Assignment

You should make use of the readings and materials from Modules 6-8 and other research as you feel necessary, to help answer this assignment.

QUESTION 1-

Reading: Garret, K 2015, Target Costing and Lifecycle Costing, ACCA Technical article, updated 2 March 2015, Association of Chartered Certified Accountants, viewed 25 April 2015, http://www.accaglobal.com/an/en/student/acca-qual-student-journey/qualresource/acca-qualification/f5/technical-articles/target-lifestyle.html

Required

Read the above article, and in conjunction with material from module 6 and your own research, answer the following questions. Any material used (apart from module 6 materials) should be fully referenced.

a) What two flaws in conventional costing are identified by Garret (2015) and how are these addressed by the use of target costing and life cycle costing? In your answer explain how target costing and lifecycle costing are implemented. What is the link between life cycle costing and target costing?

b) Compare the definition of life cycle costing per Garret (2015) with that provided by the text. Are there any differences?

c) Identify a real-life example of a business that has undertaken life cycle costing and briefly outline how this has changed a product or process.

QUESTION 2-

Reading: Sholihin, M, Pike, R, Mangena, M, Li, J 2011, ‘Goal-setting participation and goal commitment: Examining the mediating roles of procedural fairness and interpersonal trust in a UK financial services organisation', The British Accounting Review, vol. 43, issue 2, pp. 135-146 (Access via USQ library search for the journal).

Required

Read the above article, and in conjunction with material from modules 3 and 7 and your own research, answer the following questions. Any material used (apart from module 3 or 7 materials) should be fully referenced.

a) Explain the difference between imposed and participatory budgets. Why is a participatory budget considered to be more motivational and effective?

b) After examining prior literature on goal commitment in the budgeting process, expectation do Sholihin et al. (2011) have and what is their main hypothesis that they wish to test?

c) The study by Sholihin et al. (2011) finds ‘that goal-setting participation is associated with goal commitment' ( p. 136). What other variables does the study introduce to examine the relationship further?

d) Why do you think that participants were informed that there would be ‘data confidentiality' and that the questionnaire responses were sent directly to the researchers?

e) What else did the researchers do to confirm/supplement the results of the survey, according to the method section?

f) How did the researchers attempt to ensure the validity of the survey instrument?

g) What is a ‘Likert scale'? Why is one used?

h) Examine Table 1 p.141. Which of the variables had the greatest variety/spread of answers?

i) Examine Table 4 p. 143. The t-statistic results are given in brackets. What is a t-statistic and why do the researchers conclude that in the full model (Panel C - all variables included) hypothesis H5 ‘Trust is positively associated with goal commitment' is ‘not supported'?

j) In what ways do the researchers claim that this study contributes to the literature i.e. expands on or improves research that has already been done?

k) What limitations do the researchers believe that their study has?

QUESTION 3-

Rocklea Furniture (RF) makes two types of settees/sofas - the Queen and the Duchess. In 2014 the average monthly sales figures were:

Units Selling Price

Queen 100 $1,200

Duchess 200 $800

RF intends lowering the selling price per unit for the Queen beds due to increased competition to $1,000 per unit. It is hoped that this will increase sales in January by 20% compared to the December 2014 level and again by a further 20% from January to February 2015 and then remain at that level for the rest of the year. It is expected that sales of the Duchess will remain unchanged at 200 units @ $800 per month. 80% of sales are on credit, and the remainder cash. RF offer a 2% discount for credit customers who pay within the month and 10% of customers do so. Another 70% pay in the month following the sale and the remaining customers pay 2 months following the sale. RF do not have any problem with bad debts.

Each unit requires the following materials:

Queen Duchess Cost

Fabric 5 m2

4 m2

$10 per m2

Wood 10 m 8 m $2 per m

Filler 3 m2

2 m2 $3 per m2

Springs 600 500 $0.02 each

The materials used for each sofa are the same i.e. the same fabric, wood, filler and springs are used for each, but the Queen is slightly larger.
Materials are paid for in the month after purchase. The amount of accounts payable at 31 December 2014 was $18,266.

Direct Labour required (at $15 per hour)

Queen Duchess

Labour hours 2 1.8

Labour is paid for as incurred (in the month when the work is done).

Opening materials inventories:

Fabric 100 m2

Wood 10 m

Filler 20 m2

Springs 600

The desired materials ending inventory is 50% of that required for the next month's production.

Opening finished goods inventories:

Queen Duchess

Finished sofas 20 10

For 2015 the desired ending finished goods inventory is equal to the 50% of following month's sales in units. Variable manufacturing overheads are expected to be $22 per unit manufactured in a month for both Queen and Duchess sofas. These are paid for as incurred. Fixed manufacturing overheads are expected to be $13,000 per month (including $500 for depreciation). These are paid for as incurred.
Other expenses are estimated at $50,000 per month, also paid as incurred. A $200,000 loan will be repaid in February. A $6,000 tax expenses will be paid in March.

Interest received on an investment is due to be paid into the business bank account in January, totalling $300. The cash at bank balance at 31st December was a credit balance (overdraft) of $40,000.

Required:

a) Prepare a sales budget in units and dollars for the 3 months and the total quarter, for the Queen and the Duchess sofas. (4 marks)

b) Prepare a production budget in units and dollars for the 3 months and the total quarter, for the Queen and the Duchess sofas. (16 marks)

c) Prepare a materials usage budget in units for each of the four materials (separate budgets) and calculate the dollar purchases for each, showing the 3 months and the total quarter, for the Queen and the Duchess sofas. Note that as both products use the same materials, these materials budgets should be for the combined usage of Queen + Duchess sofas e.g. total fabric needed for both each month.

d) Calculate the total value of materials purchases each month.

e) Prepare a direct labour budget.

f) Prepare a schedule of collection of sales.

g) Prepare a cash budget showing each month and the quarter total.

h) Without regard to your calculations in a) to g) above, assume that the actual Wood used to produce 172 Queen sofas in January was 1892m2 and this cost $3, 594.80. Calculate the materials efficiency and price variances for the Queen sofas in January. Suggest a possible relationship between/explanation for these two variances.