Managerial Accounting – case analysis

Case Analysis

 

  1. Issue Identification (5%): Identification of the problem/issue that must be resolved or decision that must be made. Phrase the problem/cause in the most succinct way possible. Think about:
    1. Differentiating the immediate from the basic problem
    2. The implications of the problem(s)
    3. Identifying the root cause of the problem(s)
    4. Determining the decision facing the key person(s)?
  2. Identification of Key Success Factors (10%): Identify the company-specific factors in point form that are absolutely critical to the success of the organization. These are the factors that, if ignored, will mean the project will probably fail. Include the following considerations:
    1. What factors must be managed successfully for the company to prosper?
    2. Key success factors should reflect the top priorities of the organization in this particular case (eg., quality, productivity, low cost leader, etc.)
    3. These factors are part of the criteria against which you will evaluate solutions (along with basic criteria such as profit)
  3. Identification of Alternatives (5%): Identify alternative solutions. Only deal with feasible alternatives. In the next three sections, analyse all alternatives against criteria set out in key success factors and basic requirements (eg., profitability).
  4. Quantitative Analysis (40%): Push numbers in an analysis that is relevant to the issue at hand. Differentiate between what is relevant and what is irrelevant.
  5. Qualitative Analysis (30%): Be sure to analyze qualitative issues – they need discussion in most cases. In particular, analyze alternatives in light of key success factors – will this alternative solve the problem and fit with our key success factors.
  6. Recommendation on Course of Action (5%):  State your recommendation. State briefly the justification for your recommended course of action. Make sure your recommendation flows out of your quantitative and qualitative analyses. Tie your recommendation back to the key success factors. The solution and implementation shout fit with problems and criteria identified above.
  7. Circumvention of Potential Problems (5%): If there could be problems with your recommendations, state them. As well, suggest ways to overcome these problems – a contingency plan to address potential difficulties.

There is no set length to the report, but clear, succinct and concise language and organization will be considered favourably in the grade.

Students will submit the final report as a word document through the submission link below.

The Case

You are a Senior Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. It is your final week on the job and a Manager asks you for some help prior to your departure. Eager to leaving a lasting impression, you start reading the background information provided by the Manager.

Lesley Donovan is the controller for the East division of Explorer Ltd. Jason Conner, head of plant engineering, has just left Donovan’s office after presenting three alternatives for submission in the capital expenditure budget for the fiscal year 2014. The budget is due to the CEO in two days and therefore Donovan realizes that time is of the essence.

Conner has outlined the following alternatives to replace an outdated milling machine:

  1. build a general purpose milling machine;
  2. buy a special purpose numerically controlled milling machine; or
  3. buy a general purpose milling machine.

Explorer Ltd. is a well-established company. The company was set up about 30 years ago by two brothers Dan and Kevin Thompson, in Huntsville, Ontario, to produce accessories for the automobile industry. The Central division continues to serve the auto industry, and is the largest division in the company with sales of $35 million annually. Dan’s son is now head of this division. Kevin is still active in the company and is the Chief Executive Officer (CEO). His office is located in Toronto.

The parts division supplies seals to the mining and petrochemical industry from a plant in Toronto. This division is only ten years old and until 2010 was highly profitable. As a result of the downturn in the sector of the economy, sales in 2012 were only $12 million.

The East division, located in Scarborough, is the engineering division. Full time employees tend to work approximately 2,000 hours in the division. Regular product lines include industrial fans, industrial cooling units, and refrigeration units for industrial users. The division is highly capital-intensive and sales tend to be directly related to general economic conditions.

Each division runs independently and performance is based upon budgeted return on investment. Bonuses are paid if the budget target is achieved. Annually, each division prepares a detailed budget submission to Kevin, outlining expected profit performance and capital expenditure requests. The milling machine proposal is part of the capital expenditure request.

