthly. The note is due June 1, 2010. Using the information provided, you will need to determine whether Slopes will be in a position to pay off this short-term debt on June 1, 2010. Required a. Prepare a cash budget for the months of March through May 2010. Show supporting schedules for the calculation of receivable and payables. b. Will Slopes be in a position to pay off the $30,000 one-year note that is due on June 1, 2010? If not, what actions would you recommend to Slopes’ management? c. Suppose Slopes is interested in maintaining a minimum cash balance of $10,000. Will the company be able to maintain such a balance during all three months analysed? If not, suggest a suitable cash management strategy. Marking Criteria: Application of budgeting to question 1a 18 marks Application of budgeting to question 1b 3 marks Application of budgeting to question 1c 4 marks Question Two(25 marks) Based on module 8 – CVP Analysis Grace Inc manufactures and sells baby cots. For its 2011 budget, Grace Inc. estimated the following: Selling price $600 Net income after tax $650 000 Variable cost per cot $300 Income tax rate 30% Annual fixed costs $150 000 Unfortunately sales were not meeting expectations. Only 525 units had been sold in the first four months of the year at the established price and cost structure. The net income projection for 2011 would not be reached unless some action is taken. A management committee presented the following mutually exclusive alternatives to the CEO. (a) Reduce the selling price by $60. The sales organization forecasts that at this significantly reduced price, 4050 units can be sold during the remainder of the year. Total fixed costs and variable cost per unit will stay as budgeted. b) Lower variable cost per unit by $15 through the use of less expensive direct materials and slightly modified manufacturing techniques. The selling price will also be reduced by $45, and sales of 3300 units are expected for the remainder of the year. (c) Reduce fixed costs by $15 000 and lower the selling price by 5%. Variable cost per unit will be unchanged. Sales of 3000 units are expected for the remainder of the year. Required: (a) Determine the number of units that Grace Inc must sell (a) to break even and (b) to achieve its income objective using the current price and cost structure. b) Determine which alternative Grace Inc should select to maximise net income. Show your calculations. – Marking Criteria: Application of CVP to question 2a 9 marks Application and interpretation of CVP to question 2b 16 mar ks Question Three Based on module 8 – Costing in an entity(25 marks) Alex’s Fine Art Studio is a company offering art services. The owner Alex Touch has been contacted by the manager of Ruthven Cars Company who complained about the price charged for some art work. On the same day Alex was also contacted by the manager of Books Galore who was delighted with the work and the price charged. Alex uses a cost-based approach to pricing (billing) each job. Currently it uses a single direct-cost category (professional labour hours) and a single indirect-cost pool (general support). Indirect costs are allocated to jobs on the basis of professional labour-hours per job. Professional labour costs at Alex’s Fine Art Studio are $70 an hour. Indirect costs are allocated to jobs at $105 an hour. Total indirect costs in the most recent period were $21 000. The job files show the following: Professional Labour Ruthven Cars Company 104 hours Books Galore 96 hours Assume these two jobs were the only jobs completed in this period. ) – Required: (a) Compute the costs of the Ruthven Cars Company and Books Galore jobs using Alex’s existing job-costing system. (b) Alex asks his assistant to collect details on those costs in the $21 000 indirect cost pool that can be traced to each individual job. After analysis, Alex is able to reclassify $14 000 of the $21 000 as direc t costs: Other Direct Costs Ruthven Cars Company Books Galore Research support labour $1600 $3400 Computer time 500 1300 Travel and allowances 600 4400 Telephone/faxes 200 1000 Photocopying 250 750 Total $3150 $10 850 Recalculate for Alex the costs of each job using the six direct-cost pools and a single indirect cost pool. The single indirect cost pool would have $7000 of costs and would be allocated to each job using the professional-labour hours base. (c) Alex’s Fine Art Studio has two classifications of professional staff: artists and apprentices. Alex asks her assistant to examine the relative use of artists and apprentices on the recent Ruthven Cars Company and Books Galore jobs. The Ruthven Car Company job used 24 