• Please note this assignment consists mainly of questions from Horngren, C.T., Sundem, G.L., Stratton, W.O. Burgstahler, D., & Shatzberg, J. Introduction to management accounting, (16th edition 2014), however it also has a question from another text by Horngren. Horngren, C. T., Harrison, W. T. & Oliver M.S., (2012). Internal control and cash. Accounting (9th ed.,) Prentice Hall, which is available via Interact as Reading 5.

 

You are required to complete all questions, in the same sequence as listed below, and submit all necessary workings. Follow the assignment requirements (refer below to the Requirements section) very closely.

 

Content assessed
Topic 5, 6, 7, 8, 9, and 10.

 

Question 1

 

E7-15 E-commerce Control Procedures
Source: Horngren, C. T., Harrison, W. T. & Oliver M.S., (2012). Internal control and cash. Accounting (9th ed., pp. 386 of Reading 5). Prentice Hall. See Reading 5 in the learning materials within Interact.

 

The following situations suggest a strength or a weakness in e-commerce internal controls.

 

a. Netproducts sells merchandise over the Internet. Customers input their credit card information for payment.

 

b. Netproducts maintains employee information on the company intranet. Employees can retrieve information about annual leave, payroll deposits, and benefits, from any computer using their login information.

 

c. Netproducts maintains trend information about its customers, products, and pricing on the company’s intranet.

 

d. Tax identification numbers for all vendors are maintained in Netproduct’s database.

 

 Requirement

 

1. Identify the control that will best protect the company.

 

 

 

 Question 2

 

E7-18 Preparing a bank reconciliation, D.J. Harrison
Source: Horngren, C. T., & Harrison, W. T. (2012). Internal control and cash. Accounting (9th ed., pp. 387-388 of Reading 5). Prentice Hall. See Reading 5 in the learning materials within Interact.

 

D.J. Harrison’s checkbook lists the following:

 

Date	Check No.	Item	Check	Deposit	Balance
Nov  1					$   540
4	622	Java Joe’s	$ 15		525
9		Dividends received		$   130	655
13	623	Skip’s Market	55		600
14	624	Fill-N-Go	75		525
18	625	Cash	60		465
26	626	Fernwood Golf Course	85		380
28	627	Upstate Realty, Co.	265		115
30		Paycheck		1,210	1,325

 

 Harrison’s November bank statement shows the following:

 

Balance				$   540
Deposits				130
Debit checks	No	Amount
	622	$     15
	623	55
	624	115*
	625	60		(245)
Other charges:
Printed checks			$    35
Service charge			20	(55)
Balance				$   370
*This is the correct amount shown for Check No. 624

 

 

 

Requirements:

 

1. Prepare Harrison’s bank reconciliation as at November 30, 2012.

 

2. How much cash does Harrison actually have on November 30, 2012?

 

Answer all parts. Solve using a spreadsheet. Include the normal view and formula view and include an IF function to check balances.

 

Question 3

 

1-2 (illustrate your explanation with examples), 1-16, 1-22 (illustrate your explanation with examples), 2-5, 2-9 (illustrate your explanation with examples).
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., pp. 44, 45 & 85). Pearson.

 

1-2.   “The emphases of financial accounting and management accounting differ.” Explain

 

1-16. Name the six primary business functions (excluding support functions) that make up the value chain, and briefly describe each.

 

1-22. ‘The problem with accounting is that accountants never get to become top managers such as CEOs.” Do you agree? Explain. Illustrate your explanation with examples.

 

2-5.   “It is confusing to think of fixed costs on a per-unit basis.” Do you agree? Why or why not?

 

2-9.   “Classification of costs into variable and fixed categories depends on the decision situation.” Explain. Illustrate your explanation with examples.

 

Question 4

 

1-48 Ethical Issues
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 49). Pearson. 

 

Suppose you are controller of a medium-sized oil exploration company in western Texas. You adhere to the standards for ethical conduct for management accountants. How would those standards affect your behaviour in each of the following situations?