The 2013 pro forma income statement for East division is set out below:

Sales

$22,364,000

Cost of Goods Sold

$14,760,240

Gross Profit

$7,603,760

Selling and General Administrative Costs

$3,578,760

Allocated Costs (based on sales)

$1,677,300

Income Before Income Taxes

$2,347,700

Return on Sales – 10.5%

Return on Investment – 8.5%

Investment (Historical Cost)

$27,626,118

 

Jason Connor has pointed out to Donovan that the existing machine is not only outdated but maintenance costs are becoming prohibitive. Jason also noted that maintenance costs of new general purpose machines are only $26,000 while special purpose machines can save an additional $14,000 in maintenance. Also there would be a significant savings in insurance as the price for a general purpose machine would drop to $3,000 while a special purpose machine would be 67% higher than the general purpose machine. The machine has no market or salvage value and he is sure that its book value is now zero. The trouble is that he doesn’t know which proposal is best for the company. In addition to the cost and revenue date provided, Connor provided comments on each alternative below:

  1. Build a general purpose machine:
    • This machine can be built by East division. The division is below capacity at present as a major contract has just been completed. The division could thus produce the machine without affecting revenue-producing activity, but it will take six months to complete. The machine is expected to last five years and have no salvage value because removal costs will probably equal selling price.
    • Connor believes that the division has the technical expertise to undertake the work. In 2012, the division produced a specialized drilling machine that has proven very successful. Connor pointed out that David Williams, chief engineer, loves the design challenge of new machines. Donovan sat down with Connor and produced the following cost estimates:
    Material and parts $55,000
    Direct labour (DL$) $90,000
    Variable overhead (50% of DL$) $45,000
    Fixed overhead (25% of DL$) $22,500
    TOTAL $212,500
    • Donovan argues that this job should also bear a proportion of administrative costs; she suggests $12,000.
  2. Buy a special purpose machine:The advantage of this special purpose machine is that only one operator is required and output per hour could increase by 25%. In addition, maintenance costs are significantly reduced because microchip circuitry is employed.

    Connor points out that this machine is state-of-the-art and would probably mean that new work could be taken on. A numerically controlled machine required extensive training of operators. In total, 26 weeks are spent in the supplier’s factory located in Florida. While the training is going on, the supplier provides an operator to work the machine without charge. Expected costs of this training period including hotel, per diem, and travel will cost $3,000 per week, excluding the operator’s labour which is set at $15 per hour.

    The machine costs $625,000, and the supplier guarantees the salvage value of $25,000 at the end of five years. It is available immediately. It is estimated the machine can generate sales of $243,750 annually at full capacity and require $19,500 in direct materials cost. While the direct material costs are equivalent, the level of sales for the general purpose machine are $48,000 lower than the special purpose machine.

  3. Buy a general purpose machine:The purchase price of this machine is $295,000 and cost levels associated with the machine are expected to be the same as the general purpose machine built by the company because the technology is similar. The salvage value of the machine net of removal costs, is estimated to be $5,000 in five years.  It can be delivered immediately.

General comments

The required rate of return for this investment class has been set at 8% by Kevin Thompson.

Required

Prepare the budget submission to Kevin.

Evaluation

The following rubric indicates those areas you should be focusing on in preparing your assignment, and how the instructor will weigh these components relative to one another.

Activity/Competencies Demonstrated

% of Total

Grade

Identification and Analysis of Issues (90%)

a. Issue identification

/5

b. Identification of Key Success Factors

/10

c. Identification of Alternatives

/5

d. Quantitative Analysis

/40

e. Qualitative Analysis

/30

Recommendation (10%)

a. Recommendation on course of action

/5

b. Circumvention of Potential Problems

/5

Total

/100

Financial Accounting

Purpose of Assignment 

The purpose of this assignment is to help you become familiar with the parts of the multiple‐step income statement.

Assignment Steps 

Resources: Financial Accounting: Tools for Business Decision Making 

Scenario: An inexperienced accountant prepared this condensed income statement for Simon Company, a retail firm that has been in business for a number of years.

