2024 – Cost Managerial Accounting Assignments Assignment 1 Question 1 Balanced Scorecard 25 marks Monster

Cost / Managerial Accounting Assignments

Assignment 1

Question 1: Balanced Scorecard (25 marks)

Monster Trucks Inc. is a medium-sized toy manufacturer that makes RC (radio-controlled) truck toys. Monster Trucks operates in a highly competitive industry against some very large toy manufacturers such as Mattel and Hasbro. To compete effectively in this industry
Monster must keep costs low while keeping quality high. The following information has been gathered for Monster Trucks for 2009 and 2010.

2010
2009
Toys made 4,800 3,950
Plant capacity 6,000 6,000
# of Toys scrapped 120 142
Selling price $45 $42.50
DM Cost per unit $15 $13
Direct labour hours 2500 2150
Conversion costs $50,000 $42,500
Selling and administrative costs $18,000 $17,000
# of Research staff 2 2
R&D Costs $38,000 $42,000
Conversion costs for Monster Trucks are made up of direct labor and overhead costs. Direct labor is charged at a rate of $10 per hour. All overhead costs are fixed.

Required:

1. Calculate operating income for Monster Trucks for both 2009 and 2010. (3 marks)
2. Is Monster Trucks pursuing a cost leadership or differentiation strategy? Support your answer. (2 marks)
3. Develop a balanced scorecard for Monster Trucks. Provide at least 10 measures in your
BSC.
Provide the calculation that will be used to monitor each measure on your BSC. If you can calculate the measure using the above information, provide a calculation and
interpretation of the measure for 2009 and 2010. Otherwise, provide your rationale for including each measure (i.e., why is the measure important). (20 marks)

Question 2: Evaluating Strategic Success (17 marks)

Assume that in 2011, Simply Pipes Incorporated changed its processes and trained workers to recognize quality problems and fix them before products are finished and shipped to customers. Quality is now at an acceptable level. Cost per kilogram of materials is about the same as before, but conversion costs are higher and Simply Pipes has raised the selling
price of its core product, the A123 Pipe, to be in line with the market. Sales have increased
and returns have decreased. Simply Pipes’ managers attribute this to higher quality and a
price that is still less than their main competitor, Draino Corporation.

Information related to the A123 pipe for the current and prior periods follows:

2010
2011
Units produced and sold 15,000 16,500
Units returned 850 350
Net sales in units 14,150 16,150
Selling price $18 $22
Direct materials (kilograms) used 7,500 8,250
Direct material cost per kilogram $7 $7.50
Manufacturing capacity in units 18,000 18,000
Total conversion costs $108,000 $126,000
Conversion cost per unit of capacity $6 $7
Selling and customer-service capacity 60 customers 60 customers
Total selling and customer-service costs $6,000 $6,500
Total selling and customer-service capacity cost per customer $100 $108.33
Advertising staff 2 2
Total advertising costs $22,000 $26,000
Advertising cost per employee $11,000 $13,000

Conversion costs in each year depend on production capacity, defined in terms of A123 units that can be produced, not the actual units produced. Selling and customer- service costs depend on the number of customers Simply Pipes can support, not the actual number of customers it serves. Simply Pipes had 50 customers in 2010 and 60 customers in 2011. At the start of each year, management uses its discretion to
determine the number of advertising staff for the year. Advertising staff and costs have no direct relationship with the quantity of A123 units produced and sold or the number of
customers who buy A123.

Required:

1. Calculate the operating income of Simply Pipes for 2010 and 2011. (4 marks)
2. Calculate the growth (both revenue and cost effect), price -recovery (both revenue and cost effect), and productivity components that explain the change in operating income from 2010 to 2011. (10 marks)
3. Comment on your answer in requirement 2 above. What do these components indicate? (3 marks)

Question 3: Value Chain Analysis (34 marks)

(This case has been written for illustration and is not meant to be correct in all details of brewery or pub operations.)

Merry & Mellow Pub Ltd.

Merry & Mellow Pub Ltd. (M&M) operate a brew pub—a pub which brews beer in a micro- brewery on its premises. M&M brews English-style beer from malt, hops, and yeast imported from brewery suppliers in England. Its equipment was imported from Germany.

The business is the brainchild of four partners who contributed $100,000 as equity to the business. The remaining $400,000 is financed by debt instruments. Of the debt financing,
$200,000 was raised through convertible debentures sold to investors, most of whom are
acquaintances and family of the partners. Of the remaining $200,000, $100,000 is a repayable grant from a government agency, and $100,000 is a mortgage held by the brewing equipment manufacturer on the equipment. The average cost of this debt capital is
12%.

