ASSIGNMENT BMAC5203

MAY SEMESTER 2012 BMAC5203 ACCOUNTING FOR DECISION MAKING ASSIGNMENT (60%)

OBJECTIVE: To assess students ability to ethically use accounting information for costing, reporting, decision making, planning and control. INSTRUCTIONS: The assignment consists of four unrelated tasks. The details of the tasks are explained below:

TASK 1: MANAGERIAL PLANNING AND DECISIONS

Alarm Manufacturers Bhd produces three models of home alarm systems: HA15, HA27 and HA33, all of which use the same basic component. The basic components are produced in Department A. For Model HA15, the basic components are finished in department C. For models HA27 and HA33, the basic components undergo further modification in department B before being assembled in department C. Since the modification of HA27 and HA33 require similar machine and labour skills, the available capacity of department B can be used for either product.

Cost per unit of the basic component: Cost Direct material costs Direct labour costs Fixed support cost (allocated based on direct labour hours) Total cost per unit Current production volume RM 7.60 20.00 30.00 57.60 6,000

ASSIGNMENT BMAC5203

Product cost per unit: Item Selling price per unit Basic component costs Direct material costs Direct labour costs Fixed support (allocated based on direct labour hours) Total cost per unit Modification hours (department B) Finishing hour (department C) Current production volume HA15 RM 150.00 57.60 0 18.00 18.00 93.60 0 0.60 3,000 HA27 RM 240.00 57.60 12.00 40.00 40.00 149.60 1.0 hour 0.60 1,800 HA33 RM 320.00 57.60 9.00 62.00 62.00 190.60 1.50 hour 0.60 1,200

Required: a) A foreign distributor has asked Alarm to bid on a special order of 1,000 units of the basic component. There would be a special shipping charge of RM6,400. The Alarm manufacturing plant has excess capacity to manufacture more than 1,500 basic components and this order would not affect sales of the other products. Determine the minimum price that Alarm Bhd could offer. [5 marks] b) Determine the contribution margin per unit for each of the three products. [6 marks] c) Suppose there is excess demand for all three products and the plant is currently operating at capacity. The only change that can be made is shifting workers between department B and department C. personnel in those two departments are able to work in either area with no loss in efficiency. Determine the optimal monthly production mix of the three products. Check whether your answer changes if the price of model HA27 is RM280. [8 marks] d) Why should decision makers focus only on relevant costs for decision making? [6 marks] [TOTAL: 25 MARKS]

ASSIGNMENT BMAC5203

TASK 2: DIVISIONAL PERFORMANCE AND ETHICS

Some people and organizations believe that the discussion of controllable and uncontrollable events is distracting in the sense that it encourages finger pointing and excessive preoccupation with assigning blame. These observers argue that it is more important to find solutions than to identify responsibility for unacceptable or acceptable events. Required:

a) Discuss your views on this argument. [8 marks] b) Think of an example of an organization where it is important that the various functional areas be closely coordinated to promote the organisations overall success. Show how performance measures that focus solely on the performance of an individual unit could create problems in this organization. [10 marks]

c) You are employed as a senior manager in a large manufacturing organization. Your company is planning to replace its old management accounting system with a new integrated performance management system. During the data collection for the transition, you looked at one of the managers reported time allotments. You know that the data supplied by the manager is completely false. You confront the manager and she states that she is worried that if she reports how she actually spends her time and resources, management may notice her inefficiencies. She implores you not to tell anyone. Required: What should you do? Discuss ethics from a broader perspective and then relate your action. [7 marks] [TOTAL: 25 MARKS] (Marks would be allocated on clarity of argument and justification. Professional marks would be allocated for format and structure of presentation). 3

ASSIGNMENT BMAC5203

TASK 3: BEHAVIOURAL ISSUES IN BUDGETING

Felix Bhd manufactures and sells electrical components to electronic stores. The controller is preparing her annual budget and has asked the sales group to prepare sales estimates. All members of the sales force have been asked to estimate sales in their territory for each of the organisations 10 major products.

The marketing group is paid a salary and commission based on sales in excess of some target level. You have discovered that the sales manager uses the sales estimates to develop the target levels at which commission begin. Specifically, the sales manager takes the sales estimate, adds 10%, and the result becomes the sales hurdle level. If sales are less than hurdle level, no commissions are paid. If sales are above the hurdle level, commissions are paid at varying rates.

You are required to write a report to the board of directors that considers the following issues:

a) What is the motivation of the sales force if they know the relationship between estimate and the target level of sales?

b) What is the likely consequence of basing the organisations budgets on these estimates?

c) If you were the controller in this situation and were responsible for both the reward system and budgeting system, what would you do? [TOTAL: 30 MARKS]

(Marks would be allocated on clarity of argument and justification. Professional marks would be allocated for format and structure of presentation).

ASSIGNMENT BMAC5203

TASK 4: MONITORING AND REPORTING PERFORMANCE

Organisations in the public and non-profit sector, such as government agencies and charitable social service entities, have financial systems that budget expenses and monitor and control actual spending.

Identify why these organisations should consider developing a balanced scorecard of measurements to monitor and report on their performance. Using a government agency or nonprofit agency of your choice discuss what should be the various perspectives in such a balanced scorecard measurements. [TOTAL: 20 MARKS] (Marks would be allocated on clarity of argument and justification. Professional marks would be allocated for format and structure of presentation).

Assignment Format: a. Use double space and 12-point of Times New Roman font. b. Provide references. References should use the American Psychological Association (APA) format c. References should be latest (year 2005 and onwards) Notes: Assignments should be submitted according to the fixed date. Plagiarism is not acceptable. If you are not sure what is meant by plagiarism, refer to the various websites which discuss this matter, e.g. owl.english.purdue.edu/handouts.