ASSIGNMENT 1 SEMESTER: MANAGEMENT ACCOUNTING ... - imm
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ASSIGNMENT 1ST SEMESTER:
MANAGEMENT ACCOUNTING (MA)
STUDY UNITS COVERED
: STUDY UNITS 1 - 5 (SECTION B)
DUE DATE
: 3:00 p.m. 20 MARCH 2012
TOTAL MARKS
: 100
INSTRUCTIONS TO CANDIDATES FOR COMPLETING AND SUBMITTING ASSIGNMENTS The complete ‘Instructions to Students for Completing and Submitting Assignments’ must be collected from any IMM GSM office, the relevant Student Support Centre or can be downloaded from the IMM GSM website. It is essential that the complete instructions be studied prior to commencing your assignment. The following points highlight only a few important notes. 1.
You are required to submit ONE assignment per subject.
2.
The assignment will contribute 20% towards the final examination mark, and the other 80% will be contributed by the examination, however the examination papers will count out of 100%.
3.
Although your assignment will contribute towards your final examination mark, you do not have to earn credits for admission to the examinations; you are automatically accepted on registering for the exam.
4.
Number all the pages of your assignment (page 1 of 4) and write your name and surname, student number and subject at the top of each page.
5.
The IMM GSM requires assignments to be presented on plain A4 paper. You must show all working calculations, including and where appropriate multiple choice working calculations.
6.
A separate assignment cover, which is provided by the IMM GSM, must be attached to the front cover of each assignment.
7.
Retain a copy of each assignment before submitting, in case the original does not reach the IMM GSM.
8.
The assignment due date refers to the day up to which assignments will be accepted for marking purposes. The deadline is 3:00 p.m. on 20 March 2012. Late assignments will be accepted, but 25 marks will be deducted from the maximum mark, if received after 3:00 p.m. on 20 March 2012 and up to 5:00 p.m. the following day after which no assignments will be accepted.
9.
If you fail to follow these instructions carefully, the IMM Graduate School of Marketing cannot accept responsibility for the return of the assignment. It may even result in your assignment not being marked.
Results will be available on the IMM GSM website: www.immgsm.ac.za, on Friday, 4 May 2012.
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
Page 2 of 8
SPECIFIC INSTRUCTIONS Answer ALL the questions QUESTION 1
[25]
Due to erratic sales of its sole product, a high-capacity battery for laptop computers, Fiddle and Faddle (PTY) Ltd has been experiencing difficulty for some time. The company’s contribution format statement of comprehensive income (income statement) for the most recent month is given below: Sales (19, 500 units x R30 per unit) Variable costs
R 585 000 (R 409 500)
Contribution Margin Fixed costs
R 175 500 (R 180 000)
Net Operating Loss
(R 4 500)
REQUIRED: 1. Taking the above into account, compute the company’s contribution margin ratio and its break-even point in both units and rands. (5) 2.
Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of R60,000 in the monthly advertising budget, will cause sales to double. Indicate the new contribution format income statement if these changes are adopted? (5)
3.
Refer to the original data. The marketing department thinks that a fancy new package for the laptop computer would help sales. The new package would increase packaging costs by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of R9,750? (5)
4.
Refer to the original data. By automating certain operations, the company could reduce variable costs by R3 per unit; however, fixed costs would increase by R72,000 each month. a) Compute the new CM ratio and the new break-even point in both units and rands. (3) b) Assume that the company expects to sell 26,000 units next month. At this level of activity, prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Show data on a per unit basis as well as in total for each alternative.) (5) c) Would you recommend that the company automate its operations? Briefly justify your decision. (2)
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
Page 3 of 8
QUESTION 2
[25]
Manual and Gordhan Supplies, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the quarter: As of December 31 (the end of the prior quarter), the company’s statement of financial position (balance sheet) showed the following account balances: Cash Accounts Receivable Inventory Buildings and equipment (net) Accounts Payable Issued Share Capital Retained Earnings
R 48 000 R 224 000 R 60 000 R 370 000
R 702 000
R 93 000 R 500 000 R 109 000 R 702 000
Actual sales for December and budgeted sales for the next four months are as follows: December (ACTUAL) January February March April
R 280 000 R 400 000 R 600 000 R 300 000 R 200 000
1.