Each of the partners has taken a role in the business, although to a different degree. Two are involved daily and draw a salary. John Rumbol is the business managers. He has a long history as a manager in the restaurant and hospitality industry. Alvin Smale is the Brewmaster with extensive experience in the English brewing industry. He makes $60,000 per year. Andy Bittrov is an accountant who prepares the business statements and manages the banking. The assistant manager does the daily accounting, which is primarily entering whatever data is not collected automatically into the computer and balancing computer summary data to cash. The manager closes up and makes bank deposits, although this task is occasionally handled by the assistant manager as well. The fourth partner is Joanne Van Wine who operates a computer business and has selected and customized the business’ information and accounting systems with some professional input from Andy. Altogether, management and administrative staff—excluding the Brewmaster, Alvin—are paid $19,000 per month.

The main attraction and most distinctive feature of the pub is specialty beer, brewed using special and secret recipes developed by Alvin. Because of its role as the centrepiece of the business, the quality of the beer is of utmost importance to the long-term success of the enterprise. The malt, hops, and yeast used are imported form a brewery supplier in England, which specializes in the supply of these materials to small independent brewers. Alvin spent four months in England perfecting his beer recipes by working with the English company’s experts to develop the individual ingredients which are maintained for the M&M account alone. The English company’s costs for malt, hops, and yeast—costing M&M
$9,500—are $7,500. M&M’s shipping and duty cost for that same amount is $500.

The malt, hops, and yeast are shipped to M&M four times per year. The size of the order must be confirmed three months in advance of the desired delivery date. The shipment is cleared through customs by one of the partners—usually Alvin—then inspected and put into cool storage inventory until needed. All ingredients are dated and rotated to avoid spoilage. Ingredients have a six-month shelf life. Alvin estimates that the average monthly use of these items is $40,000.

Alvin schedules the monthly production of beer according to customer and pub employee feedback regarding type of beer and quantities favoured, as well as for any special celebration or promotions planned. Capacity is also maintained for testing any new recipes. Alvin also works from sales data as reported by the computerized records.

As a good Brewmaster should, Alvin and his assistant thoroughly clean the stainless steel tanks before mixing each batch. It takes an hour for them to thoroughly clean a tank. He

then combines ingredients according to the selected recipe, dates the batch, and monitors it daily for temperature, taste, impurities, and expected time to completion. The beer is transferred between specialized tanks as it moves through the sequential fermentation and filtration processes. When completed, the batch is transferred to cold storage tanks from where it can be put directly on tap to the pub. As the beer is unpasteurized, any unsold beer over 30 days old must be destroyed. It is of the utmost importance that the stainless steel tanks be clean, and that the purity, taste, and temperature of the beer be continually monitored. The Provincial Liquor Control Board and Board of Health require the strictest quality control. The quantities, date of production, type of beer, and so on must be kept for these officials, for federal sales tax calculations, and for management purposes.

The production of a batch of beer takes from 10 to 14 days. Two different batches are normally in preparation at one time—utilizing four fermenting tanks. Each batch makes about 50 kegs of beer. Sales of lager average about 25 kegs per week, ales 35 kegs per week, and bitter about 30 kegs per month. A batch of ale requires 10 days, lager 12 days, and bitter 14 days. Bitter, served warmer than the ales and lagers, has proven to be a novelty item for the pub’s Canadian clientele but has attracted a regular group of nostalgic old country drinkers to the pub. The brewery makes one type of lager and two types of ale, which sell equally well.

Miscellaneous monthly costs for the brewery are $9,000 which includes $2,000 for water,
$2,000 for utilities, $4,000 for labour, and $1,000 for supplies and maintenance. Depreciation is $12,000 per year.

The brewery operation is displayed behind a glass wall at one end of the pub, where it can be observed by pub customers. Tours can be arranged.

The pub is legally allowed to open from 11:00 a.m. until 1:00 a.m., a total of 14 hours, 7 days a week. The pub sells the standard array of bottled beers and imports kegs of two of the better-known British beers, Whitbread and Guinness, as well as wine, hard liquors, coolers, and soft drinks. It provides a short pub luncheon menu and salad bar. There is a dartboard and shuffleboard for the patrons’ enjoyment. Music videos are used when a special event is not showing, and there is no live entertainment. Entertainers are booked into the pub from Thursday to Saturday. The pub has a seating capacity of 130. The pub pays the micro-brewery $75,000 per month for its beers.

