ACC501 Accounting Fundamentals
Module 1 Case
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.
ACC501 Accounting Fundamentals
Module 1 SLP
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) andBizStats 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.
ACC501 Accounting Fundamentals
Module 2 CASE
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.
ACC501 Accounting Fundamentals
Module 2 SLP
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.
ACC501 Accounting Fundamentals
Module 3 CASE
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.
ACC501 Accounting Fundamentals
Module 3 SLP
Third part of the presentation. See background
information for the Module 1 SLP.
Required:
Include the following items in your
presentation.
- The organization is currently centralized, but is reviewing
options to put a decentralized structure in place.
- You are asked to comment on responsibility centers and their
functions.
- Cost centers can be a drain on an organization. Could
internal charge backs be implemented? Present specific ideas.
- Comment on the role of business analytics in a growing
decentralized organization.
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 3 Dropbox.
ACC501 Accounting Fundamentals
Module 4 CASE
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)
- Prepare a flexible budget and show variances for the year
that passed. Indicate whether the flexible budget variances are favorable
or unfavorable.
- 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.
ACC501 Accounting Fundamentals
Module 4 SLP
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.