Topics 5 - 8 In-Class Workbook ACCT1102 PDF

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Principles of Management Accounting Topics 5 - 8 In-Class Workbook ACCT1102,...

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ACCT1102: Introduction to Management Accounting In-Class Workbook Topics 5 – 8 (includes the Group Assignment)

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Table of Contents Topic 5: Budgets - Responsibility Accounting & Introduction ..................................................... 1 Topic 6: Budgets - Operating Budgets ........................................................................................ 5 Topic 7: Budgets - Financial Statements and Cash ..................................................................... 8 Topic 8: Budgets – The Group Assignment ............................................................................... 11

ACCT1102

Topic 5: Budgets - Responsibility Accounting & Introduction

Topic 5: Budgets - Responsibility Accounting & Introduction Learning objectives:  Understand how budgeting fits into the wider strategic planning processes of an organisation.  Explain the major purposes of the budgeting process.  Understand how budgets are developed and used in responsibility accounting systems.  Understand the various components that make up an annual budget.  Describe a typical organization’s processes of budget administration.  Discuss the behavioural consequences of budgets: participative budgeting, budgetary slack and budget difficulty. Textbook:  Chapter 6 (including appendix) Self-Study Questions: 6-1, 6-2, 6-3, 6-6, 6-11, 6-13, 6-22, 6-23, 6-32, 6-33, 6-39. Tutorial Questions: 6-4, 6-5, 6-9, 6-19, 6-21, 6-24, 6-25, 6-26.

Lecture quick checks 1 - 3: 1. Budgeting is the common accounting tool companies’ use for planning and controlling. Budgets a. provide a measure of planned financial results. b. are prepared independent of the company’s long-term strategies. c. do not usually reflect actual results, so they are a useless exercise. d. serve as the financial expression of management’s plans for the upcoming period.

2. Which of the following is not a major benefit of budgets? a. Compels planning b. Eliminates innovation c. Provides performance criteria d. Promotes coordination and communication

3. The master budget consists of operating budgets and financial budgets. The operating budgets include: a. sales budgets and various cost budgets b. sales budgets and budgeted cash flow c. income budget and budgeted cash flow d. income budget and various cost budget

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ACCT1102

Topic 5: Budgets - Responsibility Accounting & Introduction

Interactive Excel activity 5a Download and use the interactive Excel spreadsheet. Required: Use the information to prepare a unit production budget, operating budget and income statement budget for the Cruised model of car for the Dhodge Motor Company, for August. All the below information is already in the interactive Excel spreadsheet. Production Costs: Fixed Material 240,000 Labour 450,000 Overheads 10,100,000 Total 10,790,000

Variable 3,300 800 1,800 5,900

Selling, General & Admin expenses: Fixed Variable 200,000 130 Other information: 17,000 Budgeted selling price: 2,200 Budgeted sales (units of cars in August) 2,000 Denominator level: cars per month (for opening & closing fixed costs in fin. goods) 200 400

Opening finished goods inventory of cars (units) August (expected) Closing finished goods inventory of cars (units) August (expected)

2%

Expected bad debt (as a percentage of sales revenue)

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ACCT1102

Topic 5: Budgets - Responsibility Accounting & Introduction

Lecture quick checks 4 - 7:

4. Which of the following is true of responsibility accounting? a. It is a system that measures the plans, budgets, actions, and actual results of responsibility centers. b. It is an arrangement of lines of responsibility and authority within a responsibility center. c. It is a process of fixing blame for unexpected poor results. d. It examines how a result will change if the original plan is not achieved.

5. The major cost management concept used in Kaizen budgeting is that of a. eliminating inventories of every type but materials. b. refinements in the indirect-cost categories for costing systems. c. continuous improvement. d. sensitivity analysis using computer-based financial planning models.

6. Controllability a. is always clear cut as to who has responsibility for a cost. b. is another term for responsibility. c. is the responsibility of the corporate controller. d. is the degree of influence a specific manager has over costs, revenues, and other items.

7. Budgetary slack a. is going to be included in budget estimates, so it should just be ignored. b. provides managers with a hedge against unexpected circumstances. c. should be totally eliminated from the budget. d. is not found in governmental budgets.