Recognizing the importance of creating a friendly and welcoming atmosphere to the long- term success of the business, M&M makes every effort to ensure the right kind of employee is hired. Before John hires new employees, they are interviewed by the assistant manager and meet selected staff members who are asked for an assessment. The new employee then works for one week after which fellow staff and management meet to determine whether a permanent placement should be given. This procedure, plus a careful outline of criteria for service and performance with extensive training though the first week and continuous updating thereafter, has resulted in a stable workforce given the normally high turnover in the pub and restaurant business.

If possible, customers are greeted at the door. If that’s not possible, they are greeted as soon as possible after entering the pub. Customers are given a menu if needed, and their order is taken. Customers are served at the bar by the bartenders and by waiters at the tables. Waiter pay is a low hourly rate, just above minimum wage. Cooks receive a better salary while other kitchen staffs—such as cleanup staff—receive the low hourly rate. For the waiters, the low rate is mitigated by a guaranteed weekly salary which kicks in when a waiter does not work enough, usually because of illness, to reach that level. Gratuities normally mean that the waiters make a very acceptable living. The service employees, bartenders, and waiters pool their tips and share them with the bussing staff. Labour costs in the pub average $40,000 per month.

M&M shows its appreciation of its staff by organizing functions for them, and has a bonus plan under which all employees receive a bonus if profits exceed a target level (known to the employees). The employees are kept current on business performance and enthusiastically contribute their best efforts and suggestions. As a result of its attention to service and quality, M&M averages $200,000 in revenues per month.

The chief cook receives the fresh food deliveries in the morning from the butcher, bakeries, and produce and grocery suppliers. He has ordered these the previous day as he finalizes his menu. Orders are done with a three-part order/receiving report. The top copy is the order record, which goes to the office for business records. The second and third copies are
kept and are used (there is a receiving column) to check in the order the next day. The cook checks for quantities, quality, and freshness. The second copy then goes to the business
office where the assistant manager (or the manager on occasion) enters the data for
accounting and inventory records. The last copy is kept by the cook. Monthly food costs average $15,000.

The ingredients for the salad bar are on a daily order filled automatically with the composition changing only as seasonal items change. The supplier of these items works almost independently from a standing purchase order and contract. She can be depended on to bring a good mix of quality ingredients. She and the cook consult each day when the delivery is made about what items are coming into season and also what events and specials are planned by the pub.

The weekly Liquor Control Board delivery is verified by the manager or assistant manager, and the liquor is placed in a locked liquor storeroom. Liquor is requisitioned daily by the bartenders. The assistant manager uses the shipping manifest, the invoices when they arrive in the mail, and the bartender requisitions, and enters them for inventory and accounting records. The liquor order is prepared by the senior bartender and approved by the manager. There are three keys to the liquor storeroom; one is held by the manager, one is held by the senior bartender, and one is kept in the office. The pub spends $30,000 per month on externally purchased liquor.

Supplies of linen, napkin, matches, dish replacements, candles, and other supplies are received weekly by the manager or assistant manager. Monthly supply costs are $2,500.

When customers order, the waiter notes the order and keys it on the computer cash register. If a tab is being run, the customer is assigned a number by location, either table number, or bar location, and if known, a name is entered—usually the customer’s first or last name. The waiters usually obtain a name for tabs; this allows the staff to use the customer’s name which proves effective. The computer automatically prepares the bill for the customer from the information keyed in. Prices are standard except for the specials, which are entered into the system daily. Customers pay the person who serves them.

John Rumbol continually with appropriate staff to review prices and menu items, including the volumes sold, and checks the costs of each item to provide contemporary selections at competitive prices. The pub’s own beer cannot be priced out of line although it is promoted as a premium product. Promotion is based on the quality of taste, the uniqueness of the beer, and the fact that it is locally made to European standards. Advertising also has an educational element to teach the customer that what he or she will receive will be different and better than the customer is accustomed to receiving from the mega brewing companies. Promotion also emphasizes the naturalness of the product.

Finally, the pub is promoted for its friendliness, its atmosphere, and its service. Professional entertainers and special events such as parties and sports nights are used to encourage patronage.

The waiters are responsible to keep their areas clean, wipe the tables and countertops whenever they appear soiled, clear away dirty dishes as soon as they can, and dispose of garbage quickly. They sweep or otherwise clean their areas whenever time permits.

