ACCT20077 – ACCOUNTING FOR MANAGEMENT DECISION

Practice questions for Final Assessment

ACCT20077 – ACCOUNTING FOR MANAGEMENT DECISION MAKING

PART A – DISCUSSION QUESTION (25 MARKS)

You are the manager of a department in a large organization. Your company’s primary business is to manufacture school desks and chairs to primary and secondary schools. Recently, there are increasing concerns from various stakeholders about the sustainability of your business, including the sustainability of the raw materials, production process and final product. In addition, there is a demand that the organization needs to demonstrate their commitment to solve the environmental and climate change related issues. Assuming you are the manager of the department of sales and marketing, please consider how you incorporate the sustainability concerns in the department’s operations and how accounting information can support you to manage the operations and report the related information to stakeholders to demonstrate the organizational accountability. In your essay, please discuss how management accounting and financial accounting information can provide information for sustainability accounting. Using examples to illustrate your arguments. In particular, let outline:

1. How can your department be part of the problem? What aspects of your department’s operations contribute to the problem? What accounting information will you need to identify and confirm the problem?

2. What kind of information you will need to collect to support your analysis and decision- making process. Please clearly explain how the information will be collected (from within your department or by collaborating with Accounting and Finance departments), how the information is used in measuring the sustainability.

3. Comment on the significance of financial and non-financial information in the decision-making process from the management perspective.

In your essay, you must use journal articles, news, and discussion opinions from different sources of information to support your idea (at least 3-4 references). Write an essay of no more than 750 words to discuss this topic.

Formatting requirements:

· Times New Roman, font 12

· Double line spacing, justify text

· APA referencing styles

PART B – PRACTICAL QUESTIONS (35 QUESTIONS)

2.   Pluto Pizza delivers pizzas and spaghetti to the dormitories and apartments near a major state university. The company’s annual fixed expenses are $40,000 and this expense is shared between the pizzas and spaghetti for costing purposes. The sales price of a pizzas and spaghetti is $20 and $18 respectively, and the pizzas costs the company $8 to make and deliver each pizza while spaghetti costs the company $5 to make and $1.5 to deliver. The fixed expenses will be allocated base on the labour costs where it takes 125 labour hours in pizzas and 75 labour hours in spaghetti monthly. It is expected that every month, Pluto can produce 400 pizzas and 500 serves of spaghetti.

a. Calculate the full product cost of pizza and spaghetti

b. Determine the number of pizzas the company must sell, and the total revenue the company must achieve in order to break-even.

c. If Plato targets before-taxed profit of $45,000, how many pizzas it must sell in a year to achieve its targeted profit?

3.  Disk City Pty Ltd is a retailer for digital video disks. The projected net income for the current year is $120,000 based on a sales volume of 120,000 video disks. Disk City has been selling the disks for $16 each. The variable costs consist of the $8 unit purchase price of the disks and a handling cost of $2 per disk. Disk City’s annual fixed costs are $600,000. Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 20%, and thus plan to increase the selling price of the disk by 15%. However, it is estimated that when the video disk price increases by 15%, the number of disks sold will be adversely affected. As such, Disk City is considering several options to maintain the same level of targeted profit for the coming year:

Option 1: To increase the selling price by 10% only and predict the sale volume at 115,000 disks in the year. The variable costs and fixed costs stay as expected.

Option 2: To lower the purchase price by increasing the quantity of disks per order to receive more discounts from the suppliers. It is estimated that Disk City can receive an offer of 5% discount for a larger quantity per order. However, as the selling price increases by 15%, the sale volume is expected to decrease to 100,000 disks per year. Other variable costs and fixed costs stay as expected.

Option 3: To reduce the fixed costs by tightening the operational cost. It is expected that Disk City can save up to 50,000 of fixed cost per year by a tight budget. The variable costs and selling prices are at expected level, thus the sale volume is 100,000 disks per year.

a. Calculate the sale volume to break-even in the coming year.

b. Determine which one of the alternatives might yield the highest net profit to City Disk for the whole year?

c. Using the information from Option 1, prepare the structured income statement to illustrate the performance of Disk City in the coming fiscal year (ignore income taxes). Assume that fixed costs consist of the following expenses: