CENTRE FOR BUSINESS, INFORMATION
TECHNOLOGY AND ENTERPRISE
INTERMEDIATE MANAGEMENT ACCOUNTING Assignment
BIBM603 Semester 2 2016
ASSIGNMENT
DUE DATE: Friday 7th October 2016, 4pm. An
electronic version in turnitin.com via Moodle and a hard copy to be placed in assignment boxes.
WEIGHTING: 30%
INSTRUCTIONS:
1. Answer ALL questions.
2. Show and explain the important steps in your answers to gain full marks.
3. You must submit a paper (hard) copy of the full assignment into assignment boxes and an electronic copy of Question 2 uploaded to www.turnitin.com. Only the paper copy will be marked.
4. Keep a copy of the assignment and regularly save your work in case of unforeseen events such as computer failure or sickness.
5. You may use the library, textbook, internet, personal communication or any other sources for reference, but what you submit must be your own individual work. Evidence of collusion or copying could result in assignment marks being omitted from final assessments.
6. Work that is submitted after the due date will not be marked.
MARKS: Question 1 50 marks Question 2 50 marks
TOTAL 100 MARKS
Drury Ltd is an organisation that manufacturers and sells sunglasses. The sunglasses are made from plastic and a special lens material and sold for $57.50 for each pair of sunglasses. The components of Drury Ltd’s balance sheet as at 31 March, 2015 have been extracted and printed below:
Assets
$
Cash 14 000.00
Debtors ($225 000 Dec quarter sales, $787 500 March quarter sales)* 1 012 500.00
Inventory (3 150 units) 112 125.25
Raw materials: Plastic (800 kilos) 2 400.00
Raw materials: Lenses (350 kilos) 2 100.00
Fixed Assets
250 000.00
Total Assets $1 393 125.25
*The remainder of December sales are expected to be received in the June quarter, two thirds of the remaining March debtors are expected in the June quarter and one third of remaining March debtors are expected to be received in September.
The company prefers to maintain a minimum cash balance of $10 000 and minimum inventory of 10% of next quarter’s sales in units.
Liabilities and Equity
$
Creditors (purchases)
85 750.00
Capital 1 130 525.25
Retained earnings 176 850.00
Total $1 393 125.25
Actual and forecasted sales of sunglass units are:
Quarter ending
December (2014, Actual) 24 000 March (2015, Actual) 28 000
June (2015) 35 000
September (2015) 45 000 December (2015) 60 000 March (2016) 40 000 June (2016) 36 000
September (2016) 32 000
The company usually pays 50% of the purchases in the quarter of purchase and the remaining 50% in the quarter following purchase. All sales are on credit and from past experience 25% is received within the quarter of sales, 50% in the quarter following sales, and the remainder is typically received in the second quarter following sales.
Each unit requires materials consisting of 200g of frame plastic, and 100g of lens material. 10% of the following quarters material requirements are stocked ready for that quarter. 18 minutes labour is required on each unit. There are currently 39 production employees. All production employees can be employed at a wage rate of $15 per hour, and then guaranteed a 35 hour work week, or, all production employees can be employed at a wage rate of $20 per hour on a flexible contract that allows management to decide on their hours worked per week. In either the fixed or flexible contract, the number of employees must remain the same for the whole year.
Other quarterly factory operating expenses below are paid for in cash (except for depreciation) during the quarter:
Expense
Cost behaviour
$ per Quarter
Maintenance Variable 80 per DLH
Power & phone Mixed 560 000 + 2 per DLH
Depreciation Fixed 40 000
Other Mixed 120 000 + 2 per sunglasses
Factory supervisory and management salaries amount to $36 000 per month. Other nonfactory administrative and management salaries amount to $30 000 per month.
Sunglasses are packaged and labelled before leaving the storeroom. In addition to the $0.50 cost per sunglass for labelling and packaging, the company also spends a fixed $50 000 on advertising and branding per quarter.
The company has fifteen manufacturing machines that operate as long as the employees are working on production units. Additional equipment (not machines) will be purchased for $30 000 cash in September, and $24 000 dividends will be declared in September, and paid in the beginning of October. No adjustments to be made for additional equipment purchase.
Borrowing from the bank can be made at 12% p.a. if the bank is aware before the funds are withdrawn; the borrowing is done at the beginning of a quarter and principal is paid back at the end of a quarter in $10,000 amounts, unless the principal is less than $1 000. Interest is paid at the time of principal repayments.
Required:
Using Excel, Minitab, or similar spreadsheet program;
1. Prepare the following budgets for each quarter and in total for the coming forecasted year. Additional budgets may be useful.
a. Sales budget (1 mark)
b. Direct labour budget (Decide on the type of contract. Provide reasoning). (5 marks)
c. Direct materials budget (5 marks)
d. Manufacturing overhead (6 marks)
e. Cash budget (7 marks)
2. Prepare a budgeted income statement and balance sheet for the coming year. Prepare a cost of goods manufactured schedule and clearly calculate finished
inventory. (16 marks)
3. Present your budgets in an appropriate and clear manner. (5 marks)
4. Explain what potential action could be taken by Drury Ltd production manager if 65,000 unit sales of sunglasses were expected in the December 2015 quarter.
(5 marks)
For the purpose of this assignment disregard tax, use 3 months per quarter, and 13 weeks per quarter where required.
The budget has historically played center stage in most organizations’ systems of management control.
Libby, T., & Lindsay, R. M. (2010). Beyond budgeting or budgeting reconsidered? A survey of NorthAmerican budgeting practice. Management Accounting Research, 21(1), 56-76.
Required:
In 1500 words;
Critique the use and practice of budgets within organisations.
Marking schedule for question two:
Introduction 10 marks
Indicates what will be discussed. Provides interest.
Discussion 10 marks
Logical structure and concise.
Coverage of appropriate costing techniques
Mechanics & References 10 marks
Shows evidence of investigation and literature searches. Shows evidence of editing and reviewing.
Originality 10 marks
Structure or discussion not discussed in other literature. Provides interest.
Conclusion 10 marks
Summarising and providing implications or future directions.