Sales are made on a 20% cash basis and 80% on credit. All payments received for credit sales are collected in the month following the sale. The accounts receivable at December 31 are a result of December credit sales only.
2.
The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
3.
Monthly expenses are budgeted as follows: Salaries and wages, R27 000 per month: advertising R70 000 per month; shipping, 5% of sales; other expenses 3% of sales. Depreciation (including depreciation on new assets acquired during the quarter) will be R42 000 for the quarter.
4.
Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
5.
One-half of a month’s inventory purchases are paid for in the month of purchase; the other half is paid in the following month.
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
Page 4 of 8
6.
During February, the company will purchase a new copy machine for R1,700 cash. During March, other equipment will be purchased for cash at a cost of R84,500.
7.
During January, the company will declare and pay R45,000 in cash dividends.
8.
The company must maintain a minimum cash balance of R30,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of the principal amount must be in multiples of R1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%.
REQUIRED: Using the data above, complete the following statements and schedules for the first quarter using the formats provided (Some amounts have been provided for you): 1. Schedule of expected cash collections January Cash Sales R 80 000 Credit Sales R 224 000 Total Collections R 304 000 2. a. Inventory purchases budget: January Budgeted cost of goods sold R 240 000 Add desired ending inventory R 90 000 Total needs R 330 000 Less beginning inventory (R 60 000) Required purchases R 270 000
February
February
March
(3) Quarter
March
(6) Quarter
b. Schedule of expected cash disbursements for merchandise purchase (3) January February March Quarter December purchases R 93 000 R 93 000 January purchases R 135 000 R 135 000 R 270 000 February purchases March purchases Total cash disbursements for purchases
Assignment: 1st Semester 2012
R 228 000
© IMM Graduate School of Marketing MA
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3. Cash budget: Opening Cash Balance Receipts: Add cash collection Total cash available Less Payments: Inventory purchases Salaries and wages Advertising Shipping Other expenses Equipment purchases Dividends Total cash disbursements Excess (deficiency) of cash Financing: Borrowings Repayments Interest Total Financing Ending Cash Balance
Assignment: 1st Semester 2012
January R 48 000
February
March
(13) Quarter
R 304 000 R 352 000 R 228 000 R 27 000 R 70 000 R 20 000 R 12 000 R 45 000 (R402 000) (R 50 000)
© IMM Graduate School of Marketing MA
Page 6 of 8
QUESTION 3
[25]
W Sheake-Spear opened Sheake’s Creations Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Spear’s personal finances. The following variable costing income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at the University of Cape Town. Sheake’s Creations, Inc. Statement of Comprehensive Income (Income Statement) For the Quarter Ended March 31
Sales (28 000 units) Less Variable Costs: Variable cost of goods sold* Variable selling and administrative Contribution Margin Less Fixed Expenses: Fixed manufacturing overhead Fixed selling and administrative Net operating loss
R 1 120 000 ( R 630 000) R 462 000 R 168 000 R 490 000 ( R 500 000) R 300 000 R 200 000 ( R 10 000)
*Consists of direct materials, direct labour, and variable manufacturing overhead Ms. Speare is discouraged over the loss shown for the quarter, particularly since she had planned to use the statement as support for a bank loan. Another friend, a CA, insists that the company should be using absorption costing rather than variable costing, and argues that if absorption costing had been used the company would probably have reported at least some profit for the quarter. At this point, Ms. Speare is manufacturing only one product, a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow: Variable costs per unit:
Direct Materials Direct Labour Variable manufacturing overhead Variable selling and administrative costs
R3.50 R2.00 R1.00 R6.00
Units Produced There were no units in opening stock.
