29 Dec The IRR function will

ACCT505 – Managerial Accounting

Case Study 1

Chapter 3 – Job Order Costing

Team Assignment (2-3 Team members recommended)

CASE 3–18 Ethics and the Manager [Course Objective B] Terri Ronsin had recently been transferred to the Home Security Systems Division of National Home Products. Shortly after taking over her new position as divisional controller, she was asked to develop the division’s predetermined overhead rate for the upcoming year. The accuracy of the rate is important because it is used throughout the year and any overapplied or underapplied over- head is closed out to Cost of Goods Sold at the end of the year. National Home Products uses direct labor-hours in all of its divisions as the allocation base for manufacturing overhead.

To compute the predetermined overhead rate, Terri divided her estimate of the total manufacturing overhead for the coming year by the production manager’s estimate of the total direct labor-hours for the coming year. She took her computations to the division’s general manager for approval but was quite surprised when he suggested a modification in the base. Her conversation with the general manager of the Home Security Systems Division, Harry Irving, went like this:

Ronsin: Here are my calculations for next year’s predetermined overhead rate. If you approve, we can enter the rate into the computer on January 1 and be up and running in the job-order costing system right away this year.

Irving: Thanks for coming up with the calculations so quickly, and they look just fine. There is, how- ever, one slight modification I would like to see. Your estimate of the total direct labor-hours for the year is 440,000 hours. How about cutting that to about 420,000 hours?

Ronsin: I don’t know if I can do that. The production manager says she will need about 440,000 direct labor-hours to meet the sales projections for the year. Besides, there are going to be over 430,000 direct labor-hours during the current year and sales are projected to be higher next year.

Irving: Teri, I know all of that. I would still like to reduce the direct labor-hours in the base to some- thing like 420,000 hours. You probably don’t know that I had an agreement with your predecessor as divisional controller to shave 5% or so off the estimated direct labor-hours every year. That way, we kept a reserve that usually resulted in a big boost to net operating income at the end of the fiscal year in December. We called it our Christmas bonus. Corporate headquarters always seemed as pleased as punch that we could pull off such a miracle at the end of the year. This system has worked well for many years, and I don’t want to change it now.

Required:

Assume the following information:

Direct Materials

$40

per unit

Direct Labor

$20

per unit

Total Estimated Manufacturing Overhead

$8,400,000

Manufacturing overhead is allocated based on estimated direct-labor hours.

Each unit of product requires 1 direct labor hour.

1. Calculate the cost of one unit of product, assuming that the overhead per unit is based on Terri Ronson’s estimate of 440,000 hours. (Round all dollar figures to two decimal places.)

a. If 442,000 units were produced, how much overhead was applied to work in process.

2. Calculate the cost of one unit of product, assuming that the overhead per unit is based on her supervisors preferred estimate of 420,000 hours. (Round all dollar figures to two decimal places.)

a. If 442,000 units were produced, how much overhead was applied to work in process.

3. During the year, the company produced and sold 442,000 units, and incurred actual overhead of $8,450,000, what is the under/overapplied overhead if:

a. The estimated Direct Labor Hours is 440,000.

b. The estimated Direct Labor Hours is 420,000.

c. All over-applied and under-applied overhead applied directly to cost of goods sold. Assume that the company had $900,000 in net operating income before the over/under applied overhead adjustment is made. What is the revised net income after the over/underapplied overhead adjustment?

4. Should Terri Ronson go along with the general manager’s request to reduce the direct labor hours in the predetermined overhead rate computation to 420,000 hours? Be sure to discuss the operational and ethical issues related to this decision.

Deliverables:

1. Submit an Excel spreadsheet that documents the calculations made for steps 1-3 above. All items should be clearly labeled, and appropriate formulas should be used to perform your calculations.

2. For step 4, submit a 4-6 minute narrated PowerPoint (preferably using VoiceThread) that highlights your discussion of the operational and ethical issues that Teri is facing as a result of the request to reduce the direct labor hours. Be sure to make a recommendation in regard to making this decision. The presentation should be 3-4 slides.

3. Post your PowerPoint and workbook on behalf of your team to the Week 2 Assignments Page for the case study.

4. NOTE: as a team project, a team collaboration tool (such as Big Blue Button) should be used for the students to collaborate on the project!

ACCT505 Week 3 Team Case Study 2 Latest 2018 May

ACCT505 – Managerial Accounting

Case Study 2

Chapter 4 – Process Costing

Team Assignment (2-3 Team members recommended)

CASE 4–20 Ethics and the Manager, Understanding the Impact of Percentage Completion on Profit—Weighted-Average Method [Course Objective B] Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 5% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders.

Shortly after the beginning of the New Year, Mary received a phone call from Gary that went like this:

Gary: How’s it going, Mary?

Mary: Fine, Gary. How’s it going with you?

Gary: Great! I just got the preliminary profit figures for the division for last year and we are within $200,000 of making the year’s target profits. All we have to do is pull a few strings, and we’ll be over the top!

Mary: What do you mean? Gary: Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories. Mary: I don’t know if I can do that, Gary. Those percentage completion figures are supplied by TomWinthrop, my lead supervisor, who I have always trusted to provide us with good estimates.

