Module 1 case
ACCOUNTING COST SYSTEMS AND COST BEHAVIOR
Case Assignment
Preparation of an Income Statement for The Serious Reader
Company
The first case of this course provides an opportunity to
prepare a segmented variable costing (contribution margin, behavioral) income
statement and analyze the information. This is a very small company and the
information may seem simplistic at first glance. Dont forget that numbers and
hands-on practice best illustrate many basic accounting concepts.
The Serious Reader Company is a small online retailer
operating out of a garage apartment. The owner buys books at garage sales,
thrift shops, library sales, and whenever an opportunity arises. The company
classifies all books into five categories based on cost of acquisition and
estimated sales price. See below for details about books purchased and sold
during the last year (201X).
Price Categories
A
B
C
D
E
Units Sold
2,000
1,000
500
400
400
Units Purchased
3,000
1,200
1,000
1,000
1,000
Resale Price
$4.00
$15.00
$25.00
$45.00
$40.00
Cost
$0.50
$5.00
$10.00
$20.00
$20.00
In addition to purchasing inventory (used books), the
company incurs some operating expenses.
Variable operating expenses
Shipping per book
$ 1.50
Fixed expenses
Internet-related costs
$5,000
Travel, etc.
2,000
Advertising
1,000
Other overhead
3,000
Required:
Computations (use Excel)
Prepare a segmented variable costing (behavioral) income
statement for the company in good format.
Prepare a second variable costing statement assuming 90% of
all the books in each category purchased were actually sold.
Prepare a third variable costing statement assuming that the
price is increased by 50% for all five categories (use original sales information).
The owner enjoys the used-book business. Any suggestions as
how to turn this into a full-time business venture so the owner can quit his
other job? Prepare another income statement to support your idea.
Memo (use Word)
Interpret the results from the computations and explain how
the information is useful. Write a four or five paragraph memo to the owner of
the business. Start with an introduction and end with a recommendation. Each of
the four or five paragraphs should have a heading.
Short essay to comment on the questions below (use Word).
Start with an introduction and end with a summary or conclusion. Use headings.
Maximum length of two pages.
Why do many organizations make the effort to prepare a
different type of income statement for internal purposes?
Variable costing is not just about preparing income
statements. Provide at least three scenarios in which understanding how costs
behave is useful.
Assignment Expectations
Each submission should include two files: (1) An Excel file;
and (2) A Word document. The Word document shows the memo first and short essay last. Assume
a knowledgeable business audience and
use required format and length. Individuals in business are busy and want
information presented in an organized and concise manner.
Module 1 – SLP
ACCOUNTING COST SYSTEMS AND COST BEHAVIOR
You are applying for a managerial position at an innovative
and rapidly growing company. This is a dynamic company that wants an individual
who adds value to the organization. Managers at this company wear many hats, so
the position requires managing products, people, and financial aspects of
running the company.
As part of the interview process, you are required to make a
presentation covering four different topics, one per module for this course.
You choose the company and the new product that you want to
showcase in your presentation. It can be real or fictitious (based on an
industry). This is for background purposes only. The presentation is to
showcase your abilities and what you can contribute to the organization.
IBIS World and BizStats have estimates of cost of good sold
and some other categories of operating expenses. Information about contribution
margins are not available, but adding new products typically mean incurring
both fixed and variable costs. Consequently, cost of good sold is a reasonable
estimate. Net operating income as a percentage of sales or some variation
thereof may also be relevant if the new product is expected to contribute
significantly to the bottom line. As a candidate for a position you would not
have internal information available, but being resourceful and being a skilled
researcher are desired traits for the position. IBIS World also have a wealth
of other market statistics that may be helpful. Use listed background material
and other resources as needed.
Required:
Include the following items in your presentation.
Present an idea for a new product.
Describe the product.
Show some cost estimates and pricing suggestion for this
product based on research.
What approach would you use to determine selling price (for
example cost plus or target costing)? It is important when choosing a design.
Explain your rationale for the pricing approach.