30 000 units
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
Page 7 of 8
REQUIRED 1. Complete the following: a. Calculate the unit product cost under absorption costing.
(5)
b. Redraft the company’s income statement for the quarter using absorption costing. (11) c. Reconcile the variable and absorption costing net operating income (loss) figures. (4) 2.
Was the CA correct in suggesting that the company really earned a ‘profit’ for the quarter? In your answer make reference to your understanding of the variable and absorption costing systems and the profits realised under both systems. (5)
QUESTION 4
[25]
Matheson Electronics has just developed a new electronic device which, when mounted on a vehicle, will tell the driver how many miles the vehicle is travelling per litre of petrol. The company is anxious to begin production of the new device. To this end, marketing and cost studies have been conducted to determine probable costs and market potential. These studies have provided the following information: a. New equipment would have to be acquired to produce the device. The equipment would cost R315,000 and have a 5-year useful life. After 5 years, it would have a salvage value of about R190,000. b. Sales in units over the next 5 years are projected to be as follows: Year 1 Year 2 Year 3 Year 4 Year 5
6,000 12,000 15,000 18,000 19,000
c. Production and sales of the device would require working capital of R60,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released at the end of the project’s life. d. The devices would sell for R35 each; variable costs for production, administration, and sales would be R15 per unit. e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total R135,000 per year. (Depreciation is based on cost less salvage value.)
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
Page 8 of 8
f. To gain rapid entry into the market, the company would have to advertise heavily. The advertising programme would be: Year 1-2 3 4-5
Annual advertising cost R 180 000 R 150 000 R 120 000
g. Matheson Electronics’ board of directors has specified a required rate of return of 14% on all new products which results in the following discount factors: Year 1 2 3 4 5
Factor 0.877 0.769 0.675 0.592 0.519
REQUIRED: 1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of the device for each year over the next 5 years. (15) 2. Using the data computed in (1) above and other data provided in the problem, determine the net present value of the proposed investment and state whether you would recommend that Matheson accept the device as a new product? (Ignore income taxes.) (10) ASSIGNMENT TOTAL: 100
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
ASSIGNMENT 1ST SEMESTER:
MANAGEMENT ACCOUNTING (MA)
STUDY UNITS COVERED
: STUDY UNITS 1 - 5 (SECTION B)
DUE DATE
: 3:00 p.m. 20 MARCH 2012
TOTAL MARKS
: 100
INSTRUCTIONS TO CANDIDATES FOR COMPLETING AND SUBMITTING ASSIGNMENTS The complete ‘Instructions to Students for Completing and Submitting Assignments’ must be collected from any IMM GSM office, the relevant Student Support Centre or can be downloaded from the IMM GSM website. It is essential that the complete instructions be studied prior to commencing your assignment. The following points highlight only a few important notes. 1.
You are required to submit ONE assignment per subject.
2.
The assignment will contribute 20% towards the final examination mark, and the other 80% will be contributed by the examination, however the examination papers will count out of 100%.
3.
Although your assignment will contribute towards your final examination mark, you do not have to earn credits for admission to the examinations; you are automatically accepted on registering for the exam.
4.
Number all the pages of your assignment (page 1 of 4) and write your name and surname, student number and subject at the top of each page.
5.
The IMM GSM requires assignments to be presented on plain A4 paper. You must show all working calculations, including and where appropriate multiple choice working calculations.
6.
A separate assignment cover, which is provided by the IMM GSM, must be attached to the front cover of each assignment.
7.
Retain a copy of each assignment before submitting, in case the original does not reach the IMM GSM.
8.
The assignment due date refers to the day up to which assignments will be accepted for marking purposes. The deadline is 3:00 p.m. on 20 March 2012. Late assignments will be accepted, but 25 marks will be deducted from the maximum mark, if received after 3:00 p.m. on 20 March 2012 and up to 5:00 p.m. the following day after which no assignments will be accepted.
9.
If you fail to follow these instructions carefully, the IMM Graduate School of Marketing cannot accept responsibility for the return of the assignment. It may even result in your assignment not being marked.