SIMON COMPANY

Income Statement

For the Year Ended December 31, 2017

Revenues  
Net sales $850,000
Other revenues 22,000
  872,000
Cost of goods sold 555,000
Gross profit 317,000
Operating expenses  
Selling expenses 109,000
Administrative expenses 103,000
  212,000
Net earnings $105,000

As an experienced, knowledgeable accountant, you review the statement and determine the following facts:

  1. Net sales consist of: sales $911,000, less freight-out on merchandise sold $33,000, and sales returns and allowances $28,000.
  2. Other revenues consist of sales discounts $18,000 and rent revenue $4,000.
  3. Selling expenses consist of salespersons’ salaries $80,000, depreciation on equipment $10,000, advertising $13,000, and sales commissions $6,000.  The commissions represent commissions paid. At December 21, $3,000 of commissions have been earned by salespersons but have not been paid.  All compensation should be recorded as Salaries and Wages Expense.
  4. Administrative expenses consist of office salaries $47,000, dividends $18,000, utilities $12,000, interest expense $2,000, and rent expense $24,000, which includes prepayments totaling $6,000 for the first quarter of 2018.

Prepare a detailed multi-step income statement with a brief explanation of 700 words. Assume a 25% tax rate. 

Show your work on the Excel® spreadsheet and submit with your explanation.

ACC 100 Week 8 Assignment

Careers in Accounting

Due Week 8 and worth 160 points

Accounting is the study of how businesses track their income and assets over time. Accountants engage in a wide variety of activities in addition to preparing financial statements and recording business transactions. These activities include computing costs and efficiency gains from new technologies, participating in strategies for mergers and acquisitions, quality management, developing and using information systems to track financial performance, tax strategy, and health care benefits management.

Use the Internet or the Strayer Online database to research career options within the accounting field and accounting job postings in your local area to respond to the questions in the assignment.

Write a one to two (1-2) page paper in which you:

  1. Describe at least two (2) career options someone with an accounting education can pursue. Be sure to reference sources such as the Bureau of Labor Statistics and the American Institute of Certified Public Accountants.
  2. Describe one (1) researched accounting position, and explain the essential skills that would make a candidate successful in the position. Articulate the primary manner in which the researched accounting positions could add value to the company seeking candidates.
  3. Use at least two (2) quality academic resources in this assignment. Note:Wikipedia and other Websites do not qualify as academic resources.
  4. Format your assignment according to the following formatting requirements:

o    Typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.

o    Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page is not included in the required page length.

P10-4 (LO1,4,6) GROUPWORK

P10-4 (LO1,4,6) GROUPWORK (Dispositions, Including Condemnation, Demolition, and Trade-In) Presented below is a schedule of property dispositions for Hollerith Co.

Schedule of Property Dispositions
Cost Accumulated Depreciation Cash Proceeds Fair Value Nature of Disposition
Land $40,000 $31,000 $31,000 Condemnation
Building 15,000 3,600 Demolition
Warehouse 70,000 $16,000 74,000 74,000 Destruction by fire
Machine 8,000 2,800 900 7,200 Trade-in
Furniture 10,000 7,850 3,100 Contribution
Automobile 9,000 3,460 2,960 2,960 Sale

The following additional information is available.

Land: On February 15, a condemnation award was received as consideration for unimproved land held primarily as an investment, and on March 31, another parcel of unimproved land to be held as an investment was purchased at a cost of $35,000.

Building: On April 2, land and building were purchased at a total cost of $75,000, of which 20% was allocated to the building on the corporate books. The real estate was acquired with the intention of demolishing the building, and this was accomplished during the month of November. Cash proceeds received in November represent the net proceeds from demolition of the building.

Warehouse: On June 30, the warehouse was destroyed by fire. The warehouse was purchased January 2, 2014, and had depreciated $16,000. On December 27, the insurance proceeds and other funds were used to purchase a replacement warehouse at a cost of $90,000.

Machine: On December 26, the machine was exchanged for another machine having a fair value of $6,300 and cash of $900 was received. (The exchange lacks commercial substance.)

Furniture: On August 15, furniture was contributed to a qualified charitable organization. No other contributions were made or pledged during the year.

Automobile: On November 3, the automobile was sold to Jared Winger, a stockholder.

Instructions

Indicate how these items would be reported on the income statement of Hollerith Co.