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ACCT1102

Topic 5: Budgets - Responsibility Accounting & Introduction

Interactive Excel activity 5b Download and use the interactive Excel spreadsheet. Vespa manufactures and sells a single motor-scooter product. Their production processes are fully automated. There is no direct labour. All material costs are directly traced to the product. Required: Complete a Production Budget, Income statement, Balance sheet and Cash flow budget for the next 3 months (Jan – Feb). All of the below information is already in the interactive Excel spreadsheet. a) Normal production is 500 scooters per month (used for determining the Fixed OH rate). b) The sales price per scooter is $3,000. c) Direct material costs are $1,970 per unit. d) Production supervision costs $30,000 per month. e) Depreciation on production machinery is depreciated at 10% straight line per year. Accumulated depreciation at 31 December is $570,000. f) There are no depreciation expenses for the Sales and Administration department. g) Factory rent is $4,000 per month. h) Rent for the Sales and Administration department is $1,000 per month. i) Fixed cost for the Sales and Administration department is $120,000 per month. 2% of sales is paid as sales commission. j) Raw material inventory is kept at a constant level to produce 100 scooters. k) Finished goods ending target inventory is 10% of the next month’s sales forecast. l) The forecasted sales (units) for the next 4 months is: Jan Feb Mar Apr 450 500 350 470 m) All period expenses are paid in the month incurred. n) The Accounts Payable opening balance for January is $701,400. Suppliers have payment terms of 30 days (or ‘one month’). o) 50% of sales revenue is collected as cash in the month of sale, with the rest of the cash collected in the following month. p) The opening balance for Accounts Receivable in January is $750,000. q) Company tax will be paid at the end of every quarter, being 30% of the profit for that quarter. 4

ACCT1102

Topic 6: Budgets - Operating Budgets

Topic 6: Budgets - Operating Budgets Learning objective checklist  Understand how an operating budget fits into a master budget and financial statements budgets.  Understand how the various components make up an operating budget: • Sales (or revenue) budget • Production budget in units • Direct materials budget • Direct labour budget • Manufacturing overhead budget • Ending inventory budget • Cost of goods sold budget • Selling and administration budget  Produce a basic operating budget based on information provided. Textbook:  Chapter 6 (including appendix) Self-Study Questions: 6-8, 6-16, 6-17, 6-18, 6-27. Tutorial Questions: 6-28. Also - see BlackBoard for Tutorial Excel file(s). Lecture quick checks 1 - 2 1. The master budget consist of operating budgets and financial budgets. The operating budgets include: a. sales budgets and various cost budgets b. sales budgets and budgeted cash flow c. income budget and budgeted cash flow d. income budget and various cost budgets 2. Dewitt Co. budgeted its activity for October 2021 from the following information: • Sales are budgeted at $750,000. All sales are credit sales and a provision for doubtful accounts is made monthly at the rate of 2% of sales. • Merchandise inventory was $120,000 at September 30, 2021, and an increase of $10,000 is planned for the month. • All merchandise is marked up to sell at invoice cost plus 50%. • Estimated cash disbursements for selling and administrative expenses for the month are $105,000. • Depreciation for the month is projected at $25,000. Dewitt is projecting operating income for October 2021 in the amount of a. $105,000. b. $119,000. c. $129,000. d. $230,000. 5

ACCT1102

Topic 6: Budgets - Operating Budgets

Lecture quick checks 3 - 4 Hester budgets on an annual basis for its fiscal year (FY). The following beginning and ending inventory levels (in units) are planned for the FY of July 1, 2021 through June 30, 2022. July 1, 2021 June 30, 2022 Raw material1 40,000 10,000 Work-in-process 8,000 8,000 Finished goods 30,000 5,000 1 Three (3) units of raw material are needed to produce each unit of finished product.

3. If Hester plans to sell 500,000 units during FY 2021–2022, the number of units it would have to manufacture during the year would be a. 505,000 units. b. 500,000 units. c. 480,000 units. d. 475,000 units. 4. If 450,000 finished units were to be manufactured during FY 2021–2022, the units of raw material needed to be purchased would be a. 1,350,000 units. b. 1,360,000 units. c. 1,320,000 units. d. 1,330,000 units.

Interactive Excel activity 6a Download and use the interactive Excel spreadsheet. This is the Try It exercise from the Textbook

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ACCT1102

Topic 6: Budgets - Operating Budgets

Interactive Excel activity 6b (WindowCo financial statements) Download from BlackBoard WindowCo Budget for Lecture 6.xlsx. In the next topic we will finish this exercise for the financial statement budgets.

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ACCT1102

Topic 7 - Budgets: Financial Statements and Cash

Topic 7: Budgets - Financial Statements and Cash Learning objectives:  Understand how financial statements and cash budgets are related to master budgets.  Understand and produce basic: • Income statement budgets • Balance sheet budgets. •

Cash budgets.

Textbook:  Chapter 6 (including appendix) Self-Study Questions: 6-15, 6-42, 6-43. Tutorial Questions: 6-10, 6-20, 6-34. Also - see BlackBoard for Tutorial Excel file(s).

Lecture quick check 1 a. If we record a transaction to increase an Asset account, is it a debit or credit? b. If we record a transaction to increase a Liability account, is it a debit or credit? c. If we record a transaction to increase a Revenue account, is it a debit or credit? d. If we record a transaction to increase an Expense account, is it a debit or credit? e. If we record a transaction to increase an Equity account, is it a debit or credit? f. Do we debit or credit accounts for the cash flow statement?

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ACCT1102

Topic 7 - Budgets: Financial Statements and Cash

Interactive Excel activity 7a (cash budget) Download and use the interactive Excel spreadsheet.

Interactive Excel activity 7b (cash budget) Download and use the interactive Excel spreadsheet. Required: Use the information to prepare a cash budget for the Cruised model of car for the Dhodge Motor Company, for August. All the below information is already in the Excel spreadsheet. Cash collection policy (dealers pay in instalments) 60% in month of sales 20% in the month following sales 18% in the third month following sales 2% expected bad debt Accounts receivable opening balance: 15,711,500 from the previous months sales (July) 7,115,400 from the month before (June) 5,000,000

Accounts payable for production at the beginning of the month.

Materials, labour and S&A are paid in the month in which they are incurred. 5,050,000

Depreciation expenses included in Overheads (in Production Costs).

50% of overheads are paid in the month incurred, and 50% in the following month.

Interactive Excel activity 7c (WindowCo financial statements) Download from BlackBoard ‘WindowCo Budget for Lecture 7.xlsx’ This finish this exercise from last topic where we did the operating budget for WindowCo.

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ACCT1102

Topic 7 - Budgets: Financial Statements and Cash

Interactive Excel activity 7d (master budget) Download and use the interactive Excel spreadsheet. The Online Bob Dylan Poster Company is a merchandiser (not a manufacturer). They have one product (a poster) they purchase from an overseas supplier and resell through various distribution channels (online and to department stores mainly). Required: Complete the annual budget for next year by quarter. All of the below information is already in the Excel spreadsheet. a) Sales in Qtr 4 of the current year are expected to be 50,000 units. It is predicted sales will grow by 5,000 units each quarter. b) Typically, 70% of sales are on credit, with the remainder in cash. 75% of the credit sales are collected in the quarter made, and the remaining 25% collected in the following quarter. c) There are no bad debts. d) The poster price is $15. e) The aim is to end each quarter with finished goods inventory equal to 25% of the following quarter's sales. f) Merchandise purchases are on credit, and 75% of each quarter's purchases are paid during the quarter incurred. The other 25% are paid in the next quarter. g) All Selling, General and Administrative (SG&A) expenses (except depreciation) are paid in the quarter incurred. h) Dividends to shareholders of $70,000 are paid at the end of each quarter (reducing retained earnings). i) For replacing warehouse equipment, capital expenditure of $500,000 will be incurred at the beginning of Qtr 1. o The capital expenditure will be financed with a $500,000 bank loan at the beginning of Qtr 1. o The principal repayment will be four equal instalments paid on the last day of each quarter. o The interest rate is 2.5% on a quarterly basis, based on the opening principal balance for that quarter, paid at the end of the quarter.

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Group Assignment

Topic 8: Budgets – The Group Assignment Updating the Stylistic Furniture Draft Budget Before your group starts working on the group assignment: • watch the recording for Lecture 8 • see the Lecture 8 PowerPoint slides and use the Lecture 8 interactive Excel files. Textbook:  Chapter 6 (including appendix) Tutorial Questions: See BlackBoard for Tutorial Excel file(s).

