Managerial Accounting

Managerial Accounting

Week 6

1. Prepare a revenue budget

1. The number of staffs required for covering the classes

The number of classes needed is the total number of students divided by the average number of students in a class.

=

= 393.75

= 394 classes

The number of subjects per semester = 4

For 394 classes, there will be (394 * 4) = 1,576 subjects being taught per semester

The number of staffs needed is equal to the total number of subjects divided by the number of subjects taught by one academic staff

= (1,576 / 3)

= 525 staffs

1. Actions that South Hampton can take if there is a shortage of full-time academic staff

To respond to this possibility, there are many positive actions that South Hampton University can take and solve it. The university can decide to reorganize or rearrange the classes ion new distinct time intervals to cater to all of the students with the few academic staff (Better and Down, 2019). There are many schools that provide part-time teaching services of instructors to their students. If South Hampton university can provide this service, it will greatly help to cumber this situation (2019). The university can also decide to increase the number of students required to be in one class so that the number of facilities that would be needed to reduce. The few academic staff will be in a position to teach in the reduced number of facilities but with some difficulties in controlling the large population of students.

Around the University, there are many graduate teaching assistants. South Hampton can decide to hire the skills and knowledge that these graduate teaching assistants have acquired to help them in this situation of academic staff shortage (2019). Furthermore, the university can reorganize the courses they are offering on a term basis.

Week 7

1. Calculating the labor rate variance and labor efficiency variance for each class and determining whether they are favorable or unfavorable.

Class 111:

The standard labor rate = 26

The standard labor hours = 1000

Actual labor rate = 28

Actual labor hours = 1100

• The labor rate variance = (Actual rate – Standard rate) * Actual hours

= (28 – 26) * 1100

= 2 * 1100

= 2200 unfavorable

• The direct labor efficiency variance = (Actual hours – Standard hours) * Standard rate

= (1100 – 1000) * 26

= 100 * 26

= 2600 unfavorable

Class 11:

The standard labor rate = 22

The standard labor hours = 1000

Actual labor rate = 23

Actual labor hours = 1300

• The labor rate variance = (Actual rate – Standard rate) * Actual hours

= (23 – 22) * 1300

= 1 * 1300

= $1,300 unfavorable

• The direct labor efficiency variance = (Actual hours – Standard hours) * Standard rate

= (1300 – 1000) * 22

= 300 * 22

= $6,600 unfavorable

Class 1:

The standard labor rate = 12

The standard labor hours = 1000

Actual labor rate = 14

Actual labor hours = 750

• The labor rate variance = (Actual rate – Standard rate) * Actual hours

= (14 – 12) * 750

= 2 * 750

= $1,500 unfavorable

• The direct labor efficiency variance = (Actual hours – Standard hours) * Standard rate

= (750 – 1000) * 12

= -250 * 12

= $3,000 favorable

1. Advantages and disadvantages of standard costing system in which the there is no change in the standard direct labor rates per hour.

Advantages

• The standard costing system provides a more reasonable and easy measure of inventory valuation compared to the actual cost system. There is a wide difference in the unit costs for the quantity of products that are identical under the actual cost system.
• The use of standard costs system may result to cost savings hence production costs reduction. When a standard costs system is employed, it will cause the workers to be more cost considerate and find the better-improved ways of ensuring their tasks are completed.

Disadvantages

• Lowers the morale of some of the employees. The management always put their focus more on the variances that are unfavorable than the favorable variances. The employees might get the notion that poor achievements get regard while better achievements are being ignored. This will result in the low morale of some of the employees.
• The standard cost system may result also into bias when fixing the duty for the variances that are unfavorable.

Week 8

1. Determining the transfer price using the general rule

According to the general rule,

Transfer price = cost per unit of transferred goods + opportunity cost

Transfer price = $550 + $0

= $550

1. Computing the transfer price if the assembly division has no space capacity

Opportunity cost = sales per unit – variable production per unit

= $680 – $550

= $130

Transfer price = cost per unit of transferred goods + opportunity cost

= $550 + $130

= $680

1. What transfer price would you recommend if there was no outside market for the transferred component and the assembly division had spare capacity?

When there is no external market for the goods, the company may recommend employing some methods of cost-based transfer pricing system (Eden, 2019) which include:

• Variable cost: This method is most advantageous when the selling division of the company is operating below the capacity.
• Actual full cost: under this approach, the transfer price is on the basis of the total product cost per unit such as the overhead cost, direct labor, and material.
• Full cost-plus profit margin: In this approach, the cost is added to the mark up that was determined prior by the management.
• Standard cost: To deal with the problems revolving on the determination of price in all the methods, a standard price is mentioned by the management.

1. Explain how negotiation between the supplying and buying units may be used to set transfer prices. How does this relate to the general transfer pricing rule?

The prices that are negotiated are usually known as the mid-point solution between the cost and the market-based prices. The managers that are involved are acting the same way as the independent company managers under the negotiated prices (Davies et al., 2018). The strategies employed in the negotiation can be the same as those employed in performing trading activities with the external markets. If the divisions can deal freely with each other and also the external market, the negotiated price will most probably be close to the price of the external market (2018). If the outputs of a selling division can’t be purchased in the outside market, the negotiated price is most probably less compared to the market price and the divisions will share the total margin (2018).

Week 9

1. Three main performance measures for each strategic priorities.

On-time delivery

• The proportion of orders delivered before the determined time compared to the total orders that are received.
• The proportion of orders delivered to the customer within the twenty minutes of customer orders compared to the total orders that were received.
• The proportion of orders delivered to the respective customers at the set time compared to the total orders that were received.

Product quality

• The proportion of orders that had no complaints about product quality compared to the total orders that were received.
• The proportion of orders that were produced with the correct requirements compared to the total orders that were received.
• The proportion of orders that were produced to meet the customer’s specifications compared to the total orders that were received.

1. If the company is successful in achieving challenging targets for these performance measures, will it also necessarily achieve high profitability?

Yes, the profitability of the company will increase at a high level simply because if the company can deliver at the promised time, there will be more production and selling of pizzas hence more profits to the company (de Keizer et al., 2017). High quality and good taste always attract customers. When the company can deliver a high-quality pizza with good taste, its demand will rise tremendously leading to an increase in the company’s margin (2017).

Week 10

1. Calculate the break-even point in units.

Break-even point =

=

= 4,000 units

1. What will the new break-even point be if fixed costs increase by 10 per cent?

Break-even point =

=

= 4,400 units

1. What was the company’s net profit for the previous year?

Net profit = sales – (variable cost + fixed cost)

1. The sales manager believes that a reduction in the sales price to $2,500 will result in orders for 1,200 more TVs each year. What will the break-even point be if the price is changed?

Break-even point =

=

= 8,000 units

List of Reference

Better, N.B. and Down, S., 2019. Academic Programs. The Chronicle of Higher Education.

Davies, R.B., Martin, J., Parenti, M. and Toubal, F., 2018. Knocking on tax haven’s door: Multinational firms and transfer pricing. Review of Economics and Statistics, 100(1), pp.120-134.

de Keizer, M., Akkerman, R., Grunow, M., Bloemhof, J.M., Haijema, R. and van der Vorst, J.G., 2017. Logistics network design for perishable products with heterogeneous quality decay. European Journal of Operational Research, 262(2), pp.535-549.

Eden, L., 2019. Literature Review Article: The Economics of Transfer Pricing. In The Economics of Transfer Pricing. Edward Elgar Publishing Limited.