Question
About TMA: The TMA covers the management accounting concepts and practices in the businesses. It is marked out of 100 and is worth 20% of
About TMA:
The TMA covers the management accounting concepts and practices in the businesses. It is marked out of 100 and is worth 20% of the overall assessment component. It is intended to assess students understanding of one of the important concepts in management accounting which has emerged as an alternative to traditional costing methods. In recent years the nature of industrial production has fundamentally altered as it became more capital intensive and based on machine production, overheads tend to be more dominant and the international market became highly competitive. This TMA requires you to apply the course concepts. The TMA learning objectives are intended to:
- Enhance student ability to understand the analysis of cost-volume-profit relationship.
- To emphasize the importance of cash budgets to the company.
- Assess students understanding of key learning points within units 2, 3 & 4.
- Increase the students knowledge about the reality of the Managerial Accounting as a profession.
- Develop students communication skills, such as memo writing, essay writing, analysis and presentation of material.
- Develop the ability to understand and interact with the nature of the managerial accounting tools in reality.
The TMA requires you to:
- Review various study sessions beside the supplementary materials.
- Conduct a simple information search using the internet.
- Present your findings in not more than 2,000 words 10%.
- You should use a Microsoft Office Word/excel and Times New Roman Font of 12 points.
- You should read and follow the instructions below carefully. Each part of the process will carry marks for the assignment.
Criteria for Grade Distribution:
CriteriaContentReferencing
(to deduct)
Structure and Presentation of ideas
(to deduct)
Total marksPart APart B Case AnalysisMarks5050(5)(5)100
Part A
Question 1 (30 Marks)
Cost accounting is an accounting process that measures all of the costs associated with production, including both fixed and variable costs. The purpose of cost accounting is to assist management in decision-making processes that optimize operations based on efficient cost management.
Required:
Identify and clearly explain 5 different types of costs that are used in managerial decision making. In addition, provide a clear and relevant example for each of these costs.
Question 2 (20 Marks)
The following represent four independent situations/cases where one amount is missing in each case.
Products/casesAnnual QuantityCarrying (Holding) Cost/UnitOrdering Cost/OrderEOQA4,500$1$?300B?$30$1080C3,600$0.12$6?D3,500$?$5125
Required:
1-Calculate the missing figures for each of the four products. (10 marks)
2-Calculate the number of orders that will be placed each year for each of the products (10 marks)
Part B
Active Sports manufactures custom club soccer uniforms (jerseys, shorts, socks and jackets) and supplies local Adelaide clubs and their teams each season. Active Sports focuses on quick delivery and fast customer response time. Recently, Active Sports has experienced a decrease in available cash and an increase in inventory. Sales revenue has been increasing at a faster rate than expenses, generating a higher level of profits. Approximately half of Actives asset base is financed through debt and half through equity. The industry faces increasing pressure from imports, particularly from China, which creates a need to compete on price. However, customers in this market are willing to pay a higher price for goods that are durable and of high quality. The internet is becoming an increasingly important sales channel and source of competition at the same time.
The company, which started out as Active Uniforms, was founded in 1962 by the Hellas family and began its operations manufacturing work uniforms for local factory workers in South Australia. As manufacturing declined in the local economy, the family began to look for a market niche to guide the companys future growth. Recognizing the increasing number of youth participating in organized sports, and the projected growth in popularity of soccer in Australia, the family decided to focus on the manufacture of custom soccer uniforms. The family has made a conscious decision not to follow the textile industrys trend of transferring manufacturing operations to China and other foreign countries that offer cheap labor. They have chosen to remain a domestic producer and to focus on quick delivery and fast customer response within the local market. The company manufactures and supplies three main products in a typical soccer kit: custom soccer jerseys (tops), custom soccer shorts and soccer socks.
Sports-Strength - part of the supply chain of Active Sports
Active Sports is part of a supply chain whereby they source fabrics and other raw materials from their suppliers, and they in turn also use retail outlets such as Sports-Strength to take customer orders and supply custom soccer uniform items on behalf of the manufacturer.
Martin Cole, senior sales director at Sports-Strength, was reviewing the latest corporate income statement prior to meeting with the companys chief financial officer. I dont understand these numbers, Martin thought. We fell short of our projected sales volume of jerseys by 16%, so I was anticipating net income to be 16% lower than expected as well. But thats not what the numbers are showing. How can I use this information to help me plan for the coming year?.
The company had been preparing absorption costing income statements, which it used for
external reporting. To shed some light on the situation, the new internal accountant prepared an additional income statement using variable costing - a contribution format income statement for the year.
SPORTS-STRENGTH
INCOME STATEMENT
(CONTRIBUTION FORMAT)
Year ended February 1, 2019
Per UnitRatioSales $1,039,500%20.00100%Less: variables expenses Cost of Goods Sold$769,230 14.8074%Sales commission62,370 1.206%Total variable expenses 831,00016.0080%Contribution Margin 207,900$4.0020%Less: Fixed expenses Selling116,500 Administrative73,500 Total fixed expenses 190,000 Operating Income $17,900
For simplicity, assume that Sports-Strength sell only one product, soccer jerseys. Sports-Strength buys each jersey from Active Sports for $14.80 and sells it for $20. Sports- Strength pays a fixed wage and 6% commission to sales staff.
Sports-Strength has just received notice from Active Sports that the price of a soccer jersey will be increasing to $15.30 next year. In response to this increase, Sports-Strength is planning its sales and marketing campaign for the coming year. Managers have developed two possible plans and have asked you to evaluate them.
The first plan (A) calls for passing on the entire $0.50 cost increase to customers through an increase in the sales price. Managers believe that $15,000 in additional advertising targeted directly at current customers will allow the sales force to reach the current years sales volume of 51,975 jerseys.
The second plan (B) relies on a new advertising campaign that focuses on the sales price remaining the same as last year. The campaign would include a new database that offers more potential customers than Sports-Strength has had access to in the past. The cost of the campaign is expected to be $10,000. Managers believe that the campaign will be more successful in generating new sales than the current incentive-based sales and marketing plan. As a result, they want to reduce the sales commission from 6% to 4% of sales and increase sales salaries by $22,000. The campaign is expected to generate an additional 16% in sales volume.
Required:
Using the information in the table as a starting point, answer the following questions:
A. What is Sports-Strengths breakeven point in units and dollars before any of the above
changes take place (ie. given the sale price and cost structure indicated in Exhibit 2)? (10 marks)
B. What was Sports-Strengths margin of safety in units and dollars in the year ending 1ST
February, 2019? Calculate the margin of safety in percentage and briefly explain what does this mean for Sports-Strength? (10 marks)
C. How much would operating income decrease if Sports-Strength did nothing to recover the increase in cost of goods sold, all other things being equal? (10 marks)
D. Determine the expected operating income under each proposed sales and marketing
plan. (10 marks)
E. Why does the first plan result in the reduction in operating income that is greater than
the $15,000 advertising? (5 marks)
F. Which plan do you recommend to management? Write a memo in the proper format which justifies your recommendation by providing relevant and appropriate supporting information. Include and explain any qualitative factors which may affect your recommendation. (5 marks)
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