Besides, I have already sent the percentage completion figures to corporate headquarters. Gary: You can always tell them there was a mistake. Think about it, Mary. All of us managers are doing as much as we can to pull this bonus out of the hat. You may not want the bonus check, but the rest of us sure could use it.

The final processing department in Mary’s production facility began the year with no work in process inventories. During the year, 210,000 units were transferred in from the prior processing department and 200,000 units were completed and sold. Costs transferred in from the prior department totaled $39,375,000. No materials are added in the final processing department. A total of $20,807,500 of conversion cost was incurred in the final processing department during the year.

Required:

1. Tom Winthrop estimated that the units in ending inventory in the final processing department were 30% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the Cost of Goods Sold for the year? (Note: Since all units completed were sold, the cost of goods transferred out = Cost of Goods Sold.)

2. Gary is recommending that the completion percentage by adjusted by 10 percentage points in order to assist the team in making their bonus.

a. Calculate the cost of goods sold if the ending inventory is 20% complete in regard to conversion costs. Would net income increase or decrease if this option was chosen over the 30% completion percentage? How much is the increase?

b. Calculate the cost of goods sold if the ending inventory is 40% complete in regard to conversion costs. Would net income increase or decrease if this option was chosen over the 30% completion percentage? How much is the increase?

c. Based on your calculations, which percentage is Gary suggesting that Mary use for her ending inventory calculations. Recall that Gary wants to see a higher net income figure.

3. Do you think Mary James should go along with the request to alter estimates of the percentage completion? Why or why not? Support your response by consulting the IMA Standards of Ethical Practice.

Deliverables:

1. Submit an Excel spreadsheet that documents the calculations made for steps 1 and 2 above. All items should be clearly labeled, and appropriate formulas should be used to perform your calculations.

2. For step 3, submit a narrated PowerPoint (orVoiceThread)that highlights your discussion of the operational and ethical issues that Mary is facing as a result of the request to change the percent complete on ending inventory. Be sure to make a recommendation in regard to making this decision. A suggested length guideline is two slides per group member.

3. Only one group member needs toupload the PowerPoint and Excel filefor the case study on behalf of the group to the Week 3 assignment link in your course shell. If there were issues with non-participating group member, all group members should submit a peer evaluation directly to the instructor via e-mail.

4. NOTE: as a team project, a team collaboration tool (such as Cisco Spark) should be used for the students to collaborate on the project!

ACCT505 Week 5 Individual Course Project Latest 2018 May

COURSE PROJECT 1 INSTRUCTIONS

You have just been contracted as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash.

Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price – $10per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow:

January (actual)

20,000

February (actual)

26,000

March (actual)

40,000

April (budget)

65,000

May (budget)

100,000

June (budget)

50,000

July (budget)

30,000

August (budget)

28,000

September (budget)

25,000

The concentration of sales before and during May is due to Mother’s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $4 for each earring. One-half of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit with no discounts. The company has found, however, that only 20% of a month’s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Variable expenses:

Sales commissions 4% of sales

Fixed expenses:

Advertising $200,000

Rent $18,000

Salaries $106,000

Utilities $ 7,000

Insurance $3,000

Depreciation $14,000

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.

Other relevant data is given below:

Cash balance as of March 31st $74,000

Inventory balance as of March 31st $112,000

Merchandise purchases for March $200,000

The company maintains a minimum cash balance of at least $50,000 at the end of each month. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow the exact amount needed at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accrued interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash.

Required:

Prepare a cash budget for the three-month period ending June 30. Include the following detailed budgets:

1.

a. A sales budget, by month and in total.

b. A schedule of expected cash collections from sales, by month and in total.

c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.

PROJECT 1 – Excel Template

Student Name:

SALES BUDGET:

April

May

June

Quarter

Budgeted unit sales

Selling price per unit

Total sales

SCHEDULE OF EXPECTED CASH COLLECTIONS:

April

May

June

Quarter

February Sales

March Sales

April Sales

May Sales

June Sales

Total cash collections

MERCHANDISE PURCHASES BUDGET:

April

May

June

Quarter

Budgeted unit sales

Add desired ending inventory

Total needs

Less beginning inventory

Required purchases

Cost of purchases @ $4 per unit

BUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES:

April

May

June

Quarter

March Purchases

April Purchases

May Purchases

June Purchases

Total cash payments

EARRINGS UNLIMITED

CASH BUDGET

FOR THE 3 MONTHS ENDING JUNE 30

April

May

June

Quarter

Cash balance

Add collections from customers

Total cash available

Less disbursements

Merchandise purchases

Advertising

Rent

Salaries

Commissions

Utilities

Equipment purchases

Dividends paid

Total disbursements

Excess (deficiency) of receipts

over disbursements

Financing:

Borrowings

Repayments

Interest

Total financing

Cash balance, ending

ACCT505 Week 6 Signature Assignment Team Case Study 3 Latest 2018 May

ACCT505 – Managerial Accounting Team Case Study 3 – Week 6 Balanced Scorecard Case–Team Case(2-3 team members) (Course Objective G)

Many companies are using the Balanced Scorecard System to assist in their performance management. According to Garrison, Noreen, and Brewer, your textbook authors, a balanced scorecard “consists of integrated set of performance measures that are derived from and support a company’s strategy” (p. 519). In a Balanced Scorecard System the company’s strategy is translated into a system of performance measures that are used to monitor the company’s performance in meeting its strategic objectives.

