Reference no: EM132891242

HA2011 Management Accounting - Holmes Institute

Purpose - Students are required to demonstrate their ability to apply their knowledge of management accounting concepts to plan and control business operations. Specifically, you are to critically evaluate the use of Activity-based Costing (ABC) for decision-making and achievement of business goals. You also will use budgets as a planning tool by preparing a master budget for a company.

- Outline the differences between fixed costs, variable costs, and mixed costs by categorising various costs of an entity into these categories
- Apply the concept of costs to various costing systems including justification of cost and system choices
- Implement systems to plan and control business operations

Question 1

From the management accounting literature:
a) Discuss the role of strategic planning in adding value to an organisation's products/services.

b) Explain how Activity-based Costing (ABC) can support strategic planning and the value adding processes. Include examples of the type of information and reports the management accountant can provide.

c) Based on your literature findings (from Part (b)), state two key lessons that would inform contemporary organisations about the use of ABC to support strategic planning and the value adding initiatives.

Question 2
This assignment MUST be done in groups of three or four students. Individual assignments will NOT be accepted, unless approved by the Unit Coordinator. The groups are to be formed at your discretion in your respective campuses. Group conflicts must be resolved by members.

The table below needs to be used on the cover sheet of your assignment. The assignment will be marked STRICTLY based on the order in which you list student ID's. The details below are just examples. You must fill in your respective group details.

PREPARATION OF OPERATING AND FINANCIAL BUDGETS

Rosy Hearts produces cupcakes for resale at large grocery stores throughout Australia. The company is currently in the process of establishing a master budget on a quarterly basis for the next financial year, which ends June 30. Last year quarterly sales were as follows (1 unit = 1 batch):

First quarter 60,AAA units Second quarter 75,BBB units Third quarter 96,CCC units Fourth quarter 80,DDD units

See further instructions about last year quarterly sales figures in the table below:

Group Member No.	ID Number	First Name	Last Name
1.	NXX2037	Mickey	Mouse
2.	APS2094	Donald	Duck
3.	EMV30216	Yogi	Bear
4.	AEES2104	Scooby	Doo

First quarter 60,AAA units becomes 60,037 units. AAA is the last three digits of Member 1's ID. Second quarter 75,BBB units becomes 75,094 units. BBB is the last three digits of Member 2's ID. Third quarter 96,CCC units becomes 96,216 units. CCC is the last three digits of Member 3's ID. Fourth quarter 80,DDD units become 80,104 units. DDD is the last three digits of Member 4's ID.

Unit sales are expected to increase 25 percent, and each unit is expected to sell for $8. The management prefers to maintain ending finished goods inventory equal to 10 percent of next quarter's sales. Assume finished goods inventory at the end of the fourth quarter budget period is estimated to be 9,000 units.

Direct Materials Purchases Budget Information
Each unit of product requires 1.5 pounds of direct materials per unit, and the cost of direct materials is $2 per pound. Management prefers to maintain ending raw materials inventory equal to 30 percent of next quarter's materials needed in production. Assume raw materials inventory at the end of the fourth quarter budget period is estimated to be 41,000 pounds.

Direct Labor Budget Information
Each unit of product requires 0.20 direct labor hours at a cost of $12 per hour.

Manufacturing Overhead Budget Information
Variable overhead costs are:

Indirect materials	$0.20 per unit
Indirect labor	$0.15 per unit
Other	$0.35 per unit

Fixed overhead costs each quarter are:

Salaries	$28,000
Rent	$22,000
Depreciation	$16,165

Rosy Hearts estimates that all selling and administrative costs are fixed. Quarterly selling and administrative cost estimates for the coming year are:

Salaries	$60,000
Rent	$ 7,000
Advertising	$10,000
Depreciation	$ 8,000
Other	$ 1,000

Rosy Hearts has the following information pertaining to the capital expenditures and cash budgets.

Capital Expenditures

The company plans to purchase selling and administrative equipment totalling $20,000 and production equipment totalling $28,000. Both will be purchased at the end of the fourth quarter and will not affect depreciation expense for the coming year.

Cash Budget
All sales are on credit. The company expects to collect 70 percent of sales in the quarter of sale, 25 percent of sales in the quarter following the sale, and 5 percent will not be collected (bad debt). Accounts receivable at the end of last year totalled $200,000, all of which will be collected in the first quarter of this coming year.

All direct materials purchases are on credit. The company expects to pay 80 percent of purchases in the quarter of purchase and 20 percent the following quarter. Accounts payable at the end of last year totalled $50,000, all of which will be paid in the first quarter of this coming year.

The cash balance at the end of last year totalled $20,000.
The company does not have an overdraft facility with their bank.

Assume Rosy Hearts will collect 25 percent of fourth quarter budgeted sales in full next year (this represents accounts receivable at the end of the fourth quarter). The following account balances are expected at the end of the fourth quarter:

• Property, plant, and equipment (net): $320,000
• Ordinary Shares: $450,000

Retained earnings at the end of last year totalled $56,180, and no cash dividends are anticipated for the budget period ending June 30.

Required:

With the information provided, assist Rosy Hearts in setting up their ‘Master Budget'. To do this, you will need
to prepare the following budgets for coming year:
1. Sales Budget
2. Production Budget
3. Direct Materials Purchases Budget
4. Direct Labour Budget
5. Manufacturing Overhead Budget
6. Ending Finished Goods Inventory Budget
7. Selling & Administration Expenses Budget
8. Expected Cash Collections
9. Expected Cash Disbursements for Materials
10. Cash Budget
11. Budgeted Income Statement
12. Budgeted Balance Sheet*
13. Review the cash budget for Rosy Hearts. Comment on the company's cash position in the coming year, and provide one recommendation to resolve one issue you have raised.

Attachment:- Management Accounting.rar