Results will be available on the IMM GSM website: www.immgsm.ac.za, on Friday, 4 May 2012.
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
Page 2 of 8
SPECIFIC INSTRUCTIONS Answer ALL the questions QUESTION 1
[25]
Due to erratic sales of its sole product, a high-capacity battery for laptop computers, Fiddle and Faddle (PTY) Ltd has been experiencing difficulty for some time. The company’s contribution format statement of comprehensive income (income statement) for the most recent month is given below: Sales (19, 500 units x R30 per unit) Variable costs
R 585 000 (R 409 500)
Contribution Margin Fixed costs
R 175 500 (R 180 000)
Net Operating Loss
(R 4 500)
REQUIRED: 1. Taking the above into account, compute the company’s contribution margin ratio and its break-even point in both units and rands. (5) 2.
Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of R60,000 in the monthly advertising budget, will cause sales to double. Indicate the new contribution format income statement if these changes are adopted? (5)
3.
Refer to the original data. The marketing department thinks that a fancy new package for the laptop computer would help sales. The new package would increase packaging costs by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of R9,750? (5)
4.
Refer to the original data. By automating certain operations, the company could reduce variable costs by R3 per unit; however, fixed costs would increase by R72,000 each month. a) Compute the new CM ratio and the new break-even point in both units and rands. (3) b) Assume that the company expects to sell 26,000 units next month. At this level of activity, prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Show data on a per unit basis as well as in total for each alternative.) (5) c) Would you recommend that the company automate its operations? Briefly justify your decision. (2)
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
Page 3 of 8
QUESTION 2
[25]
Manual and Gordhan Supplies, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the quarter: As of December 31 (the end of the prior quarter), the company’s statement of financial position (balance sheet) showed the following account balances: Cash Accounts Receivable Inventory Buildings and equipment (net) Accounts Payable Issued Share Capital Retained Earnings
R 48 000 R 224 000 R 60 000 R 370 000
R 702 000
R 93 000 R 500 000 R 109 000 R 702 000
Actual sales for December and budgeted sales for the next four months are as follows: December (ACTUAL) January February March April
R 280 000 R 400 000 R 600 000 R 300 000 R 200 000
1.
Sales are made on a 20% cash basis and 80% on credit. All payments received for credit sales are collected in the month following the sale. The accounts receivable at December 31 are a result of December credit sales only.
2.
The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
3.
Monthly expenses are budgeted as follows: Salaries and wages, R27 000 per month: advertising R70 000 per month; shipping, 5% of sales; other expenses 3% of sales. Depreciation (including depreciation on new assets acquired during the quarter) will be R42 000 for the quarter.
4.
Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
5.
One-half of a month’s inventory purchases are paid for in the month of purchase; the other half is paid in the following month.
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
Page 4 of 8
6.
During February, the company will purchase a new copy machine for R1,700 cash. During March, other equipment will be purchased for cash at a cost of R84,500.
7.
During January, the company will declare and pay R45,000 in cash dividends.
8.
The company must maintain a minimum cash balance of R30,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of the principal amount must be in multiples of R1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%.
