Question 1 

Corporate governance is a system of controls by which a company is directed and managed. It sets out the framework governing the ethical conduct and business practices of the company and its employees. Underlying its principles is the emphasis on business sustainability and responsibility towards the company's stakeholders. 

Select an organisation that you are currently working in or one that you are familiar with. 

Please limit your answers to a total of 1500 words. 

Discuss the following: 

(a) A brief description of the organisation - background, nature of business, the industry and the environment it is operating in, its products/services, etc. 

(b) From the agency perspective, discuss how corporate governance can be used to address problems arising from the separation of ownership and control in the chosen organisation. 

(c) Explain how incentives and compensation contracts can effectively align the interests of owners and managers in the chosen organisation. Discuss how accounting can play a role in these schemes. 
Question 2 

Melody Instruments Co. Ltd ('the Company') is a global supplier of guitars for large chains of music stores. 

A key customer has asked Bob, the Sales Manager, if the Company is able to supply a new guitar-like instrument, the ukulele. The initial order is expected to be 10,000 units. 

Bob is keen to clinch the new contract. He approaches you, the Financial Controller, to help him estimate the unit cost of producing the ukulele. He needs the information to finalise a sales proposal to the customer, including an appropriate pricing strategy that will increase the probability of securing the order. 

Wendy, the Production Manager, agrees with Bob that the new order presents an excellent opportunity for the Company to expand its product lines. With some additional resources and processes, a completed mass-produced guitar can be made into a ukulele. She provided you 
with the following information: 

Production Data for the six months ended 30 June 2013 



Units Work-in-progress ('WIP') as at 1 January Material Labour Overhead 
Units 600 
Percentage of completion 50 % 
During the first six months of 2013 
Units started production 3,000 $ 5,000 $ 11,600 $ 4,200 
Costs incurred 
WIP as at 30 June 
Units 500 $ 78,000 $ 15,000 
Percentage of completion 20%
Additional information: 


$ 30,200 

i. Estimated annual overhead and direct labour costs for 2013 are $150,000 and $200,000 respectively. 

ii. Estimated additional costs to be incurred to produce 10,000 units of ukulele 
Strings made from a special material $ 20,000 
Carpenters $ 3,000 
Tuning technicians $ 2,000 

iii. Similar to the guitar, direct materials and conversion costs are incurred evenly throughout the process. 
iv.
Required: 

(a) Using the weighted average method, prepare a Production Report for the six months ended 30 June 2013 for Melody Instruments Co, Ltd. 
(35 marks) 

(b) Using completed guitars as the base, apply a job-costing system to prepare a JobOrder Cost Report for the ukulele. Overheads are allocated using direct labour costs. 
(9 marks) 

(c) The net profit margin of the Company has been declining over the past three years. Wendy is under pressure to play her part in improving profitability by reducing the unit cost of each guitar. You recently discovered that she has been substituting some components of the guitar with cheaper but lower-grade materials since the beginning of 2013. You recalled your casual conversation with Bob two weeks ago on the increasing frequency of customer complaints on the quality of products over the last few months. Sales report shows that the sales volume has not been affected so far. As the Financial Controller, discuss what should you do?