artist-hours and 80 apprentice-hours. The Books Galore job used 56 artist-hours and 40 apprentice-hours. Alex is curious as to how each job would have been costed if using separate direct cost rates for artists and apprentices and using separate indirect cost pools for artists and apprentices. For direct costs, the cost per artist hour is $100 and per apprentice hour is $50. For indirect costs, from the total indirect cost pool of $7000, $4600 is attributable to the activities of artists, and $2400 is attributable to the activities of apprentices. You are required to satisfy Alex’s curiosity by computing the costs for each job under this more refined costing system. (d) Complete a comparison of costing under the existing system and that of the more refined system. Which is better and why? Marking Criteria: Application of cost allocation principles to question 3a 6 marks Application of cost allocation principles to question 3b 8 marks Application of cost allocation principles to question 3c 8 marks Application of cost allocation principles to question 3d 3 marks Question Four(25 marks) Based on module 10 – Performance management Part A â€Å"Managers should be rewarded only on the basis of their performance measures, They should be paid no salary. † Do you agree? Explain. Part B Bob's Cellular Phone Company uses ROI to measure divisional performance. Annual ROI calculations for each division have traditionally employed the ending amount of invested capital along with annual operating income and net revenue. The Dupont method is generally used. The company's Phone Accessories Division had the following results for the last two years: 2010 ROI = ($2,000,000/$20,000,000) ? ($20,000,000/$10,000,000) = 0. 0 2011 ROI = ($2,400,000/$25,000,000) ? ($25,000,000/$15,000,000) = 0. 16 Corporate management was disappointed in the performance of the division for 2011, since it had made an additional investment in the division that was budgeted for a 23% ROI. Required: a. Discuss some factors that may have contributed to the decrease in ROI for 2011. b. Would there have been any substantial difference if average cap ital had been used? Marking Criteria: Discussion and explanation regarding the extent of use of performance measures. 10 marks Discussion of performance as required in Part B a. 10 marks Explanation required in Part B b. 5 marks General Requirements: 1. Given the nature of the questions there is not specified work limit. However, you are encourage to present your work in a clear and concise manner. You should ensure that you answer the question fully while giving enough information to ensure that the marker can ascertain your objective in your calculations to enable part marks to be given if necessary. 2. Place references for all questions at the end of the assignment not at the end of each question. 3. You can use dot points or tables to help present your answer if you wish. . Assignment extensions will be granted if needed due to medical, work or personal reasons. However, extensions will not be granted for more than one week. This is because I cannot post back marked assignments and solutions until all assignments have been received. It is unfair on other students to delay the return of their marked assignments unduly. 5. You should note that the assignment is bas ed on modules 7-10. I would recommend completing the relevant question each week as it relates to each module. This approach would mean that the assignment would be completed by the due date. Therefore reasons for needing an extension should be extreme. (Sources withheld: Questions for this assignment are taken from other sources. Details of this source have been withheld for assessment purposes. This material is reproduced under the provisions of the Section 200 (1) (b) of the Copyright Amendment Act 1980. ) ACC5502 Accounting for Managers Assignment Two Description | Marks out of | Wtg(%)| Due date | Based on modules 7–10| 100| 20%| 2012| 1. Question| Criteria| MarksAvailable| Question One| Application and understanding of module 7 | 25 marks| | Application of budgeting to 1a) 19 marks1b) 3 marks1c) 3 marks| | | | | Question Two | Application and understanding of module 9| 25 marks| | Application of CVP principles to a practical situation. 2a) 10 marks2b) 15 marks| | | | | Question Three| Application and understanding of module 10| | | Use of costing principles3a) 6 marks3b) 8 marks3c) 8 marks3d) 3 marks| 25 marks| | | | Question Four| Application and understanding of module 11| | | Discussion and application of performance measurementPart A 10 marksPart B a) 10 marksPart B b) 5 marks| 25 marks| Total| | 100 marks| | |