BE210 TMA 2016

Arab Open University
BE211/4 – Introduction to Managerial Accounting
TMA – Second Semester 2015 - 2016
Cut-Off Date: 3rd May 2016 (Week 11)

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 some of the learning points within chapters 16, 20, 22 and 24. This TMA requires you to apply the course concepts. The TMA is intended to:
 Assess students’ understanding of key learning points within chapters 16, 20, 22 and 24.
 Increase the students’ knowledge about the reality of the cost and management accounting as a profession.
 Develop students’ communication skills, such as 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:
The TMA requires you to:
1- Review various study chapters of ’Financial & Managerial Accounting’ Book and apply some of the concepts within it.
2- Conduct a simple information search using the internet.
3- Present your findings in not more than 1,200 words (800 words for Part A and 400 words for Part B). The word count excludes headings, references, title page, and diagrams.
4- You should use a Microsoft Office Word and Times New Roman Font of 12 points.
5- You should read and follow the instructions below carefully. Each part of the process will carry marks for the assignment.

Criteria for Grade Distribution:
Criteria Content Referencing Structure and Presentation of ideas Total marks
Part A Part B
Management Accounting Systems for Glass Doctor Company Budgeting & performance evaluation for Gill Ltd
Marks 60 40 (5) (5) 100




The TMA Questions - Part A

GLASS DOCTOR COMPANY

Glass Doctor Company (GDC) manufactures sunglasses in Gulf region. Company has been profitable and cost effective. As a result, GDC has been able to serve its stakeholders nicely by fulfilling most of their expectations. The stakeholders for GDC include:


The top management of GDC is always planning and implementing strategies that make both internal and external stakeholders happy. Their strategies include quality products and services, effective training and development activities, proper compliance with the norms etc. GDC wants to improve their operational effectiveness and efficiency through having a well designed and developed management accounting systems. It wants to have management accounting systems that comprise systems to have effective planning, good decision making and proper evaluation and reviews. The CEO of GDC feels management accounting will serve them better for serving their stakeholders in a superior manner.

Cost of goods manufactured and cost of goods sold for GDC’s existing product

GDC has been able to gather following information and supply:

Information Beginning Ending
Inventories
Raw Materials 58,000 64,000
Work – in-progress 88,000 74,000
Finished Goods 38,000 48,000
Other information (for the current year)
Purchases of materials 154,000
Direct Labour 174,000
Manufacturing Overhead 90,000
Sales Revenue 512,000








Expansion of operations at GDC – Contact Lens

The company has been considering expanding its operations. It wants to include contact lens in its operations. The company has estimated the variable, fixed costs and expected production (units) for contact lens product as below:

Cost Information Requirements Cost per unit (output) ($)
Direct Materials 8 units @ $ 3 per unit $ 24
Direct Labour 10 hours @ $ 7 per hour $ 70
Estimated Production (units) 20,000 units
Selling price per unit (contact lens) $ 130
Fixed Costs (amount in $)
Factory fixed overheads $ 120,000
Selling & Distribution overheads $ 160,000
Administration overheads $ 80,000

Required

(1) Horngren (2012) defines management accountability as the manager’s responsibility to the various stakeholders of the company to wisely manage the resources of the organization. To earn the stakeholders’ trust, managers provide information about their decisions and results of those decisions.

In light of the above definition,

(a) Explain the role of management accountability of an organization to its stakeholders. (Note: answer must focus on activities of an organization that make stakeholders satisfied) (15 marks)
(b) Briefly explain the need for management accounting for organizations like GDC to make its stakeholders happy. (5 marks)

(2) Calculate the cost of goods manufactured, cost of goods sold and Gross Profit for the existing product of GDC (based on existing product information given above) (20 marks)

(3) For the new product proposed (contact lens), calculate

(a) BEP (units)
(b) Contribution Margin Ratio
(c) Profit if all produced products are sold in the market (no stock)
(d) Expected Sales (units) if the company desires to have a profit of $ 720,000. (20 marks)











Part B

Budgetary Control & Performance Evaluation for Gill Ltd

Gill Ltd is making industrial products. The production and cost details of Gill Ltd for the year 2016 are as follows:

Production and Cost Estimations for 2016

Gill Ltd manufactures and sells a single product that has following cost and selling price structure:

Information Details $ per unit of output
Selling Price 1000

Direct Material 300 (10 materials @ 30 each) 300

Direct Labour cost $ 50 per hour x 3 hours required 150


The company has estimated the sales (units) for one of its products as below:

(i) Sales Estimations for 2016

First Quarter Second Quarter Third Quarter Fourth Quarter
Number of units to be sold (Units) 4000 4800 9600 9200

(ii) Inventory estimations for 2016

Inventory Beginning
(first quarter) Ending
Finished Goods 600 units The company desires to have an ending inventory each quarter equal to 25% of the next quarter’s sales. The first quarter’s sales for the following year (2017) is expected to be 10,400 units

Performance evaluation using ROI for Gill Ltd

Gill Ltd has three divisions say A, B and C. The company has been adopting decentralization policy and giving full freedom to department managers to manage the activities of the respective departments. The top level management wants to evaluate the performance of the divisions A, B and C using ROI.








In order to ascertain ROI for the last year, following information is available:

Divisions Operating Income ($) Average Total Assets ($) Net Sales
($)
A 225,000 2,250,000 1,125,000
B 250,000 2,000,000 1,250.000
C 450,000 4,000,000 2,250,000


Required

(1) Prepare Sales and production budget for Gill Ltd for the year 2016. (15 marks)

(2) Calculate ROI for the three divisions (A, B and C) of Gill Ltd and comment on their performance. (15 marks)

(3) Explain any three advantages and disadvantages of ROI as a measure of performance. (10 marks)





END OF TMA QUESTIONS