I need answer for question number 2, 6, and 9.

The CFO (Hamad Al-Dosari) is coming from non-accounting background and he is seeking your advice regarding the main assumptions underpin variable and absorptioncosting methods?

The CFO (Hamad Al-Dosari) is seeking your advice for applications of variable and absorption costing methods in relation to (a) pricing decision and (b) reporting profit to stakeholders.

It has always been argued that certain underlying assumptions place definite limitations on the use of CVP analysis. Therefore, it is essential that anyone preparing CVP information should be aware of the underlying assumptions on which the information is to be derived. If these assumptions are not recognized, serious errors may result and incorrect conclusions may be drawn from the analysis. In word format, discuss these assumptions underlying cost-volume-profit analysis.

Qatar University College of Business and Economics Department of Accounting and Information Systems ACCT 116 - Managerial Accounting Fall 2015 Group Project Due date: Written assignment to be submitted on 19th December 2015 This assignment contributes 15% to the total assessment for this course The assignment is to be done in syndicates of 5 members Syndicate Membership: You are required to form syndicates of 5 members and submit a syndicate form (see attachment) to your instructor by 22nd November 2015. Your mark will be based on the mark that your syndicate achieves. Group Project Background and Data Halfords Pty Ltd is well known as one of the best manufacturers of racing bikes. The company offers a range of racing bike products to customers over the world. Halfords use absorption costing approach for pricing manufactured bikes by which products are priced at 120% of product cost. Recently, Halfords is facing business challenges from (inter)-national competitors of bike makers. Due to this competition, Halfords' activities have declined by 20% in the sold units and 50% in the produced units in 2014 compared to 2013 as shown in the following table: Exhibit (1): Sold and produced bikes in 2013, 2014 Description Sold bikes 2013* 2,500 2014 Produced bikes 3,000 1,500 2,000 *No Beginning finished goods inventory in 2013 This issue fuelled tension within Halfords between Sara Al-Emadi, the Marketing Manager (MM) and Ahmed Almarri, the Financial Controller (FC). The cause of this tension was due to recorded conversation dated back to 2013: Ahmed Almarri (FC): Yesterday, I had a look at the quotation you offered at $52,500 for N25-order of 500 bikes, and I must admit I got a bit confused. According to the numbers, you offered them quite a deal, I must say. I thought we were supposed to use the pricing guidelines decided upon by the board and I am not sure this will cover full product costs. Sara Al-Emadi (MM): Yeah, sure . . . but sometimes they seem unrealistic to me especially after having consultation with Naser Saad, the Management Accountants (MA) who was in favour for this deal under what you called it as accountants variable costing approach. Ahmed Almarri (FC): well, that might be the case for pricing decision, but it's also important that all of our customers get a fair deal. What would it look like if different customers were offered different prices from our sales representatives? Sara Al-Emadi (MM): well, each customer is unique. Besides, this particular customer wouldn't buy from us if we offered a standard price, since they don't really need our high quality products. However, N-52 order was very good deal which covers all product costs plus $5 as contribution of each bike. Ahmed Almarri (FC): Fair enough, but we're not in the business for charity reasons! After all, the guidelines were developed to ensure that we make enough money after covering product cost on each deal. Sara Al-Emadi (MM): I know, but what's the alternative? Even you must admit that, given the market situation, it's far better to take orders which make a positive contribution margin than to just sit here and wait for better ones? I mean . . . if we do what you propose, it may well be that we make no money at all at the end of the day. Besides, this is not the first time we handle orders this way and there have never been any complaints before! Ahmed Almarri (FC): I am not sure this deal generates positive contribution and I do not know how did you calculate product cost upon which you offered that quotation? Sara Al-Emadi (MM): you hit the point...product cost is the key argument. Ahmed Almarri (FC): Shall we escalate this matter to Hamad Al-Dosari the Chief Financial Officer (CFO) to review the pricing policy guidelines? Urgently, the CFO of Halfords have called Naser Saad (MA) to collect data and bring it to