As part of a two or three member team, your task is to identify and discuss the key performance measures of a balanced scorecard. Then, find two or three companies (one company per group member) that are currently using a Balanced Scorecard Systemby doing an internet andlibrary database search. Internet searches as well searches of financial databases, such as Yahoo Finance, should help you in your efforts. Then discuss in as much detail as possible the specifics of the balanced scorecard that is being used by these companies.

Deliverables

Your team should prepare a 6-9 slide PowerPoint presentation, explaining the specifics of the balanced scorecard system of the two or three companies (one company per group member) you selected in your research. This presentation should include your analysis of the advantages and disadvantages of each company’s Balanced Scorecard System.Be sure toclearly document the performance measures being used by each of the three companies.

Your PowerPoint presentation should be narrated using VoiceThread or similar technology. All team members must participate in the narration of the PowerPoint presentation. Please introduce yourself prior to speaking.

APA standards are required to be followed for this presentation.

ACCT505 Week 7 INDIVIDUAL COURSE PROJECT Latest 2018 May

Capital Budgeting Decision

Here is Project 2:

HamptonCompany is a producer of house paints. The company’s production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost $1,000,000, with a disposal value of $200,000, and would be able to produce 27,500,000 cans over the life of the machinery. The production department estimates that approximately 5,500,000 cans would be needed for each of the next 5 years.

The company would hire six new employees to produce the paint cans. These six individuals would be full-time employees working 2,000 hours per year and earning $15.00 per hour. They would also receive the same benefits as other production employees, 15% of wages in addition to $2,000 of health benefits.

It is estimated that the raw materials will cost 30¢ per can and that other variable costs would be 10¢ per can. Because there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted.

It is expected that cans would cost 50¢ each if purchased from the current supplier. The company’s minimum rate of return (hurdle rate) has been determined to be 11% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for thecompany’s products as well as number of units sold will not be affected by this decision. The unit-of-production depreciation method would be used if the new equipment is purchased.

Required:

1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase.

Annual cash flows over the expected life of the equipment
Payback period
Simple rate of return
Net present value
Internal rate of return
The check figure for the total annual after-tax cash flows is $271,150.

2. Would you recommend the acceptance of this proposal? Why or why not? Prepare a short, double-spaced paper in MS Wordelaborating on and supporting your answer.

ACCT505

Project 2

Template For ACTUALWeek Seven Capital Budgeting Problem

This file can be used as the template for the actual project.

Hampton Company

Data:

Cost of new equipment

$10,00,000

Expected life of equipment in years

5

Disposal value in 5 years

$2,00,000

Life production—number of cans

2,75,00,000

Annual production or purchase needs

55,00,000

Number of workers needed

6

Annual hours to be worked per employee

2,000

Earnings per hour for employees

$15

Annual health benefits per employee

$2,000

Other annual benefits per employee—% of wages

15%

Cost of raw materials per can

$0.30

Other variable production costs per can

$0.10

Costs to purchase cans—per can

$0.50

Required rate of return

11%

Tax rate

35%

Make

Purchase

Cost to Produce

Annual cost of direct material:

Need of 5.5 million cans per year

Annual cost of direct labor for new employees:

Wages

Health benefits

Other benefits

Total wages and benefits

Other variable production costs

Total annual production costs

Annual cost to purchase cans

Part 1 Cash Flows Over the Life of the Project

Before Tax

Tax

After Tax

Item

Amount

Effect

Amount

Annual cash savings

Tax savings due to depreciation

Total after-tax annual cash flow

Part 2 Payback Period

years

Part 3 Simple Rate of Return

Accounting income as result of decreased costs

Annual cash savings

Less depreciation

Before tax income

Tax at 35% rate

After tax income

After tax income / Investment Cost

Part 4 Net Present Value

Before Tax

After Tax

11% PV

Present

Item

Year

Amount

Tax %

Amount

Factor

Value

Cost of machine

Annual cash savings

Tax savings due to depreciation

Disposal value

Net Present Value

Part 5 Internal Rate of Return

Excel function method to calculate IRR

This function requires that you have only one cash flow per period (Period 0 through Period 5, for our example).

This means that no annuity figures can be used. The chart for our example can be revised as follows.

After Tax

Item

Year

Amount

Cost of machine and training

0

Year 1 inflow

1

Year 2 inflow

2

Year 3 inflow

3

Year 4 inflow

4

Year 5 inflow

5

The IRR function will require the range of cash flows, beginning with the initial cash outflow for the investment

and progressing through each year of the project. You also have to include an initial guess for the

possible IRR. The formula is: =IRR(values,guess)

IRR Function

IRR(f84..f89,.30