Module 1 - Case
ACCOUNTING COST SYSTEMS AND COST BEHAVIOR
Assignment Overview
Preparation of an Income Statement for The Serious Reader
Company
The first case of this course provides an opportunity to
prepare a segmented variable costing (contribution margin, behavioral) income
statement and analyze the information. This is a very small company and the
information may seem simplistic at first glance. Don’t forget that numbers and
hands-on practice best illustrate many basic accounting concepts.
The Serious Reader Company is a small online retailer
operating out of a garage apartment. The owner buys books at garage sales,
thrift shops, library sales, and whenever an opportunity arises. The company
classifies all books into five categories based on cost of acquisition and
estimated sales price. See below for details about books purchased and sold
during the last year (20XX).
Price
Categories
A B C D E
Units Sold 4,000 1,000 500 400 400
Unites Purchased 6,000 1,200 1,000 1,000 1,000
Resale Price $4.00 $12.00 $20.00 $45.00 $60.00
Cost $0.50 $4.00 $10.00 $20.00 $20.00
In addition to purchasing inventory (used books), the
company incurs some operating expenses.
Variable Operating Expenses
Shipping per book $1.50
Common fixed expenses
Internet-related
costs $10,000
Travel, etc. $4,000
Advertising $1,000
Other overhead $5,000
Case Assignment
Required:
Computations (use Excel)
• Prepare a
segmented variable costing (behavioral) income statement for the company in
good format.
• Prepare a
second variable costing statement assuming 90% of all the books in each
category purchased were actually sold.
• Prepare a
third variable costing statement assuming that the price is increased by 50%
for all five categories (use original sales information).
• The owner
enjoys the used-book business. Any suggestions as how to turn this into a
full-time business venture so the owner can quit his other job? Prepare another
income statement to support your idea.
Memo (use Word)
Interpret the results from the computations and explain how
the information is useful. Write a 4- or 5-paragraph memo to the owner of the
business. Start with an introduction and end with a recommendation. Each of the
four or five paragraphs should have a heading.
Short essay to comment on the questions below (use Word).
Start with an introduction and end with a summary or conclusion. Use headings.
Maximum length of two pages.
• Why do many
organizations make the effort to prepare a different type of income statement
for internal purposes?
• Variable
costing is not just about preparing income statements. Provide at least three
scenarios in which understanding how costs behave is useful.
Assignment Expectations
Each submission should include two files: (1) An Excel file;
and (2) A Word document. The Word document shows the memo first and short essay last. Assume
a knowledgeable business audience and
use required format and length. Individuals in business are busy and want
information presented in an organized and concise manner.
Module 1 - SLP
ACCOUNTING COST SYSTEMS AND COST BEHAVIOR
You are applying for a managerial position at an innovative
and rapidly growing company. This is a dynamic company that wants an individual
who adds value to the organization. Managers at this company wear many hats, so
the position requires managing products, people, and financial aspects of
running the company.
As part of the interview process, you are required to make a
presentation covering four different topics, one per module for this course.
You choose the company and the new product that you want to
showcase in your presentation. It can be real or fictitious (based on an
industry). This is for background purposes only. The presentation is to
showcase your abilities and what you can contribute to the organization.
IBIS World (access on the Portal through the Online
Classroom & Library, Additional Library Resources link) and BizStats have
estimates of cost of goods sold and some other categories of operating
expenses. Information about contribution margins is not available, but adding
new products typically mean incurring both fixed and variable costs.
Consequently, cost of goods sold is a reasonable estimate. Net operating income
as a percentage of sales or some variation thereof may also be relevant if the
new product is expected to contribute significantly to the bottom line. As a
candidate for a position you would not have internal information available, but
being resourceful and being a skilled researcher are desired traits for the
position. IBIS World also has a wealth of other market statistics that may be
helpful. Use listed background material and other resources as needed.
Required:
Include the following items in your presentation.
• Present an
idea for a new product.
• Describe the
product.
• Show some
cost estimates and pricing suggestion for this product based on research.