 

 

 

 

 

P10-6 (LO1,3) (Interest During Construction) Grieg Landscaping began construction of a new plant on December 1, 2017. On this date, the company purchased a parcel of land for $139,000 in cash. In addition, it paid $2,000 in surveying costs and $4,000 for a title insurance policy. An old dwelling on the premises was demolished at a cost of $3,000, with $1,000 being received from the sale of materials.

Architectural plans were also formalized on December 1, 2017, when the architect was paid $30,000. The necessary building permits costing $3,000 were obtained from the city and paid for on December 1 as well. The excavation work began during the first week in December with payments made to the contractor in 2018 as follows.

Date of Payment Amount of Payment
March 1 $240,000
May 1 330,000
July 1 60,000

The building was completed on July 1, 2018.

To finance construction of this plant, Grieg borrowed $600,000 from the bank on December 1, 2017. Grieg had no other borrowings. The $600,000 was a 10-year loan bearing interest at 8%.

Instructions

Compute the balance in each of the following accounts at December 31, 2017, and December 31, 2018. (Round amounts to the nearest dollar.)

(a)Land.

(b)Buildings.

(c)Interest Expense.

Bond Pricing and Yield Mini-Case Study

Find an article regarding a US municipality which issued municipal bonds, and was subsequently affected by bankruptcy. Complete the following:

  • Using this as the basis of a composition, discuss ramifications such as any resultant changes in interest rates the municipality has faced as a consequence of the bankruptcy, changes in credit ratings, and other municipal cash flows such as pension fund impacts.
  • Discuss whether the bonds were refinanced as a result of the bankruptcy.

Your paper should meet the following requirements:

  • Be approximately 2 pages in length, not including the cover page and reference page.
  • Follow the CSU-Global Guide to Writing and APA. Each paper should include an introduction, a body with at least two fully developed paragraphs, and a conclusion.
  • Find the article from the CSU-Global Library.
  • Be clear and well written, concise, and logical, using excellent grammar and style techniques. You are being graded in part on the quality of your writing. If you need assistance with your writing style, start with Tools for Effective Writing at the CSU-Global Library, accessible from the Library’s homepage.

 

Assignment Choice #1: Direct and Indirect Cash Flow Models

Complete the following exercise. Fill in the Excel spreadsheet provided via the link below to provide your answers to parts a and b. Then paste the Excel data into a Word document on which you can also write the answer to part c.

<cash flows.xlsx>

Label each exercise or problem clearly. Use APA formatting and citation if needed.

The Carpet Company’s 20X2 and 20X3 balance sheets included the following items:

December 31
20X3 20X2
Debits
Cash $10,500 $ 4,000
Accounts receivable 8,000 9,000
Merchandise inventory 21,000 18,000
Equipment 18,000 15,000
Totals $57,500 $46,000
Credits
Accumulated depreciation, equipment $4,000 $3,000
Accounts payable 7,000 5,000
Taxes payable 1,000 2,000
Dividends payable 1,500 0
Common stock, $10 par value 27,000 25,000
Contributed capital in excess of par, common stock 6,000 5,000
Retained earnings 11,000 6,000
Totals $57,500 $46,000

The Carpet Company’s income statement was as follows:

CARPET COMPANY

Income Statement

For the Year Ended December 31, 20X3

Sales $61,000
Cost of goods sold $40,000
Wages and other operating expenses 6,300
Income taxes expense 4,200
Depreciation expense 1,500  52,000
Net income    9,000

Additional information includes the following:

  • Equipment costing $3,500 was purchased during the year.
  • Fully depreciated equipment that cost $500 was discarded and its cost and accumulated depreciation were removed from the accounts.
  • Two hundred shares of stock were sold and issued at $15 per share.
  • The company declared $4,000 of cash dividends and paid $2,500.

Required:

  1. Prepare the statement of cash flow under the direct method for the year ended December 31, 20X3.
  2. Prepare the statement of cash flow under the indirect method for the year ended December 31, 20X3.
  3. Provide a statement between 200 and 300 words in length for senior management. The topic is the status of the company based on cash flow.