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MAA262 Management Accounting

Task

Unit Learning Outcome (ULO)

ULO 3: Prepare and explain alternate product costing using job costing, variable and absorption costing, and activity-based costing systems.

ULO 6: Demonstrate a student-oriented approach to learning

Assessment Feedback:

Students who submit their work by the due date will receive their marks and feedback on CloudDeakin on 30/09/2019, 6:00 PM.

Instructions

Penalties for late submission: The following marking penalties will apply if you submit an assessment task after the due date without an approved extension: 5% will be deducted from available marks for each day up to five days, and work that is submitted more than five days after the due date will not be marked. ‘Day’ means working day for paper submissions and calendar day for electronic submissions. The Unit Chair may refuse to accept a late submission where it is unreasonable or impracticable to assess the task after the due date.

BBQ & Balloons

Four friends – John, Paul, Ringo, and George – have decided to put a stand outside a shopping centre entrance for selling barbecue and balloons to members of the public during a weekend. The enterprise was named BBQ & Balloons.

Please note the suggestions refer to exhibits from the textbook.

Question 1

Each barbecue is sold for $2.00 and each balloon is sold for $1.00. Throughout the two days, the four friends were able to sell 2,000 barbecues and 1,000 balloons. The four friends did not have to bother about the stock of sausage and bread or balloons. They made an arrangement with a supplier and had to pay only $0.25 per barbecue served (a slice of bread and a sausage) and $0.03 for each balloon.

For the sake of remuneration, the friends have agreed that each one would receive $400 for the two days of hard work. Besides the expense of labour and material, the four friends had other expenses for the two days. For the sake of simplicity, two expenses were related to the production process, which was leasing a BBQ ($200) and a balloon pump ($50). The other two expenses were related to sales and administrative tasks, which were leasing a gazebo ($50) and getting a permit for having the stand outside the shopping centre ($250).

Required

Based only on information provided in Question 1 of this assignment prepare an income statement for BBQ & Balloons (suggestion: use Exhibit 7-2 as a model). (8 marks)

Question 2

John and Paul spent most of their time preparing the barbecues or inflating balloons, whereas Ringo and George were busy with sales and administrative tasks. The table below has information regarding the four friends’ activities over the weekend

Table 1 – Activity

John spent most of this time during the two days operating the BBQ, Paul was mostly busy inflating balloons, Ringo was responsible for the cashier, and George has spent most of his time greeting and liaising customers who were passing by. For calculating an activity rate the friends have decided to use the following cost drivers; for operating the BBQ the number of barbecues sold, for inflating balloons the number of balloons sold, and for cashier and greeting customers the total 3,000 units of BBQ and balloons sold.

Required

a) Considering four cost pool activities (operating the BBQ, inflating balloons, cashier, and greeting customers) prepare a table with the labour cost per person and total labour costs (suggestion: use Exhibit 7-6 as a model). (8 marks)

b) Calculate the activity rate for each of the labour cost pool activities (suggestion: use Exhibit 7-7 as a model) and identify which of the four cost pool activities is most expensive and why? (8 marks)

c) Prepare an activity-based costing product margin for the sales of barbecues and balloons (suggestion: use Exhibit 7-11 as a model). For the sake of simplicity, consider the manufacturing overhead and sales and administrative tasks as untraceable expenses and do not include them. (8 marks)

Question 3

After reviewing the activity-based costing product margin the four friends have decided to allocate the manufacturing overhead and the sales and administrative expenses. For allocating the manufacturing overhead, the whole expense leasing the BBQ was allocated to the sales of barbecues whereas the whole expense with leasing the balloon pump was allocated to the sales of balloons. For the expenses for leasing the gazebo and getting the permit, the amount was split evenly between the two products.

Required

a) Prepare an activity-based costing product margin for the sales of barbecues (suggestion: use Exhibit 7-11 as a model) including the allocated manufacturing overhead and sales and administrative tasks. (8 marks)

b) Prepare an activity-based costing product margin for the sales of balloons (suggestion: use Exhibit 7- 11 as a model) including the allocated manufacturing overhead and sales and administrative tasks. (8 marks)

Question 4

After crunching all the numbers, the time has come to divide the enterprise’s income between the four friends based on their individual performance. Paul argued he and John should split between themselves the income because they did all the hard work while Ringo and George spent most of their time counting money or talking to people. Ringo replied by arguing that selling balloons was the worst idea ever. John says they should have decided the rules for assessing their individual performance before beginning the enterprise.

Required

a) Explain whether Paul is correct or not in his statement about his friends not contributing to the enterprise. Justify your answer. (8 marks)

b) Explain whether Ringo is correct or not in his statement about selling balloons being a bad idea. Justify your answer. (8 marks)

c) Even if the rules for assessing their individual performance are set before the enterprise begins, explain what is needed for avoiding a subjective performance evaluation.1 (6 marks)

Question 5

In order to assess the performance of their enterprise, the four friends decided to compare the actual results with their planning budget.

Table 2 – Actual Results

Required

a) Prepare the planning budget using an expected level of activity of selling 2,000 BBQ and 2,000 balloons. (8 marks)

b) Compare the planning budget with the actual results and identify the activity variances and the revenue and spending variances. (8 marks)

c) Explain who is to blame for the differences identified between the planning budget and the actual results. (6 marks)

Question 6

Paul is interested in understanding whether the difference between the flexible budget and the actual results in the direct material used (i.e., bread and sausage and balloon) is due to a price variance and/or a quantity variance. The standard prices and quantities are provided in Question 1.

The invoices indicate the enterprise bought $450 barbecue serves (bread and sausage) and $25 balloons. Notably, there was some wastage as the records also show the enterprise has used 2,075 barbecues serves (bread and sausage) and 1,050 balloons and there is no stock left.

Required

a) Calculate the material price variances, quantity variances, and total variance for the direct material regarding the BBQ sold. (4 marks)

b) Calculate the material price variances, quantity variances, and total variance for the direct material regarding the balloons sold. (4 marks)

MAA262 Management Accounting

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