Every morning the kitchen prepares the daily soups, salads, and ingredients for the pub lunch specials. The waiters arrive before their start time to prepare tables, check on assigned cleaning duties for the day, familiarize themselves with daily menu specials, and obtain sufficient change to handle customer billings.

Cleaning crews come into the pub after closing hours and wash floors, vacuum carpets, scrub washrooms, and so on. The servers take on light cleaning duties to be done during their shift. The Brewmaster hoses down the brewery daily, and sanitizes and polishes the tanks. The computer cash register keeps a perpetual inventory record of food supplies, alcohol, and brewed beer. Physical counts are done weekly to check the records. Andy Bittrov supervises computer input, supplier payables, and banking relations. John Rumbol makes daily bank deposits and supervises all aspects of the brewery and pub operation, and deals with the various government inspectors and regulators. Joanne Van Wine maintains the computer hardware and software.

With the help of his assistant and Alvin, John prepares the weekly shift schedules for hourly paid staff. The assistant manager prepares the payroll using the schedule and manager reports.

The computer system has the capacity to handle more data and programs that would facilitate the operation of the pub and brewery. Innovative new kitchen, pub, and brewery equipment is being introduced in the market on a regular basis. M&M management monitors these trends carefully. Management and administrative costs of $19,000 per month
including salaries are charged to the pub. Depreciation and amortization in the pub total
$48,000 annually.

Required

Develop a value chain for Merry and Mellow Pub. Show the profitability of each segment and
the overall chain. A narrative should also be included that identifies the key primary and support
activities of the value chain.

Question 4 Industry Analysis (24 marks) Required:
Using the Internet to research the restaurant industry, identify and describe how each of Porter’s Five Forces affects the level of competitive intensity in the restaurant industry in Canada. With declining profits due to high costs and low gross margins, what are some strategies that restaurants might consider to help increase profitability?

*Note: be sure to use APA style to cite and reference whenever you directly quote or paraphrase external content.

Assignment #2

Question 1 – Financial Statement Analysis (32 marks)

a. Choose two similar public companies on the Internet that have published financial statements. Prepare a complete version of the following chart for the two companies you choose. (For example, you might choose Tim Horton’s and McDonalds.) (10 marks)

2009 Financial Results
Company 1 Name: Company 2 Name:
Website where you accessed 2009 financial statements www. www.
Sales
Cost of Goods Sold
Selling and Administrative Expenses
Interest Expense
Other income
(expense)
Net Income
Cash
Accounts
Receivable
Other Current
Assets
Total Current
Assets
Fixed Assets
Total Assets
Current Liabilities
Long-term Debt
Common Stock
Retained Earnings
Total Liabilities and Stockholders’ Equity

b. For each company, calculate the following ratios (12 marks): Current ratio
Receivables turnover

Age of receivables Inventory turnover Inventory holding period Gross margin
Profit margin

Return on assets

Return on stockholders’ equity

Asset turnover

Debt-to-total assets

Times interest earned

c. Compare the liquidity, solvency, and profitability of the two companies. What do these ratios tell you about the performance of each company and how do they compare to each other? (10 marks)

Question 2: RI and EVA (15 marks)

Madeline Products produces two types of fasteners used in the clothing industry: snap fasteners and hook-and-eye fasteners. Both products are highly automated and Madeline Products has made substantial investments in automation over the last five years. The following are results for 2010.

Snaps Eye and Hooks

Total assets $1,250,000 $1,780,000

Current liabilities $138,000 $215,000

Income before tax $258,000 $327,000

Required:

a. Calculate the residual income for each division. The required rate of return on all investments at Madeline Products is 13%. (6 marks)
b. The company has two sources of funds: long term debt with a market value of
$2,000,000 at an interest rate of 18% and equity capital with a market value of
$580,000 at a cost of equity of 16%. The tax rate is 40% and the company uses a similar weighted average cost of capital for both product lines. Calculate the EVA for both divisions (6 marks).
c. Using your answers to parts (a) and (b), how would you assess the performance of both divisions? (3 marks)

Question 3: Quality Control (9 marks)

Design Products is committed to its quality program. It works with all areas of the company to establish sound quality programs within reasonable budget guidelines. For 20×1 it has budgeted $1,000,000 for prevention costs and $800,000 for appraisal costs. Internal failure has a budget of $100 per failed item, while external failure has a total budget of $600,000.