 

1. Late one Friday afternoon you receive a geologist’s report on a newly purchased property. It indicates a much higher probability of oil than had previously been expected. You are the only one to read the report that day. At a party on Saturday night, a friend asks about the prospects for the property.

 

2. An oil industry stock analyst invites you and your wife to spend a week in Tahiti free of charge. All she wants in return is to be the first to know about any financial information your company is about to announce to the public.

 

3. It is time to make a forecast of the company’s annual earnings. You know that some additional losses will be recognized before the company prepares its final statements. The company’s president has asked you to ignore these losses in making your predictions because a lower-than-expected earnings forecast could adversely affect the chances of obtaining a loan that is being negotiated and that will be completed before actual earnings are announced.

 

4. You do not know whether a particular expense is deductible for income tax purposes. You are debating whether to research the tax laws or simply assume the item is deductible. After all, if you are not audited, no one will ever know the difference. If you are audited, you can plead ignorance of the law.

 

 

 

    Question 5

 

2-48 Super Valu Grocery Chain, Variable and Fixed Costing
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 91). Pearson.

 

Maintaining a clean shopping environment is a key success factor for Super Valu, a large grocery chain based in Minnesota. Three of the most costly resources to clean a supermarket are labor, equipment, and cleaning supplies. The cost driver of these resources is “number of times cleaned.” Wages for cleaning laborers (called porters) and rent for cleaning equipment are all the same regardless of the number of times the supermarket is cleaned. Supplies used for each regular daily cleaning and for each special cleaning are about the same.

 

A typical store has about 48,000 square feet. Regular cleaning is performed each day from midnight until 7.00 AM. Special cleaning of floors and fixtures is performed in the various departments as needed. Special cleaning varies from 10 to 30 times a month depending on the amount of traffic through the store. Thus, the number of times a store is cleaned varies from 40 to 60 times a month.

 

Suppose that in one of Super Valu’s stores in Minnesota, cleaning was performed 60 times during March. For the month, the cost of labor and rent on equipment was $21,000 and the cleaning supplies used cost $12,000. The sales budget for the next quarter (April through June) and better weather conditions indicate that the store will need to be cleaned 50, 46, and 35 times in April, May and June respectively.

 

1. Prepare a table that shows how labor cost, rent, cleaning supplies, total cost, and total cost per cleaning changes in response to the number of times the store is cleaned. Show costs for 35, 40, 45, 50, 55, and 60 cleanings. What is the predicted total cost of cleaning the Minnesota store for the next quarter?

 

2. Prepare a single graph that can be used to predict the fixed, variable, and total cleaning cost of the Super Valu store.

 

3. Suppose the manager of the Super Valu store can fire an outside cleaning company to clean the store as needed. The charge rate is $720 per cleaning. If the outside cleaning company is hired, Super Valu can lay off the workers who are now cleaning the store, eliminate the need for equipment rent, and stop purchasing cleaning supplies. Will Super Valu save money with the outside cleaning company over the next quarter? Prepare a schedule that supports your answer.

 

Solve using a spreadsheet. Question 2 includes preparing a spreadsheet graph. Search online for examples and also see the spreadsheet examples in the Spreadsheet Advice section in Interact and the study modules on this topic.

 

Solve using a spreadsheet. Section 2 includes preparing a spreadsheet graph. Search online for examples and also see the spreadsheet examples in the Spreadsheet Advice section in Interact and the study modules on this topic.

 

Question 6

 

5-7, 5-12.
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 227). Pearson. 

 

5-7.    What is the advantage of the contribution approach as compared with the absorption approach?

 

5-12. “Basing pricing on only the variable costs of a job results in suicidal underpricing.” Do you agree? Why?

 

 

 

Question 7

 

5-31 Straightfoward Absorption Statement, 5-32 Straightforward Contribution Income Statement
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 228). Pearson.