• What
approach would you use to determine selling price (for example cost plus or
target costing)? It is important when choosing a design.
• Explain your
rationale for the pricing approach.
• Show
expectations of growth and potential profit.
SLP Assignment Expectations
Submit a PowerPoint presentation or a Word Document. A
PowerPoint presentation should have no more than six slides and a Word document
cannot exceed two pages. Use words, tables, and graphs to make a succinct
presentation. Document all sources and provide links at the end. It is
acceptable to add another slide or page to list the sources.
Module 2 Case
COST–VOLUME–PROFIT ANALYSIS
Assignment Overview
The Annie Smith Dance Center
The Director of Annie Smith Dance Center is asking for
assistance with the financial aspects of running a professional group of
performers. She wants financial information presented in an easy to read format
and a better understanding of the profitability of the concerts and the
organization as a whole.
The Annie Smith professional group features three styles of
dance concerts each year. Two of the dance concerts showcase a different genre.
The third performance is a Christmas Spectacular, which is the most popular and
is therefore scheduled every year. The table below provides information about
expected ticket sales for the performances.
Lower
Orchestra Section (A) Upper
Orchestra Section (B)
Descriptions No. of
Seats. Ticket Price Tickets sold per performance No. of seats Ticket Price Tickets
sold per performance
Hip-Hop Performance 150 $85 100% 450 $50 90%
Jazz and Tap Dance 150 $85 100% 450 $50 60%
Christmas Spectacular 150 $125 100% 450 $50 100%
Ms. Smith has prepared a tentative schedule for the coming
season. The table below also shows the type and number of performances and
direct cost per type of concert.
Descriptions Number of
Performances Cost per Dance Concert
(direct fixed costs)*
Hip-Hop Concert 10 $48,000
Jazz and Tap Dance 5 86,000
Christmas Spectacular 20 22,000
Total Direct Fixed Costs $156,000
*Examples of direct fixed costs are costumes, rehearsals,
royalties, guest artist fees, choreography, and salaries of production staff,
music, and wardrobe for each of the concerts. This amount does not change with
the number of performances.
Additional costs:
Variable costs associated with each performance are shown
below.
Musicians $6,100
Rental of auditorium 2,500
Dancers' compensation 6,700
Annual general administrative and operating costs for the
dance center are:
Administrative staff $185,000
Insurance 25,000
Marketing 115,000
General office expenses 90,000
Case Assignment
Required:
Computations (use Excel)
• Summarize
key financial information in a table as shown below.
Title
Name of Dance Concert Revenues/
Performance Variable
Costs/
Performance Contribution
Margin/
Performance Number of
Performances Total Contribution/
Type of Dance Concert Direct
Fixed Costs Segment Margin/
Type of Concert
1.
2.
3.
Total
• Use the
information in the table you completed to compute the number of performances
required to break even for each concert. Do not include general and
administrative expenses. These are separate computations for each dance
concert.
• Compute
break even for the organization as a whole (include all fixed expenses) and
express the result in revenues instead of the number of performances.
• Ms. Smith
wants the Dance Center to generate at least $200,000 in operating profit. What
level of revenues does the performance group need to achieve to meet this goal?
Prepare an income statement in good format to support the computations.
• Give a
recommendation about changes Ms. Smith can implement to achieve the target
profit. Support your idea with computations.
Memo (use Word)
Write a 4- or 5-paragraph memo to the owner of the dance
center to assist her in interpreting the financial analysis. Start with an
introduction and end with a recommendation. Each of the four or five paragraphs
should have a heading.
Short Essay (use Word)
Start with an introduction and end with a summary or
conclusion. Use headings.
• What are
some shortcomings of multi-product even analysis?
• How does
demand and resource constraints affect this type of analysis.
Assignment Expectations
Each submission should include two files: (1) An Excel file
and (2) a Word document. The Word document shows the memo first and short essay
last. Assume a knowledgeable business audience and use required format and length.
Individuals in business are busy and want information presented in an organized
and concise manner.