board meeting, which will include FC and MM, in order to provide overview on sales and costs of bikes. The following table presents product cost and expenses for 2013, 2014: Description Manufacturing costs: Direct raw material cost per bike Required labour hours per bike Wage rate per labour hour Total manufactured overhead cost* Selling and administrative expenses: Total Variable selling and admin expenses Total fixed selling and admin expenses 2013 2014 $50 5 hours $6 per hour $80,000 $50 5 hours $6 per hour $80,000 $12,500 $10,000 $10,000 $10,000 * Approximately 75% of total manufactured overhead cost is variable whereas the rest is fixed costs. Required: Assuming the role of Naser Saad (MA), please answer the following questions while using Excel sheet when it is applicable: 1. The CFO (Hamad Al-Dosari) has asked you to compute bike (product) cost and selling price (Selling Price is 120% of product cost) under the absorption costing method (suggested by Ahmed Almarri) and the variable costing method (suggested by Sara AlEmadi) for each year. (2 Marks) 2. The CFO (Hamad Al-Dosari) is coming from non-accounting background and he is seeking your advice regarding the main assumptions underpin variable and absorption costing methods? (1 Mark) 3. You have been asked to prepare income statements for 2013 and 2014 using both absorption and variable costing methods based upon bike cost and selling price that calculated in requirement (1). (3 Marks) 4. Prepare the numerical reconciliation (for each year) to explain the difference in the operating incomes reported under the two costing methods in requirement (3) and then comment on differences in two operating incomes arise for each year. (2 Marks) 5. Explain how the offered Quotation of Bike N-52 order for 2013 by Ahmad Al-Marri (see the first paragraph of the conversation for details) may result in profit/lose? Show your calculation. (2 Marks) 6. The CFO (Hamad Al-Dosari) is seeking your advice for applications of variable and absorption costing methods in relation to (a) pricing decision and (b) reporting profit to stakeholders. (1 Mark) 7. For the year 2014, and based upon the calculated price and the income statement under the variable costing method, calculate the break-even point (in units as well as in dollars) for this company. (1.5 Marks) 8. Based upon the calculated selling price and the income statement under the variable costing method for the year 2014, calculate the quantity that the company needs to sell in order to yield a profit of $90,000 in year 2015. (1.5 Marks) 9. It has always been argued that certain underlying assumptions place definite limitations on the use of CVP analysis. Therefore, it is essential that anyone preparing CVP information should be aware of the underlying assumptions on which the information is to be derived. If these assumptions are not recognized, serious errors may result and incorrect conclusions may be drawn from the analysis. In word format, discuss these assumptions underlying cost-volume-profit analysis. (1 Mark) General guidelines: Your report should contain: (a) Group assessment cover sheet. This cover sheet must include your team members' full names and student ID numbers. (b) The report should contain, immediately after the cover sheet, a paragraph which highlights the contribution of each member towards the accomplishment of the project and also the steps and procedures undertaken in order to come up with this contribution. (c) The report is a joint responsibility, and each member is responsible for numerical accuracy, presentation, and standard of writing. If there are any problems within the group which you cannot resolve, please discuss them with your instructor IMMEDIATELY as no late complaints will be considered. If the problems are not resolved and it is felt there has been an unequal contribution, then, exceptionally, you should inform your instructor of the proportion of the work which has been contributed by each member. (d) Please use Times New Roman as the font, size 12, and lines are to be 1.5 spaced NOT SINGLE SPACED, also ADJUST THE LINES IN ALL THE PARAGRAPHES. (e) To satisfy the requirements 2, 6, and 9, you are expected to refer to several published materials including books, journals, newspapers, or internet websites. You will need to include the list of references at the end of your report, and to do so you will need to follow Harvard business referencing style. Failing to do so would be treated as plagiarism as breach of regulations with serious penalties. (f) The team leader must send/submit (1) a copy of the word report and (2) the excel sheet to the instructor by e-mail or online through the Blackboard by the due date (Saturday 19 Dec 2015 by 23:59)