Question 2 M&J Pte Ltd ('MJ") is a distributor of cosmetics in Singapore. It is in the process of putting together a cash budget for the first quarter of 2021. The following information has been extracted from its accounting records. All sales are on account. Fifty percent of customer accounts are collected in the month of sale. Twenty-five percent collected in the month following the sale. The company anticipates twenty-five of customer accounts will remain uncollectible due to the economic slowdown resulting from the pandemic. Seventy percent of the merchandise purchases are paid for in the month of purchase. The remaining thirty percent is paid for in the month after acquisition. The 31 December 2020 balance sheet shows the following selected balances: Cash $30,000; accounts receivable $44,000; and accounts payable, $15,000. MJ maintains a $30,000 minimum cash balance at all times. The amount that needs to be borrowed each month will be summed up for the quarter (rounded to the nearest $1,000) to determine the amount to be borrowed from a government relief fund. Projections for the first quarter 2021: Jan Feb Mar Sales revenue $200,000 $180,000 $185,000 Merchandise purchases $120,000 $115,000 $120,000 Cash operating costs $30,000 $21,000 $35,000 Proceeds from sale of equipment 10,000 The projections in the above table for first quarter 2021 were done in October 2020, before the pandemic. Conditions have since changed and some adjustments may be needed to reflect current conditions. Projected cash operating costs includes saleswomen salaries. MJ now plans to let go 1 saleswoman in Feb 2021. Her monthly salary is $2,500 (including CPF). The landlord has written to MJ to inform them of rent rebates that will start in March 2021. The rent rebate will reduce monthly rental (part of cash operating costs) by $1,000 from March 2021. In Jan 2021, MJ needs to spend $125,000 on renovations to change the fixtures in its shops. This renovation will be paid with $30,000 cash in Jan 2021 and $5,000 monthly instalments beginning Feb 2021 for 20 months. All other fixed costs remain as projected. MJ pays fixed monthly salaries to its sales staff and rewards them a bonus at the end of the year (equal to two months' salary) base on achieving budgeted sales target for every quarter. Sales targets are set yearly using participative budgeting process. The sales director has assigned responsibility for setting prices with minimum supervision from the board of directors, and approving credit for customers. MJ prides itself as a firm that provides excellent customer experience in the industry.Required: (a) Prepare a cash budget for MJ for January through March 2021, showing total cash collections, disbursements and cash to be borrowed each month. Provide the total amount (nearest $1,000) MJ expects to borrow when applying for government relief to help with cash flow. (b) Explain the appropriateness of MJ's organizational architecture (OA) in relations to motivating its sales team. Suggest (and explain) two (2) changes to the current OA.Question 3 Glass Grow ("GG") is a small firm that manufacture a variety of glass and windows in its Singapore plant. It has three operating departments: I, J and K. In Department I, clear glass sheets are produced and some are sold. Department J makes coloured glass sheets, and various glass sheets (both clear and coloured) are made into windows in Department K. Department I is very labour intensive, whereas the production processes in Departments J and K are more machine intensive as the processes making of coloured glass and windows are more complex and complicated. In addition, skilled labour is required in Departments J and K to operate the machines. GG uses a plant-wide overhead allocation method using direct labour hours. The labour and machine hours expected in each department for the coming year are given below: Department I |Department ] |Department K Total Labour hours 72,000 36,000 28,800 136,800 Machine hours 1,200 7,200 10,800 19,200 GG also has three support departments: 1, 2 and 3. Department 1 handles maintenance, Department 2 manages HR and Department 3 provides marketing. Other than supporting operating departments, Department 1 provides services to Departments 2 and 3. Likewise, Department 2 provides services to all operating departments and also Departments 1 and 3. In contrast, Department 3 only supports operating departments. HR uses headcount to allocate its costs. Maintenance uses square feet (Sqft) and marketing allocates its costs equally to only the three operating departments.The following table shows the annual support department budgets, annual direct overhead costs incurred in operating departments, head count and floor area occupied for each department. Annual direct Annual overhead costs Department department incurred in Headcount Floor area budget operating (Sqft) departments $167,200 (Maintenance) 15 2,000 2 $46,800 5 800 (HR) 3 $826,000 10 1,000 Marketing) I $100,000 20 10,000 J $250,000 10 10,000 K $450,000 10 20,000 Required: (a) Bill Chang, CEO of GG, believes that Department 1 (maintenance) should be allocated first if the step-down approach is used to allocate support department because it has the highest support department costs. Is Bill correct? Why? (b) Ignoring your answer in part (a), calculate the support departments costs allocated to each operating department using the step-down approach beginning with Department 1, followed by Department 2 then Department 3 (provide your final answer to the nearest dollar). (c) Compute the plant-wide allocation rate and departmental rates for GG (after allocation of support department costs). Discuss if adopting departmental rates for GG will lead to more accurate product cost.Question 4 Sarah Lee ("SL") manufactures cakes. Its main product is a frozen butter cake. SL uses normal costing and weighted average process costing. It closes MOH variance to Cost of Goods Sold (COGS) at the end of the year. Last year's MOH variance was $2,400. Frozen butter cakes are produced in a 2-step process in 2 departments: Mixing and Baking Departments. Cake ingredients are mixed in the Mixing Department and kept in chillers until they are transferred to the Baking Department. In the Baking Department, all other ingredients are added at the start of the manufacturing process. Conversion costs are incurred evenly throughout the manufacturing process. Inspection takes place when the production is 100% completed in the Baking Department. All spoiled products arediscarded. Currently SL charges its normal spoilage cost to COGS at the end of each month. The completed cakes that passed the inspection are transferred to refrigerated storage till they are sold and shipped to customers. SL uses product cost (DM + DL + applied MOH) plus 15% to price its products. It uses last year's production cost for this year's pricing. Last year, product costs per cake was $4 (MOH was $1) and normal spoilage costs was $38,400. SL manufactured 240,000 cakes. This year SL expects to manufacture the same quantities and all variable costs and total fixed costs are expected to remain unchanged from last year. SL's net profit target is 13%. In the Baking Department, there were 2,000 cakes in work-in-process (WIP) at the beginning of October 2020. These cakes were 50% complete. At the end of October 2020, there were 3,000 cakes in WIP in Baking Department and they were 30% complete. During October 2020, 18,000 cakes were started. At the end of October, 16,480 completed cakes were transferred to storage. Normal spoilage is set at 3% of inspected products. The following table summarises the cost of beginning WIP and new costs incurred in the Baking Department for October 2020: Beginning WIP @ 1 Oct Current cost for Oct Baking Department Baking Department Transferred in cost (TIC) $2,000 $17,100 Direct material 2,000 $19,080 Conversion costs 1,850 $34,185 Total 5,850 $70,365 Required: (a) Using weighted average process costing, calculate cost for completed, spoiled, end WIP units in Baking Department and cost per cake (nearest cent) for October 2020 (clearly show the costs per equivalent unit to the nearest 3 decimal place for each cost category). (b) SL prices its cakes at $4 each. How does this price compare with the answer you calculated in part (a)? Discuss the appropriateness using SL's pricing formula for cake (its potential impact on its competitiveness and profit target) (provide workings to support your answer where appropriate)