Management Accounting Homework Assignment Essay

Management Accounting Homework Assignment

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.

Part 1

Management Accounting Homework Assignment

Each barbecue sold for $2.00 and each balloon 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 arrangements with a supplier and had to pay only $0.20 per barbecue served (a bread and a sausage) and $0.05 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 with labour and material, the four friend 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).

Question 1

Q1.1 – Based only on information provided in Part 1 of this assignment prepare an income statement for BBQ & Balloons (use Exhibit 7-2 as a model). (10 marks)

Part 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 the information regarding the four friends’ activities over the weekend.

Management Accounting Homework Assignment

Person

Operating the BBQ

Inflating balloons

Cashier

Greeting customers

Total

John

70%

0%

20%

10%

100%

Paul

0%

70%

20%

10%

100%

Ringo

10%

30%

50%

10%

100%

George

0%

20%

10%

70%

100%

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 of 3,000 units sold.

Management Accounting Homework Assignment

6

Question 2

Q2.1 – Considering four cost pool activities (operating the BBQ, inflating balloons, cashier, and greeting customers) prepare a table with labour cost per friend and total labour costs (use Exhibit 7-6 as a model). (12 marks)

Q2.2 – Calculate the activity rate for each of the labour cost pool activities (use Exhibit 7-7 as a model). (12 marks)

Q2.3 – Which of the four cost pool activities is most expensive and why? (10 marks)

Q2.4 – Prepare an activity-based costing product margin for the sales of barbecues and balloons (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. (12 marks)

Part 3

After reviewing the activity-based costing product margin the four friend 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.

Question 3

Q3.1 – Prepare an activity-based costing product margin for the sales of barbecues (use Exhibit 7-11 as a model) including the allocated manufacturing overhead and sales and administrative tasks. (10 marks)

Q3.2 – Prepare an activity-based costing product margin for the sales of balloons (use Exhibit 7-11 as a model) including the allocated manufacturing overhead and sales and administrative tasks. (10 marks)

Part 4

After crunching all the numbers the time has come to divide the enterprise’s income between the four friends. 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.

Question 4

Q4.1 – Explain whether Paul is correct or not in his statement about his friends not contributing to the enterprise. Justify your answer. (12 marks)

Q4.2 – Explain whether Ringo is correct or not in his statement about selling balloons being a bad idea. Justify your answer. (12 marks)

Management Accounting Homework Assignment Essay

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