 

5-31. The Kerwin Company had the following data (in thousands) for a given period: 

 

 

 

Sales	$ 780
Direct Materials	180
Direct labor	230
Indirect manufacturing costs	210
Selling and administrative expenses	130

 

 There were no beginning or ending inventories. Compute the (1) manufacturing costs of goods sold, (2) gross profit, (3) operating income, and (4) conversion costs (total manufacturing costs less material costs).

 

Solve using a spreadsheet. Include the normal view and formula view.

 

 

 

5-32. Masa Ltd., had the following data (in millions of yen) for a given period:  

 

Sales	¥ 990
Direct Materials	250
Direct labor	140
Variable factory overhead	65
Variable selling and administrative expenses	115
Fixed factory overhead	110
Fixed selling and administrative expenses	75

 

There were no beginning or ending inventories. Compute the (a) variable manufacturing cost of goods sold, (b) contribution margin, and (c) operating income.

 

Solve using a spreadsheet. Include the normal view and formula view.

 

Question 8

 

6-3, 6-4 (illustrate your explanation with examples), 6-20 (illustrate your explanation with examples)
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., pp. 268-269). Pearson. 

 

6-3.   “Accountants do not ordinarily record opportunity costs in the formal accounting records.” Why?

 

6-4.   Distinguish between and incremental cost and a differential cost. Illustrate your explanation with examples.

 

6-20. There are two reasons why unit costs should be analysed with care in decision making. What are they? Illustrate your explanation with examples.

 

Question 9

 

Decision making
Please be frank and creative in answering the following questions.
a. (i) 

 

Suppose you’re on a TV game show, and you’re given the choice of three doors. Behind one door is a brand new car, behind the others, nothing. You pick a door. The TV host, who knows what’s behind the doors, chooses another door and opens it to show you that it has nothing. Should you change your decision?

 

Don’t think about this too deeply just yet. Do you feel (intuit?) that you should change your choice? Answer initially without researching the question. What is the thinking behind your answer. Conduct a survey of ten of your friends/colleagues to give their opinion. You may wish to provide them with a copy of the question. Include in your answer a table setting out the results of this survey. Also create a simple chart with Excel to present the results of your survey.

 

a (ii) After you answer the first part of this question, search the Internet for the Monty Hall problem. Provide your own explanation of the correct solution. Why do so many get the wrong answer? Did you?

 

b. A man goes to see his medical doctor to find out whether or not he has a deadly disease. The test is positive. The test is 95% accurate and one in one thousand men of his age has this disease. What is the probability he has the disease? He decides to seek a second opinion but the results are exactly the same. When this question was put to a group of doctors, 80% of them answered “95%”. He now plans to sell up all his assets, tell his boss what he really thinks of her, quit his job on the spot and live in Vanuatu in the time he has left. Is this a rational decision? Explain.

 

c. Suppose an urn contains 100 marbles, 75 red and 25 black. A marble is drawn at random from the urn and you are asked to guess what colour you believe the marble to be. The marble is then shown, replaced, and the urn’s contents again randomised. The aim is to maximise the number of correct guesses. Before reading any further, what strategy would you employ? What would you guess?

 

Assume 4 red come out in a row. What would your next guess be? Why? Include a brief discussion of the gambler’s fallacy.

 

d. Creatively discuss the rationality of human decision making using these and other examples. Use the Internet as a source (about 300 words for this section).

 

NOTE; USE 3, 4 EXAMPLES TO ILLUSTRATE YOUR ANSWERS  

 

Question 10

 

7-35 Cash Budget
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 317). Pearson.

 

7-35. Consider the budgeted income statement for Carlson Company for 20X4 in Exhibit 7-13.

 

The cash balance, May 31, 20X4, is $15,000.

 

Sales proceeds are collected as follows: 80% the month of sale, 10 the second month, and 10% the third month.

 

Accounts receivable are $44,000 on May 31, 20X4, consisting of $20,000 from April sales and $24,000 from May sales.