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Group Assignment

Group Assignment (30%) CONTENTS

1. LEARNING OBJECTIVES................................................................................................. 12 2. ADMINISTRATION - INSTRUCTIONS ........................................................................... 12 3. PEER ASSESSMENT SCORING SYSTEM ...................................................................... 14 4. GROUP ACTION PLAN .................................................................................................... 15 5. THE ASSIGNMENT TASK................................................................................................ 16

1. LEARNING OBJECTIVES 1. Gain experience in preparing a ‘real-world’ draft budget model by applying management accounting principles: fixed and variable costing behaviors; cost-volume profit modeling; flow of costs through inventory accounts to cost of goods sold; and links between income, balance sheet and cash flow statements. 2. Develop skills in using Excel spreadsheet functionality to design and organize complex financial models that are presentable, easy to navigate, and configured to easily perform sensitivity analysis (including with goal seek). 3. Develop skills in business style communication (using a business style format) for a very busy senior management audience by preparing the Word and PowerPoint files for communicating the draft budget. 4. Gain experience in working in a group to perform a ‘real-world’ activity.

2. ADMINISTRATION - INSTRUCTIONS You MUST complete the learning activities for Topics 5-8 (all four of the budgeting topics) before starting the assignment. 2.1 Key dates: September 14th September 17th September 27th October 10th 12pm October 11th 5 pm October 25th – 29th

Seminar for Topic 8 includes an assignment overview. Deadline to form groups. Formative feedback window opens. Formative feedback window closes. Deadline to submit three files by email and to TurnItIn. Student Presentations in Tutorials

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Group Assignment 2.2 Files: Your tutor will email your group an Assignment Template.xlsx individualized with distinct nuances (no cheating between groups will be tolerated). Also see BlackBoard for: 1. Essential Excel Functions for Management Accounting.pdf. 2. The ‘Doing Sensitivity Analysis’ video. 2.3 Groups: • •

See Announcements on BlackBoard for instructions on forming groups. Your email submission on October 11th must note the Peer Assessment Scores (see below).

2.4 Formative feedback window – September 27th - October 10th 12pm: • • •

During the formative feedback window, your group can send a SINGLE email of your draft file(s) to your tutor (you do not have to submit all three files). The formative feedback you receive will use the Marking Rubric (see the end of this document) – you will receive a score against each of the marking criteria and a total score out of 30. This formative feedback from your tutor is in addition to the automated formative feedback panels in the Excel file (discussed later).

2.5 Submission process: Email submission: •

One group member is to email the three submission files (Excel, Word and PowerPoint) to your tutor in one single email. The email MUST cc in all other group members.

TurnItIn submission: •

One group member must submit to TurnItIn (see BlackBoard for instructions).

Late submissions: •

Late submissions, for which no extension was granted prior to the due date, will incur a penalty of 10% of the total assessment mark per calendar day late.

2.6 Peer assessment scores: •

You MUST complete the first worksheet in your Assignment Template.xlsx the Peer Assessment Scoring System (discussed next page in this document).

2.7 Discussion Board and where/how to ask questions: •

Please ask questions on the Discussion Board on BlackBoard. 13

Group Assignment

3. PEER ASSESSMENT SCORING SYSTEM (this table is in the first worksheet of your Assignment Tanplate.xlsx file) Group work is an important part of business education. The purpose of group work goes beyond the requirements of the group project itself. Group work is also intended to develop awareness of the dynamics of teamwork and your role in a team environment. In undertaking group work it is expected that each team member will communicate with other team members in a professional and courteous manner. Resolving any conflict or difficulties that arise within the team is also part of the group dynamics that may emerge during the project. It is expected that each team member will take responsibility for managing and reducing any conflict that may arise. If the team members are unable to resolve tensions or conflicts then this MUST be discussed with your tutor as soon as it becomes obvious that a resolution within the team cannot be agreed. In the learning environment of group work we are seeking to ensure that you develop and demonstrate both academic skills and important group work skills such as: • • •

Commitment to working with others (e.g., undertaking a fair share of the work, sharing ideas, doing the tasks allocated, attending meetings) Collaboration and inclusiveness (e.g., encouraging and respecting others; recognising skills ...