Product Testing has proposed to management a change in the 20×1 budget for a new method of testing products. If management decides to implement the new method, $2 per unit of appraisal costs will be saved, up to a level of 200,000 tests. No additional savings are incurred past the 200,000 level. The new method involves $110,000 in training costs and $60,000 in yearly testing supplies.

Traditionally, 3% of all completed items have to be reworked. External failure costs average
$120 per failed unit. The company’s average external failures are 1% of units sold. The company carries no ending inventories.

Required:

a. What is the adjusted budget for appraisal costs assuming the new method is implemented and 800,000 units are tested during the manufacturing process during
20×1? (3 marks)
b. How much do internal failure costs change assuming 600,000 units are tested under the new method and it reduces the amount of unacceptable units in the manufacturing process by 40%? (3 marks)
c. What would be the change in the external failure budget assuming external failures are reduced by 60%, assuming the same facts as in part (b)? (3 marks)

Question 4: Theory of Constraints, Throughput Contribution, and Relevant Costs of
Quality (16 marks)

Carlyle Industries manufactures chemical compounds for lawn fertilizer in two departments:
mixing and packing. Additional information on the two departments follows.

Mixing Packing Capacity per hour 150 kg 250 boxes Monthly capacity 24,000 kg 40,000 boxes Monthly production 20,000 kg 38,000
Fixed operating costs $55,000 $85,500

Fixed operating cost (per kg or box) $2.75 $2.25

Each box requires 500 g of mixed chemical compound. Because the packing department has a capacity of only 40,000 boxes per month, the mixing department can only make a maximum 20,000 kg per month. All costs are fixed other than direct materials since this is an automated facility. The company incurs $40,000 in direct materials for the mixing departments and $57,000 in direct materials for the packing department. The packing department makes only 38,000 boxes from 20,000 kg of chemical. There is a loss of 5% of the direct materials mixture when the product is packed. Each box of fertilizer sells for $10. Consider each of the following requirements independently from each other.

Required

a. An outside contractor makes the following offer. If Carlyle will supply the contractor with
2000 kg of mixed chemical, the contractor will manufacture 3800 boxes of fertilizer
(allowing for the normal loss of 5% of direct materials) at $4.5. Should Carlyle accept the offer? Show calculations. (6 marks)
b. Another company offers to prepare 2000 kg of chemical mixture a month from direct materials that Carlyle supplies. The company will charge $2.50 per kg of mixture.
Should Carlyle accept the offer? Show calculations. (5 marks)
c. Carlyle’s engineers have devised a method that would improve quality in the packing department. They estimate that the chemical currently being lost would be saved. The modification would costs $15,000 per month. Should Carlyle implement this new
method? Show calculations. (5 marks)

Question 5: Performance Measurement (6 marks)

Over the last 5 years, True Exploits Ltd. has developed and implemented a new performance evaluation system for its four departments; the system tracks both financial and nonfinancial measures of performance. The goal of the performance evaluation system is to improve overall company profits by monitoring a number of carefully developed indicators of profitability, cost control, and employee efficiency within each department. Managers are rewarded based on their departmental performance. Overall, the system has been taken up wholeheartedly by managers. However, the corporate results for the business have been disappointing. It appears that some managers are making decisions solely for their department’s benefit, sometimes to the detriment of the company as a whole.
Required:

How can True Exploits change their performance evaluation system to minimize sub-optimization of decisions? Recommend specific changes the company could implement to improve their performance evaluation process.

Question 6: Compensation (6marks)

Bitter Pill Inc. has three separate divisions: herbal, medical, and pet. Each division produces packaging for the pharmaceutical and herbal medicine industries. The company is developing a new compensation program for managers. They are looking at three different options for executive compensation including: salary-based pay only, performance-based pay only, and a mix of salary and a performance based pay. The medical packaging industry is highly competitive and managers are expected to achieve ambitious targets.

Required:

Consider each type of compensation plan. What are the advantages and disadvantages of each compensation plan type? In the industry described in the question, which compensation plan would be the most effective? Explain your reasoning.

Question 7: Ratio Analysis (6 marks)

Outline two disadvantages to using ratio analysis in terms of using it to assess a company’s performance? How could these limitations be overcome?

Question 8: Environmental Cost Management (10 marks)

Research a company on the Internet that has embraced environmental cost management practices. Briefly describe the environmental goals that the company is planning to achieve. Provide five measures on a balanced scorecard that could be used to measure environmental performance for this company.