 

Accounts payable on May 31, 20X4, are $145,000.

 

Carlson Company pays 25% of purchases during the month of purchase and the remainder during the following month.

 

All operating expenses requiring cash are paid during the month of recognition, except that insurance and property taxes are paid annually in December for the forthcoming year.

 

 

 

Prepare a cash budget for June. Confine your analysis to the given data. Ignore income taxes. Use a spreadsheet, with the correct structures, to answer this question.

 

After you have completed your answer create a second version by changing all the data. Paste the normal view for both versions and one formula view.

 

Sales		$290
Inventory, May 31	$ 50
Purchases	192
Available for sale	242
Inventory, June 30	40
Cost of goods sold		202
Gross Margin		88
Operating expenses
Wages	$36
Utilities	5
Advertising	10
Depreciation	1
Office expenses	4
Insurance and property taxes	3	59
Operating income		$ 29

 

 

 

Exhibit 7-13

 

Carlson Company

 

Budgeted Income Statement for the Month Ended June 30, 20X4 (in thousands)

 

 

 

 

 

 Question 11

 

8-31 Quantity Variances
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 354). Pearson.

 

8-31. Lindsey Toy Company produced 13,000 stuffed bears. The standard direct-materials allowance is 1.5 kilograms per bear, at a cost per kilo of $3.20. Actually, 18,700 kilos of materials (input) were used to produce the 13,000 bears (output0.

 

Similarly, the standard allowance for direct labor is 5.1 hours to produce one bear, and the standard hourly labor cost is $6. But 67,100 hours (input) were used to produce the 13,000 bears. Compute the quantity variances for direct materials and direct labor.

 

Use a spreadsheet to answer this question. Make and paste a second version of the normal view with some changed data. Use the IF function. Paste the formula view once only.

 

 

 

    Question 12

 

11-46 NPV, IRR, and Payback
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 485). Pearson. 

 

11-46. Snuffy’s Drive-In is considering a proposal to invest in a speaker system that would allow its employees to service drive-through customers. The cost of the system (including installation of special windows and drive-way modifications) is $28,000. Brad Board, manager of Snuffy’s, expects the drive-through operations to increase annual sales by $14,000, with a 25% contribution margin ratio. Assume that the system has an economic life of 10 years, at which time it will have no disposal value. The required rate of return is 10%. Ignore taxes.

 

1. Compute the payback period. Is it a good measure of profitability?

 

2. Compute the NPV. Should Brad accept the proposal? Why or Why not?

 

3. Using the ARR model, compute the rate of return on the initial investment.

 

Use a spreadsheet to answer this question. Use the Excel NPV function. As usual, paste a formula view.

 

Question 13

 

Write a business report on the significance of two of the following to managers and the function of accounting.
(a) Spreadsheets
(b) Black Swans (Taleb)
(c) “Gray” ethical areas in accounting. See http://danariely.com/tag/ethics/
(d) Six Sigma

 

About 300-400 words each. Use the Internet as a resource. Give examples to illustrate your discussion.

 

Refer to the earlier section ‘Assessment Information’ for essay/report writing skill resources.  The Internet can also be searched for business reporting advice.
 

 

Rationale

 

This assignment allows students to demonstrate their understanding of Topics 5, 6, 7, 8, 9, and 10, and seeks to assess your ability to be able to construct and analyse accounting reports, research accounting issues, demonstrate spreadsheet skills and apply critical thinking in communicating results. In doing this it is aligned with the following subject learning outcomes:

 

• To be able to discuss and apply basic accounting ideas that underlie and limit the usefulness of accounting information;
• To be able to explain and analyse the nature, and measurement, of assets, equities, revenues, expenses and income;
• To be able to apply computer software to quantitative business decisions;
• To be able to implement and critique analytic and interpretative techniques used in accounting;
• To be able to discuss and critique the concepts behind the decision making processes associated with the efficient allocation of business resources; and
• To be able to explain and implement financial analysis and management accounting procedures.
   