REQUIRED: Using the data above, complete the following statements and schedules for the first quarter using the formats provided (Some amounts have been provided for you): 1. Schedule of expected cash collections January Cash Sales R 80 000 Credit Sales R 224 000 Total Collections R 304 000 2. a. Inventory purchases budget: January Budgeted cost of goods sold R 240 000 Add desired ending inventory R 90 000 Total needs R 330 000 Less beginning inventory (R 60 000) Required purchases R 270 000
February
February
March
(3) Quarter
March
(6) Quarter
b. Schedule of expected cash disbursements for merchandise purchase (3) January February March Quarter December purchases R 93 000 R 93 000 January purchases R 135 000 R 135 000 R 270 000 February purchases March purchases Total cash disbursements for purchases
Assignment: 1st Semester 2012
R 228 000
© IMM Graduate School of Marketing MA
Page 5 of 8
3. Cash budget: Opening Cash Balance Receipts: Add cash collection Total cash available Less Payments: Inventory purchases Salaries and wages Advertising Shipping Other expenses Equipment purchases Dividends Total cash disbursements Excess (deficiency) of cash Financing: Borrowings Repayments Interest Total Financing Ending Cash Balance
Assignment: 1st Semester 2012
January R 48 000
February
March
(13) Quarter
R 304 000 R 352 000 R 228 000 R 27 000 R 70 000 R 20 000 R 12 000 R 45 000 (R402 000) (R 50 000)
© IMM Graduate School of Marketing MA
Page 6 of 8
QUESTION 3
[25]
W Sheake-Spear opened Sheake’s Creations Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Spear’s personal finances. The following variable costing income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at the University of Cape Town. Sheake’s Creations, Inc. Statement of Comprehensive Income (Income Statement) For the Quarter Ended March 31
Sales (28 000 units) Less Variable Costs: Variable cost of goods sold* Variable selling and administrative Contribution Margin Less Fixed Expenses: Fixed manufacturing overhead Fixed selling and administrative Net operating loss
R 1 120 000 ( R 630 000) R 462 000 R 168 000 R 490 000 ( R 500 000) R 300 000 R 200 000 ( R 10 000)
*Consists of direct materials, direct labour, and variable manufacturing overhead Ms. Speare is discouraged over the loss shown for the quarter, particularly since she had planned to use the statement as support for a bank loan. Another friend, a CA, insists that the company should be using absorption costing rather than variable costing, and argues that if absorption costing had been used the company would probably have reported at least some profit for the quarter. At this point, Ms. Speare is manufacturing only one product, a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow: Variable costs per unit:
Direct Materials Direct Labour Variable manufacturing overhead Variable selling and administrative costs
R3.50 R2.00 R1.00 R6.00
Units Produced There were no units in opening stock.
30 000 units
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
Page 7 of 8
REQUIRED 1. Complete the following: a. Calculate the unit product cost under absorption costing.
(5)
b. Redraft the company’s income statement for the quarter using absorption costing. (11) c. Reconcile the variable and absorption costing net operating income (loss) figures. (4) 2.
Was the CA correct in suggesting that the company really earned a ‘profit’ for the quarter? In your answer make reference to your understanding of the variable and absorption costing systems and the profits realised under both systems. (5)
QUESTION 4
[25]
Matheson Electronics has just developed a new electronic device which, when mounted on a vehicle, will tell the driver how many miles the vehicle is travelling per litre of petrol. The company is anxious to begin production of the new device. To this end, marketing and cost studies have been conducted to determine probable costs and market potential. These studies have provided the following information: a. New equipment would have to be acquired to produce the device. The equipment would cost R315,000 and have a 5-year useful life. After 5 years, it would have a salvage value of about R190,000. b. Sales in units over the next 5 years are projected to be as follows: Year 1 Year 2 Year 3 Year 4 Year 5
6,000 12,000 15,000 18,000 19,000
c. Production and sales of the device would require working capital of R60,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released at the end of the project’s life. d. The devices would sell for R35 each; variable costs for production, administration, and sales would be R15 per unit. e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total R135,000 per year. (Depreciation is based on cost less salvage value.)
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
Page 8 of 8
f. To gain rapid entry into the market, the company would have to advertise heavily. The advertising programme would be: Year 1-2 3 4-5
Annual advertising cost R 180 000 R 150 000 R 120 000
g. Matheson Electronics’ board of directors has specified a required rate of return of 14% on all new products which results in the following discount factors: Year 1 2 3 4 5
Factor 0.877 0.769 0.675 0.592 0.519
REQUIRED: 1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of the device for each year over the next 5 years. (15) 2. Using the data computed in (1) above and other data provided in the problem, determine the net present value of the proposed investment and state whether you would recommend that Matheson accept the device as a new product? (Ignore income taxes.) (10) ASSIGNMENT TOTAL: 100
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing MA
