Arab Open University BE211/4 – Introduction to Managerial Accounting TMA – First Semester 2015 - 2016 Cut-Off Date: 18th December 2015 About TMA: The TMA covers the management accounting concepts and practices in the businesses. It is marked out of

Arab Open University
BE211/4 – Introduction to Managerial Accounting
TMA – First Semester 2015 - 2016
Cut-Off Date: 18th December 2015

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
Recruitment Drive for Management Accountant position in Gulf Logistics Company Budgeting & performance evaluation for Moon Star Company
Marks 60 40 (5) (5) 100



The TMA Questions - Part A

Gulf Logistics Company (GLC)

Gulf Logistics Company has been in operation in GCC countries since 2003. The company has been providing logistics and supply chain management services that are fully customizable to any size of enterprise. Their services have been preferred most by the manufacturing and merchandising organizations in GCC countries. GLC has been enjoying highest rate of growth in their earnings and profits. Merchandising and manufacturing organizations have been in favor of outsourcing their supply chain management activities with Gulf Logistics Company due to the professionalism exercised by GLC towards executing logistics and supply chain activities.

Recruitment Drive at Gulf Logistics Company

GLC has been looking for cost and management accountants to work for them. The company has been telling their employees that they are looking for strong management accountants to help them to create and sustain competitive edge over other competitors in the market. Currently, the company has been in recruitment drive and giving some tests to accounting graduates. The test had a question like below:

(a) Cost details of two companies (Company A and Company B) are given below:

Information Company A Company B
Sales 404,000 (d) ?
Less: Cost of Goods Sold:
Beginning Merchandise Inventory (a) ? 116,000
Purchases and Freight in 192,000 (e) ?
Cost of goods available for Sale (b) ? 352,000
Ending Merchandise Inventory (7,600) (7,600)
Cost of Goods sold 236,000 (f) ?
Gross Profit 168,000 452,000
Selling & Administrative Expenses (c) ? 336,000
Operating Income 52,000 (g) ?

(b) The Cost estimates of Companies A & B in a different period is given below:

Information Company A Company B
Sales (2000 units @ 25 per unit) 50,000 50,000
Less: Variable Costs
(2000 units x $ 5 per unit) (10,000)
(2000 units x $ 15 per unit) (30,000)
Contribution Margin 40,000 20,000
Fixed Costs (24,000) (4,000)
Operating Income 16,000 16,000




Why Gulf Logistics Company needs a management accountant?

Companies like Gulf Logistics feel that they are in need of good management accountants in order to provide them with the useful management accounting reports. Using such reports, the Chief Financial Officer, has been able to make good plans and exercise good controls various activities. Though the company is in the process of employing a management accountant, the CEO of organization is well aware of the edge that it is going to get from appointing a fully qualified management accountant. The CFO’s reports and analysis has always been of great help for this organization to achieve and sustain competitive advantage. The CEO of this organization wants to enhance the competitive edge it possesses and win over the competition. So, the company is taking steps to recruit a competent and fully qualified management accountant.

Required

(1) Horngren (2012) argues that management accounting measures analyzes and reports financial and non-financial information that helps managers make decisions to fulfill the goals of an organization.

In light of the above definition,

Define management accounting and discuss the importance of management accounting for an organization like Gulf Logistics Company (19 marks)

(2) Assume you are also one of the candidates taking the test to get placed as Management Accountant in Gulf Logistics Company, complete the income statement based on the information given above in (a) (21 marks)

(3) Based on the information given above in table (b), compute the following:

(i) Operating Income for both the companies (A & B) if selling price is increased to $ 30 per unit and the variable cost per unit becomes $ 10 (Company A) and $ 20 (Company B) respectively, keeping other things constant. (5 marks)

(ii) Operating income if both the companies could sell only 1600 units, (assuming all other factors remain at original values) (5 marks)

(iii) Operating leverage at 1600 level of activity (for both the companies). Comment on the results (10 marks)













Part B

Budgeting and Performance Evaluation for Moon Star Enterprises

Moon Star Enterprises has ascertained the following with regard to its sales and inventory to be maintained. The company is preparing a budget for the next quarter i.e. April, May, June,

Sales (in units) for the next five months have been estimated as below:

April May June July August
40,000 units 100,000 units 60,000 units 50,000 units 30,000 units

The selling price is expected to be prevailing at $ 10 per unit.

The company feels that production must be adequate to meet out the budgeted sales and provide sufficient for ending inventory. Moon Star Enterprises wants ending inventory to be equal to 20% of the following month’s budgeted sales in units.

On March 31, 8,000 units were on hand.

All sales are on account. Moon Star’s collection pattern is as follows:
70% collected in the month of sale,
25% collected in the month following sale,
5% is uncollectible.

The March 31 accounts receivable balance of $30,000 will be collected in full in April.

Moon Star Enterprises has to divisions (A & B) working within the company. The CEO of Moon Star is wondering whether divisional performance evaluation will be fruitful for them since the company has two divisions operating with certain targets. The head of those divisions report the following results for the quarter ending June 30, as below:


Particulars Division A Division B
Operating Income 900,000 1,951,600
Average Total Assets 2,500,000 6,500,000
Net Sales 7,500,000 5,243,600















Required

As a Management Accountant of Moon Star Enterprises, you are asked to

(a) Prepare Sales, Production and Cash Collection budget for the second quarter (April, May and June) (20 marks)


(b) Evaluate the divisional performance (A & B) using ROI for the quarter ending June 30. (10 marks)

(c) Explain how decentralization will help Moon Star Enterprises in achieving its objectives? (10 marks)


END OF TMA QUESTIONS