 

Marking criteria

 

Your assignment will be marked as a whole with recognition being given to demonstration of knowledge, quality thinking, application of skills and critical thinking. For some questions students have a chance to demonstrate some creativity, or provide their own examples or give evidence of wider reading or to structure a spreadsheet in an innovative manner. We also need to avoid the snowballing effects of cumulative errors – that is, an error early in a practical question which carries through. Thus a grading system is used with deductions for errors and omissions. Full marks are a possibility for well structured, complete, quality answers.

 

Students will be provided with a grade based on the work submitted and will also be provided with suggested solutions or guidelines. Feedback to students will normally consist of the grade, comments and the suggested solutions.

 

Penalties will be applied to poor presentation including poor grammar, punctuation and spelling, and for poor use of software.

 

 

 

 

 

Criteria	High Distinction	Distinction	Credit	Pass	Fail
In respect to topics 5 to 10 of this subject, students will be required to undertake theory based questions including discussion questions, and problem based questions utilising spreadsheet skills, to demonstrate their ability to be able to: · discuss and apply basic accounting ideas that underlie and limit the usefulness of accounting information; · explain and analyse the nature, and measurement, of assets, equities, revenues, expenses and income; · be able to apply computer software to quantitative business decisions; · implement and critique analytic and interpretative techniques used in accounting and finance; · be able to discuss and critique the concepts behind the decision making processes associated with the efficient allocation of business resources; · be able to explain and implement financial analysis and management accounting procedures.	To meet this level you will attain a cumulative mark between 85%-100%. A mark in this range (no less than 51 marks) indicates you have demonstrated an exceptional and a consistently high level of knowledge and understanding in topics 5 to 10 of this subject. This mark also indicates your assignment will: · be professionally presented with correct spelling and grammar · be the result of your original work · include complete references and acknowledgment all sources used · be complete without any omissions · be correct · discuss comprehensively the issues raised in questions · provide examples where appropriate, and · comply with all spreadsheet requirements.	To meet this level you will attain a cumulative mark between 75%-84%. A mark in this range (45 – 50.5) indicates you have demonstrated a comprehensive and high level of knowledge and understanding in topics 5 to 10 of this subject. This mark also indicates your assignment will: · be neat and legibly presented with very few spelling and grammatical errors · be the result of your original work · include references, acknowledging all sources used, · be mostly complete without any omissions · be mostly correct · discuss many of the issues raised in questions · provide examples where appropriate, and · comply with most spreadsheet requirements.	To meet this level you will attain a cumulative mark between 65%-74%. A mark in this range (39 – 44.5) indicates you have demonstrated a sound knowledge and understanding in topics 5 to 10 of this subject. This mark also indicates your assignment will: · be neat and legibly presented with few spelling and grammatical errors · be the result of your original work · include references, acknowledging most sources used, · be mostly complete without any omissions · be mostly correct with only a few errors · discuss many of the issues raised in questions · provide some examples where appropriate, and · comply with most spreadsheet requirements.	To meet this level you will attain a cumulative mark between 50%-64%. A mark in this range (30 – 38.5) indicates you have demonstrated a basic knowledge and understanding in topics 5 to 10 of this subject. This mark also indicates your assignment will: · be legibly presented · be the result of your original work · include some references and acknowledge most sources used · be mostly complete without too many omissions · be mostly correct with a few errors · discuss some of the issues raised in questions · provide some examples where appropriate, and · comply with most spreadsheet requirements.	At this level you will attain a cumulative mark between 0%- 49%. A mark in this range (less than 30) indicates you will not have demonstrated a basic knowledge and understanding in topics 5 to 10 of this subject.  This mark also indicates your assignment will: · lack some legibility · have multiple spelling and grammatical errors · present a few examples of non original work · include inadequate references · have significant missing work · have many errors · lack discussion of many of the issues raised in questions · lack examples where required, and · have significant flaws in spreadsheet presentation.