This Assignment is designed to give you an opportunity to:
1. integrate traditional, contemporary theoretical and technical management accounting knowledge for planning, control and evaluation.
2. critically apply traditional, contemporary and advanced theoretical and technical accounting knowledge and skills to solve emerging and/or advanced management accounting problems that require planning, control and evaluation, as well as decision making from a strategic perspective; and
3. demonstrate information literacy and numeracy skills required by accountants to access relevant data from research and business literature sources and use contemporary and advanced analytical techniques.
All three questions must be completed for this assignment.
Question 1 (Total of 17 marks)
The management accountant at Pat’s Tennis Supplies Company has provided the following information to prepare the cash budget for July.
? 40% of sales are cash sales. 60% of sales are credit sales.
? Of the credit sales, cash is received for 30% of credit sales within the month of sale and all credit sales collected within the month receive a 5% discount. A further 40% of credit sales are collected in the following month the sale; while the remaining credit sales are collected in the second month after the sale. There are no bad debts.
? Sales for the relevant period are as follows:
Date Sales Purchases
? April ? $ 500,000 ?
? May ? $ 600,000 ?
? June ? $1,000,000 ? 296,400
? July ? $1,140,000 ? 312,000
? Raw material purchases in July are $312,000. Raw material purchases in June were $296,400.
? 50% of raw materials purchases are paid for in the month of purchase. The remainder is paid for in the following month.
? Wages are $100,000 per month and are paid in the month incurred.
? Budgeted monthly operating expenses are $376,000, of which $26,000 is depreciation. Expenses are paid in the same month incurred.
? Old equipment will be sold for $35,200 on July 4.
? On July 13 new equipment costing $175,000 will be purchased with cash.
? The cash balance on July 1 is $127,000.
(a) Prepare a cash collection schedule from sales that you expect to collect during July
(b) Prepare a cash payments schedule for purchases that you expect to pay during
July (4 marks)
(c) Prepare a cash budget FOR JULY ONLY. (3 marks) Question 2 (Total of 20 marks)
Table 1 provides the annual overhead costs while Table 2 provides the budgeted input quantities per chair and budgeted costs per chair. The budgeted overhead rate is also shown in Table 2. The actual results are shown in Table 3.
Table 1: Budgeted (Standard) Manufacturing Overhead Costs for 1 year
Budgeted Fixed Manufacturing Overhead $4,200
Budgeted Fixed Overhead Rate per Direct Labour Hour $1.20
Budgeted Variable Overhead Rate per Direct Labour Hour $1.20
Table 2: Standard (Budgeted) Manufacturing Cost per Chair
Direct Materials (1.1 metres per chair @ $5.90 per metre) $ 6.49
Direct Labour (3.1 hours per chair @ $6.30 per hour) 19.53
Variable Manufacturing Overhead @ $1.20 overhead rate (based on Direct Labour hours as the cost allocation base) 3.72
Fixed Manufacturing Overhead @ $1.20 overhead rate (based on
Direct Labour hours as the cost allocation base) 3.72
Total Budgeted Cost per Chair $33.46
Table 3 contains data for one year of operations. The actual annual output was 1,000 chairs:
Table 3: Actual Manufacturing Costs for 1,000 Chairs for 1 year
Actual Direct Materials purchased and used (1,020 metres @ $6.30)
Actual Direct Labour cost (3,000 hours used @ $6.45) Total
Actual Variable overhead cost $4,200
Actual Fixed overhead cost
Total Actual Costs for 1,000 Chairs $4,300
Compute the following variances and in your answer identify variances as favourable or unfavourable, show all workings and clearly label answers.
(a) Material price and Materials efficiency variances (4 marks) (b) Labour price and Labour efficiency variances (4 marks)
(c) Variable overhead spending and Variable overhead efficiency variances (4 marks)
(d) Fixed overhead spending and Fixed overhead production-volume variances (4 marks)
(e) Suggest a reason for what may have caused the direct materials efficiency variance
and the direct materials price variance. (2 marks)
(f) Suggest a reason for the variance results that show connections between the different types of variances. (E.g. how the Dir. Lab. and/or Dir. Mat. variance may
affect each other or the overhead variances). (2 marks) Question 3 (23 marks total)
Pretty Good Picture framing is costing a large job (no. 60) for a client. The current costing system allocates manufacturing overhead based on machine hours. However the accountant is considering introducing an ABC costing system and has obtained the following information:
Budgeted overheads (Costs) Budgeted quantity of cost drivers
Material handling $ 40,000
Material moves 500
Machine maintenance $ 231,000
Machine Hours 10,000
Product inspection $ 18,000
TOTAL Mfg Overhead $ 289,000
Number of materials moves
Number of inspections
a) What amount of overhead would be allocated to Job 60 under the current costing system? (4 marks)
b) Calculate the cost of Job 60’s overhead under ABC costing, using appropriate cost drivers for the three identified activities.
c) Describe which costing system is more accurate and explain why there are differences between traditional costing and ABC costing allocated amounts.
Explain the need for these more modern (ABC) costing systems. (4 marks)
d) Some of the activities in the budget above may be classified as either value-added or non-value added or grey areas (partly value-added and partly non-value added).
i) Identify two of the activities in the budget above that may be classified as grey areas (both value-added and non-value added). (2 marks)
ii) Describe why some activities have a value-added portion and a non-value added portion. How the ABC information may be used to improve managerial decisionmaking (activity-based management (ABM)) to reduce the non-value added
portion. Give examples. (5 marks)