Show expectations of growth and potential profit.
SLP Assignment Expectations
Submit a Power Point presentation or a Word Document. A
Power Presentation should have no more than six slides and a Word document
cannot exceed two pages. Use words, tables, and graphs to make a succinct
presentation. Document all sources and provide links at the end. It is
acceptable to add another slide or page to list the sources.
Module 2 – Case
COSTVOLUMEPROFIT ANALYSIS
Case Assignment
The Annie Smith Dance Center
The Director of Annie Smith Dance Center is asking for
assistance with the financial aspects of running a professional group of
performers. She wants financial information presented in an easy to read format
and a better understand of the profitability of the concerts and the
organization as a whole.
The Annie Smith professional group features four dance
concerts each year. Three of the dance concerts showcase a different genre. The
fourth performance is a Christmas Spectacular, which is the most popular dance
concert and is therefore scheduled every year. Ms. Smith has tentatively
scheduled the following four dance concerts for the coming season. The schedule
below shows the type and number of performances and direct cost per type of
concert. Examples of direct fixed costs are costumes, rehearsals, royalties,
guest artist fees, choreography, and salaries of production staff, music, and
wardrobe for each of the four concerts.
Descriptions
Number of
Performances
Cost per Dance
Concert (direct fixed costs)
Hip Hop Concert
10
$45,000
Jazz and Tap Dance
5
88,000
Modern Dance
10
95,000
Christmas Spectacular
20
25,000
$253,000
Additional costs:
Variable costs associated with each performance are shown
below.
Musicians
$7,500
Rental of auditorium
2,500
Dancers’ compensation
7,000
General administrative and operating costs for the dance
center are:
Administrative staff
$185,000
Insurance
25,000
Marketing
215,000
General office expenses
90,000
Lower Orchestra Section (A)
Upper Orchestra Section (B)
Descriptions
No. of Seats
Ticket Price
Tickets Sold per Performance
No. of Seats
Ticket Price
Tickets Sold per Performance
Hip Hop Performance
150
$85
100%
450
$50
90%
Jazz and Tap Dance
150
$85
100%
450
$50
60%
Modern Dance
150
$85
100%
450
$50
95%
Christmas Spectacular
150
$125
100%
450
$50
100%
Required:
Computations (use Excel)
Summarize key financial information in a table as shown
below.
Title
Name of Dance Concert
Revenues/Performance
Variable Costs/Performance
Contribution Margin/Performance
Total Contribution/Type of Dance Concert
Direct Fixed Costs
Segment Margin/Type of Concert
1.
2.
3.
4.
Total
Prepare a segmented income statement in good format.
Compute the number of performances required to break even
for each concert. These are separate computations for each dance concert.
Compute break even for the organization as a whole and
express the result in revenues instead of the number of performances.
Ms. Smith wants to performance group to show at least
$150,000 in operating profit. What level of revenues does the performance group
need to achieve to meet this goal?
Give a recommendation about changes Ms. Smith can make to
achieve the target profit. Support your idea with computations.
Memo (use Word)
Write a four or five paragraph memo to the owner of the
dance center to assist her in interpreting the financial analysis. Start with
an introduction and end with a recommendation. Each of the four or five paragraphs
should have a heading.
Short Essay (use Word)
Start with an introduction and end with a summary or
conclusion. Use headings.
What are some shortcomings of multi-product even analysis?
How does demand and resource constraints affect this type of
analysis.
Assignment Expectations
Each submission should include two files: (1) An Excel file;
and (2) A Word document. The Word document shows the memo first and short essay last. Assume
a knowledgeable business audience and
use required format and length. Individuals in business are busy and want
information presented in an organized and concise manner.
Module 2 – SLP
COSTVOLUMEPROFIT ANALYSIS
Second part of the presentation. See background information
for the module one SLP.
Required:
Include the following items in your presentation.
What about special pricing for some markets or customers?
Show effect on revenues and profitability based on stated
assumptions.