Module 2 SLP
Module 2 - SLP
COST–VOLUME–PROFIT ANALYSIS
Second part of the presentation. See background information
for the Module 1 SLP.
Required:
Include the following items in your presentation:
• What about
special pricing for some markets or customers?
• Determination
of customer profitability.
• Show effect
on revenues and profitability based on stated assumptions.
• Potential
advantages and disadvantages, both financial and non-financial.
SLP Assignment Expectations
Submit a PowerPoint presentation or a Word Document. A
PowerPoint presentation should have no more than six slides and a Word document
cannot exceed two pages. Use words, tables, and graphs to make a succinct
presentation. Document all sources and provide links at the end. It is
acceptable to add another slide or page to list the sources.
Combine the submissions from prior module(s) into one file
before uploading to the SLP 2 Dropbox.
Module 3 Case
TRANSFER PRICING AND RESPONSIBILITY CENTERS
Assignment Overview
Coffee Maker's Incorporated (CMI)
Three divisions of a CMI are involved in a dispute. Division
A purchases Part 101 and Division B purchases Part 201 from a third division,
C. Both divisions need the parts for products that they assemble. The
intercompany transactions have remained constant for several years.
Recently, outside suppliers have lowered their prices, but
Division C refuses to do so. In addition, all division managers are feeling the
pressure to increase profit. Managers of divisions A and B would like the
flexibility to purchase the parts they need from external parties at a lower
cost and increase profitability.
The current pattern is that
• Division A purchases
2,700 units of product part 101 from Division C (the supplying division) and
another 1,300 units from an external supplier.
• Division B
purchases 1,100 units of Part 201 from Division C and another 700 units from an
external supplier.
• Note that
both divisions A and B purchase the needed supplies from both the internal
source and an external source at the same time.
The managers for divisions A and B are preparing a new
proposal for consideration.
• Division C
will continue to produce Parts 101 and 201. All of its production will be sold
to Divisions A and B. No other customers are likely to be found for these
products in the short term, given that supply is greater than demand in the
market.
• Division A
will buy 2,000 units of Part 101 from Division C at the existing transfer
price; and
• 2,000 units
from an external supplier at the market price of $900 per unit.
• Division B
will buy 900 units of Part 201 from Division C at the existing transfer price;
and
• 900 units
from an external supplier at $1,800 per unit.
Division C Data Based on the Current Agreement
Part 101 201
Annual volume (units) 2,700 1,100
Transfer price/unit $1,000 $2,000
Variable expenses/unit $700 $1,200
The fixed overhead for Division C is $1,200,000.
Case Assignment
Required:
Computations (use Excel)
• Set up a
table similar the one below to compute the difference between the current
situation and the proposal for Divisions A and B.
Division A
Current
Situation Proposal
No. of
Units Purchase Price Total Purchases No. of Units Purchase
Price Total Purchases
Internal purchases 2,700 $ 2,000 $
External purchases 1,300 2,000
Total cost for Part 101 $ $
Savings to Div. A $
• Compute the
operating income for Division C under the current agreement and the proposed
agreement.
• Is the
revised agreement a good idea? Support your answer with computations.
Memo (use Word)
Write a 4- or 5-paragraph memo to the division manager
explaining the analysis performed. Start with an introduction and end with a recommendation.
Each of the four or five paragraphs should have a heading.
Short Essay (use Word)
Start with an introduction and end with a summary or
conclusion. Use headings.
Evaluate and discuss the implications of the following
transfer pricing policies:
• Transfer
price = cost plus a mark-up for the selling division
• Transfer
price = fair market value
• Transfer
price = price negotiated by the managers
Why is transfer pricing such a significant issue both from a
financial and managerial perspective?
Assignment Expectations
Each submission should include two files: (1) An Excel file
and (2) a Word document. The Word document shows the memo first and short essay
last. Assume a knowledgeable business audience and use required format and
length. Individuals in business are busy and want information presented in an
organized and concise manner.
Module 3 SLP
Trends in Management Accounting
The Institute of Management Accountants (IMA) has a series
of YouTube Videos on Trends in Management Accounting. We will continue to
review and discuss some of these trends to learn about developments in this
field for discussions in this course.
