BMAC5203 – ACCOUNTING FOR DECISION MAKING


Question Description:

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AUGUST SEMESTER 2015 BMAC5203 – ACCOUNTING FOR DECISION MAKING INDIVIDUAL ASSIGNMENT (60%) OBJECTIVE: To assess students ability to ethically use accounting information for costing, decision making, planning and control. INSTRUCTIONS: Assignment Format: Use 12-point of Arial font. The line spacing should be 1.5 for the main text and 1.0 for tables. Provide references (if needed). References should use the American Psychological Association (APA) format. References should be up-to-date (year 2005 and onwards) Notes: Assignments should be submitted according to the fixed date. Plagiarism is not acceptable. If you are not sure what is meant by plagiarism, refer to the various websites, which discuss this matter, e.g. owl.english.purdue.edu/handouts. The assignment consists of EIGHT (8) unrelated tasks. Answer all. The details of the tasks are explained in pages 2 – 6. Task 1 A restaurant is deciding whether it wants to update its image or not. It currently has a cozy appeal with an outdated décor that is still in good condition, menus and carpet that need to be replaced anyway, and loyal customers. Required: Identify for the restaurant management a. those costs that are relevant to this decision, [3 marks] b. those costs that are not relevant, [3 marks] c. and qualitative considerations. [4 marks] [TOTAL: 10 MARKS] Task 2 How is the role of budgeting similar for a manufacturing firm and a not-for-profit organization? [5 marks] Describe some of the drawbacks of using the operating budget as a control device. [5 marks] What is budgetary slack? What are the pros and cons of building slack into the budget from the point of view of (a) an employee and (b) a senior manager? [5 marks] Are negative variances always unfavorable and positive variances always favorable? Explain. [5 marks] [TOTAL: 20 MARKS] Task 3 The manager at the Farmers Market in the Mekong Delta (South of Vietnam) pays $600,000 to process 200,000 pounds of compost and converts it into fertilizer to sell to local farmers. During this process, 30,000 pounds of the compost were contaminated, yielding 40,000 pounds of lightweight mulch and 120,000 pounds of heavyweight mulch. The lightweight mulch can be sold at $10 per pound, and the heavyweight mulch can be sold at $5.00 per pound. The 40,000 pounds of lightweight mulch can be processed further to yield 35,000 pounds into hardwood mulch at additional processing costs of $300,000. The hardwood mulch can be sold at $28 per pound. The 120,000 pounds of heavyweight mulch can be further processed to yield 40,000 pounds of redwood mulch at additional processing costs of $280,000. The redwood mulch can be sold at $23 per pound. Required: Should the manager at the Farmer’s Market sell the joint products, lightweight mulch and heavyweight mulch, at the split-off point, or further process them into hardwood mulch and redwood mulch? Show all work. [TOTAL: 10 MARKS] Task 4 Hoang Minh Company manufactures and sells three styles of kitchen faucets: brass, chrome, and white. Production takes 25, 25, and 10 machine hours to manufacture 1,000-unit batches of brass, chrome, and white faucets, respectively. The following additional data apply: Brass Chrome White Projected sales in units 30,000 50,000 40,000 Per unit data: Selling price $40 $20 $30 Direct materials $ 8 $ 4 $ 8 Direct labor $15 $ 3 $ 9 Overhead cost based on direct labor hours (traditional cost system) $12 $ 3 $ 9 Hours per 1000-unit batch: Direct labor hours 40 10 30 Machine hours 25 25 10 Setup hours 1.0 0.5 1.0 Inspection hours 30 20 20 Total overhead costs and activity levels for the year are estimated as follows: Activity Overhead costs Activity levels Direct labor hours 2,900 hours Machine hours 2,400 hours Setups $465,000 95 setup hours Inspections $405,000 2,700 inspection hours $870,000 Required: a. Using the traditional cost system, determine the operating profit per unit for the brass style of faucet. [5 marks] b. Determine the activity cost driver rate for setup o

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