Potential advantages and disadvantages, both financial and
non-financial.
What are the relevant costs to consider?
SLP Assignment Expectations
Submit a Power Point presentation or a Word Document. A
Power Presentation should have no more than six slides and a Word document
cannot exceed two pages. Use words, tables, and graphs to make a succinct
presentation. Document all sources and provide links at the end. It is
acceptable to add another slide or page to list the sources.
Combine the submissions from prior module(s) into one file
before uploading to the dropbox.
Module 3 – Case
TRANSFER PRICING AND RESPONSIBILITY CENTERS
Case Assignment
Coffee Maker’s Incorporated (CMI)
Two divisions of a CMI are involved in a dispute. Division A
purchases Part 101 and Division B purchases Part 201 from a third division, C.
Both divisions need the parts for products that they assemble. The intercompany
transactions have remained constant for several years.
Recently, outside suppliers have lowered their prices, but
Division C is not lowering its prices. In addition, all division managers are
feeling the pressure to increase profit. Managers of divisions A and B would
like the flexibility to purchase the parts they need from external parties to
lower cost and increase profitability.
The current pattern is that Division A purchases 3,000 units
of product part 101 from Division C (the supplying division) and another 1,000
units from an external supplier. The market price for Part 101 is $900 per
unit. Division B purchases 1,000 units of Part 201 from Division C and another
500 units from an external supplier. Note that both divisions A and B purchase
the needed supplies from both the internal source and an external source at the
same time.
The managers for divisions A and B are preparing a new
proposal for consideration.
Division C will continue to produce Parts 101 and 201. All
of its production will be sold to Divisions A and B. No other customers are
likely to be found for these products in the short term, given that supply is
greater than demand in the market.
Division C will manufacture 2,000 units of Part 101 for the
Division A and 500 units of Part 201 for the Division B.
Division A will buy 2,000 units of Part 101 from Division C
and 2,000 units from an external supplier at $900 per unit.
Division B will buy 500 units of Part 201 from Division C
and 1,000 units from an external supplier at $1,900 per unit.
Division C Data 2014 Based on the Current Agreement
Part
101
201
Direct materials
$200
$300
Direct labor
$200
$300
Variable overhead
$300
$600
Transfer price
$1,000
$2,000
Annual volume
3,000 units
1,000 units
Required:
Computations (use Excel)
Set up a table similar the one below to compute the
difference between the current situation and the proposal for Divisions A and
B. Design a different table for Division C.
Division A
Current Situation
Proposal
No. of Units
Purchase Price
Total Purchases
No. of Units
Purchase Price
Total Purchases
Internal purchases
3,000
$
2,000
$
External purchases
1,000
2,000
Total cost for part 101
$
$
Savings to Div. A
$
Summarize the financial effects for the three divisions and
the company as a whole in another table.
Memo (use Word)
Write a 4- or 5-paragraph memo to the division manager
explaining the analysis performed. Start with an introduction and end with a
recommendation. Each of the four or five paragraphs should have a heading.
Short Essay (use Word) Start with an introduction and end
with a summary or conclusion. Use headings.
Evaluate and discuss the implications of the following
transfer pricing policies:
Transfer price = cost plus a mark-up for the selling division
Transfer price = fair market value
Transfer price = price negotiated by the managers
Why is transfer pricing such a significant issue both from a
financial and managerial perspective?
Assignment Expectations
Each submission
should include two files: (1) An Excel file; and (2) A Word document. The Word
document shows the memo first and short
essay last. Assume a knowledgeable
business audience and use required format and length. Individuals in business
are busy and want information presented in an organized and concise manner.
Module 3 – SLP
TRANSFER PRICING AND RESPONSIBILITY CENTERS
Third part of the presentation. See background information
for the module one SLP.
Required:
Include the following items in your presentation.
The organization is currently centralized, but is reviewing
options to put a decentralized structure in place.
You are asked to comment on responsibility centers and their
functions.
Cost centers can be a drain on an organization. Do you have
any thoughts about limiting the number of cost centers and control costs?