Listen to the following two videos in the IMA series:
Required:
Comment and expand on a topic discussed in the videos and
provide a real world example from the news or your own experience.
Presence during both weeks of the module and a minimum of
three postings are expected, one original posting and two responses to
colleagues. Minimum required participation does not guarantee a perfect score.
ALL RIGHTS RESERVED CONTENT
7 Trends in Management Accounting – Trend 4. Authored by:
IMA. Located at: https://youtu.be/1vZpk1-8cWE. License: All Rights Reserved.
License Terms: Standard YouTube License
7 Trends in Management Accounting – Trend 5. Authored by:
IMA. Located at: https://youtu.be/7iQLVxRVwH4. License: All Rights Reserved.
License Terms: Standard YouTube License
Module 4 Case
BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS
Assignment Overview
T&P Fashion Shops
T&P Fashion Shops is a new chain that operates 10 stores
in major malls throughout the United States. Each store manager is responsible
for preparing a flexible budget for the store. T&P headquarters accumulates
and analyzes the information for each store and in the aggregate.
Below is the forecast (budgeted income statement) for the
Houston store showing the breakdown of fixed and variable expenses in columns
two through four. The last column shows the actual results.
T&P Fashions - Houston Store
Breakdown
of Expenses (Forecast)
Forecast Fixed Variable Actual
Revenues $1,400,000 $1,260,000
Cost of Sales 790,000 790,000 760,000
Gross Profit $610,000 $500,000
Management 182,000 154,700 27,300 182,000
Shop assistants 258,000 154,800 103,200 262,000
Rent 23,200 18,560 4,640 22,000
Utilities 34,800 34,800 31,000
Misc. expenses 24,500 12,250 12,250 29,000
Total expenses $522,500 $526,000
Net income $87,500 $(26,000)
========= =========
Additional Information
• Variable
expenses are based on revenues and we assume that the percentage remains
constant for flexible budgeting purposes.
• Fixed costs
are all within the relevant range.
• Other
expenses are all specific to this store. Headquarters pay for marketing and
corporate overhead expenses.
Case Assignment
Required:
Computations (use Excel)
1. Prepare a
flexible budget and show variances for the year that passed. Indicate whether
the flexible budget variances are favorable or unfavorable.
2. Headquarters
are contemplating charging each store a 5% marketing expense based on sales.
How will that affect the operating profit of the store and the money available
for managerial bonuses based on actual results for the past year? Summarize the
information in a table.
Memo (use Word)
Write a 4- or 5-paragraph memo to the division manager explaining
the flexible budget variances; how to interpret the information and what
action, if any to take. Comment on the 5% marketing proposal too. Start with an
introduction and end with a recommendation. Each of the four or five paragraphs
should have a heading.
Short Essay (use Word)
Start with an introduction and end with a summary or
conclusion. Use headings.
• Discuss how
to interpret static and flexible budget variances.
• What are the
benefits of variance analysis? How can such analysis be detrimental rather than
beneficial to the organization?
Assignment Expectations
Each submission should include two files: (1) An Excel file
and (2) a Word document. The Word document shows the memo first and short essay
last. Assume a knowledgeable business audience and use required format and
length. Individuals in business are busy and want information presented in an
organized and concise manner.
Module 4 SLP
BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS
Fourth and final part of the presentation.See background
information for the module one SLP.
Required:
Make comments and suggestions on the following topics in
your presentation.
• Enterprise
and corporate performance management.
• Behavioral
change management.
• The balanced
score card.
• How to
foster goal congruence for the organization and employees.
SLP Assignment Expectations
Submit a PowerPoint presentation or a Word Document. A
PowerPoint presentation should have no more than six slides and a Word document
cannot exceed two pages. Use words, tables, and graphs to make a succinct
presentation. Document all sources and provide links at the end. It is
acceptable to add another slide or page to list the sources.
Combine the submissions from prior module(s) into one file
before uploading to the dropbox.