Present specific ideas.
SLP Assignment Expectations
Submit a Power Point presentation or a Word Document. A
Power Presentation should have no more than six slides and a Word document
cannot exceed two pages. Use words, tables, and graphs to make a succinct
presentation. Document all sources and provide links at the end. It is
acceptable to add another slide or page to list the sources.
Combine the submissions from prior module(s) into one file
before uploading to the dropbox.
Module 4 – Case
BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS
Case Assignment
T&P Fashion Shops
T&P Fashion Shops is a new chain that operates 10 stores
in major malls throughout the United States. Each store manager is responsible
for preparing a flexible budget for the store. T&P headquarters accumulates
and analyzes the information for each store and in the aggregate.
Below follows some cost estimates for the Houston store.
T&P Fashions
Flexible Budget Information
Expense
Fixed
Variable
Cost of sales
$210,000
40%
$740,000
Management
27,000
12%
186,000
Shop assistants
162,000
8%
268,000
Rent
13,200
5%
54,450
Utilities
34,800
34,800
$447,000
$1,283,250
Additional information
The sales forecast for the year is $1,400,000.
Variable expenses are based on revenues. Do note that
percentage clause for rent only kicks in above $500,000 in sales.
Other expenses are all specific to this store. Headquarters
pay for marketing and corporate overhead expenses.
T&P wants to see a flexible budget based on the sales
forecast, including estimates for sales being 10% below budget and 10% above
budget.
Actual results
T&P Fashions
Actual Results from Operations
Revenues
$1,325,000
Cost of sales
790,000
Management
208,000
Shop assistants
230,000
Rent
58,200
Utilities
31,000
Operating profit
$7,800
Required:
Computations (use Excel)
Prepare a flexible budget in good format.
Compute the flexible variances and indicate whether
favorable or unfavorable.
Headquarters are contemplating charging each store a 5%
marketing expense based on sales. How will that affect the operating profit of
the store and the money available for managerial bonuses based on actual
results for the past year? Summarize the information in the table.
Memo (use Word)
Write a 4- or 5-paragraph memo to the division manager
explaining the flexible budget variances; how to interpret the information; and
what action, if any to take. Comment on the 5% marketing proposal too. Start
with an introduction and end with a recommendation. Each of the four or five
paragraphs should have a heading.
Short Essay (use Word) Start with an introduction and end
with a summary or conclusion. Use headings.
Discuss how to interpret static and flexible budget
variances. How is the information useful in general?
What are the benefits of variance analysis? How can such
analysis be detrimental rather than beneficial to the organization?
Assignment Expectations
Each submission should include two files: (1) An Excel file;
and (2) A Word document. The Word document shows the memo first and short essay last. Assume
a knowledgeable business audience and
use required format and length. Individuals in business are busy and want
information presented in an organized and concise manner.
Module 4 – SLP
BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS
Fourth and final part of the presentation. See background
information for the module one SLP.
Required:
Include the following items in your presentation.
Performance measures. It is important to measure success of
the organization and its managers.
Suggest performance measures for
divisions, product lines, etc.
managers
Comment on the measures selected and explain how they foster
goal congruence for the organization and employees.
SLP Assignment Expectations
Submit a Power Point presentation or a Word Document. A Power
Presentation should have no more than six slides and a Word document cannot
exceed two pages. Use words, tables, and graphs to make a succinct
presentation. Document all sources and provide links at the end. It is
acceptable to add another slide or page to list the sources.
Combine the submissions from prior module(s) into one file
before uploading to the dropbox.
Rubric
At Trident University, your assignments will be evaluated
using grading rubrics. While every assignment is assessed using one of the
rubrics, grading rubrics may differ across assignments. Should you need help
locating the grading rubric for this SLP, be sure to watch the following video:
http://permalink.fliqz.com/aspx/permalink.aspx?at=b13c1b2c864344a68565357ea2f9f7ff&a=e635c1442edf4f4f9952a5d4ddef7bf0
