The TMA covers the financial accounting concepts and practices in the businesses. It is marked out of 100 and is worth 20% of the overall assessment component. It is intended to assess students’ understanding of some of the learning points within Books 9 and 11. This TMA requires you to apply the course concepts.
The TMA is intended to:
ØIncrease the students’ knowledge about the reality of the accounting as a profession.
ØAssess students’ understanding of key learning points within the books.
ØDevelop the ability to understand and interact with the nature of the financial statements in reality.
ØDevelop students’ communication skills, such as memo writing, essay writing, analysis and presentation of material.
ØDevelop basic ICT skills such as using the internet.
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The TMA:
This TMA is based around two cases of Compass Group and Relevant Information and Opportunity Costs. Marks will be awarded for blending the context of each case and with relevant theory by means of your own interpretation. In addition to this, some research is required.
The TMA requires you to:
1- Review various study Books (9 and 11) of ’Certificate in Accounting’.
2- Conduct a simple information search using the internet.
3- Present your findings in not more than 1,550 words (700 words for part A and 850 for part B). The word count excludes headings, references, title page, and diagrams.
4- You should use a Microsoft Office Word and Times New Roman Font of 14 points.
5- You should read and follow the instructions below carefully. Each part of the process will carry marks for the assignment.
The TMA:
This TMA is based around two cases of Compass Group and Relevant Information and Opportunity Costs. Marks will be awarded for blending the context of each case and with relevant theory by means of your own interpretation. In addition to this, some research is required.
The TMA requires you to:
1- Review various study Books (9 and 11) of ’Certificate in Accounting’.
2- Conduct a simple information search using the internet.
3- Present your findings in not more than 1,550 words (700 words for part A and 850 for part B). The word count excludes headings, references, title page, and diagrams.
4- You should use a Microsoft Office Word and Times New Roman Font of 14 points.
5- You should read and follow the instructions below carefully. Each part of the process will carry marks for the assignment.
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The TMA Questions
Part A: Absorption and Marginal Costing
Golden Star Company manufactures and sells a unique product that has been quickly accepted by the consumers. The results of last month’s operations are shown below (absorption costing basis):
Criteria for Grade Distribution:
Criteria
|
Content
|
Referencing
|
Structure and Presentation of ideas
|
Total marks
| |
Part A
|
Part B
| ||||
Marks
|
45
|
55
|
(5)
|
(5)
|
100
|
The TMA Questions
Part A: Absorption and Marginal Costing
Golden Star Company manufactures and sells a unique product that has been quickly accepted by the consumers. The results of last month’s operations are shown below (absorption costing basis):
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Variable selling and administrative expenses are $2 per unit. Variable manufacturing costs total $10 per unit, and fixed manufacturing overhead costs total $48,000 per month. There was no beginning inventory. The company produced 12,000 units during the month.
Required:
1- Restate Golden Star’s income statement in contribution margin format, using variable costing.
2- Reconcile the variable costing and absorption costing net income figures.
3- State which costing approach is used in published financial statements, and briefly explain the usefulness of the other approach.
4- The easiest way to distinguish between relevant and irrelevant costs is by cost behavior; variable costs are relevant costs and fixed costs are irrelevant costs. Explain why you do or do not agree with this statement and support your answer with suitable example(s).
Sales (10,000 units @ $20)
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$200,000
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Less: cost of goods sold (10,000 units @ $14)
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140,000
|
Gross margin
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60,000
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Less: selling and administrative expenses
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45,000
|
Net income
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$ 15,000
|
Required:
1- Restate Golden Star’s income statement in contribution margin format, using variable costing.
2- Reconcile the variable costing and absorption costing net income figures.
3- State which costing approach is used in published financial statements, and briefly explain the usefulness of the other approach.
4- The easiest way to distinguish between relevant and irrelevant costs is by cost behavior; variable costs are relevant costs and fixed costs are irrelevant costs. Explain why you do or do not agree with this statement and support your answer with suitable example(s).
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[Marks (Words): 15(150) + 10(150) + 10(200) + 10(200) = 45(700)]
Part B: Capital Investment Decisions
The fruit pies are currently sold for $4 per pie. Unit operating costs, fixed overhead costs and selling price are expected to remain constant throughout the five year period.
Required:
a- Using data relating only to the new machine:
1- Calculate the net present value of the new machine. The New Hotel Group expects that its cost of capital will be 8% throughout the period.
2- Calculate the payback period of the new machine.
b- Using present value calculations, determine whether the existing machine should bereplaced by the new machine. Assume that the existing machinery could be sold for$150,000 immediately, if it were replaced.
c- Discuss the nonfinancial factors would you recommend that Hotel Group executives take into consideration regarding this proposal.
d- If the Hotel Group’s management is uncertain about the accuracy of the cost savings that have been estimated for this proposal. Explain the actions that they can take to ensure that the estimates of: costs, revenues, and cash flows are not overly optimistic or pessimistic.
[Marks (Words): 15(150) + 10(150) + 10(150) +10(200) + 10(200) = 55(850)]
In your answer, you should explain each point or inquire separately. Use the following headings (below) to make up the different sections of your work:
[Marks (Words): 15(150) + 10(150) + 10(200) + 10(200) = 45(700)]
Part B: Capital Investment Decisions
The management of a New Hotel Group is deciding whether to scrap an old but still serviceable machine bought five years ago to produce fruit pies, and replace it with a newer type of machine. It is expected that the demand for the fruit pies will last for further five years only and will be as follows:
Year
|
Number of pies
produced and sold
|
1
|
70,000
|
2
|
50,000
|
3
|
40,000
|
4
|
30,000
|
5
|
25,000
|
Each machine is capable of meeting these requirements. Data for two machines are as follows:
Existing
Machine
($)
|
New
Machine
($)
| |
Capital cost
|
400,000
|
180,000
|
Operating cost per unit:
| ||
Direct labor
|
0.70
|
0.50
|
Materials
|
0.70
|
0.70
|
Variable overheads
|
0.40
|
0.30
|
Fixed overheads per unit:
| ||
Depreciation
|
0.90
|
1.10
|
Allocated costs (75% direct labor)
|
0.525
|
0.375
|
3.225
|
2.975
|
Required:
a- Using data relating only to the new machine:
1- Calculate the net present value of the new machine. The New Hotel Group expects that its cost of capital will be 8% throughout the period.
2- Calculate the payback period of the new machine.
b- Using present value calculations, determine whether the existing machine should bereplaced by the new machine. Assume that the existing machinery could be sold for$150,000 immediately, if it were replaced.
c- Discuss the nonfinancial factors would you recommend that Hotel Group executives take into consideration regarding this proposal.
d- If the Hotel Group’s management is uncertain about the accuracy of the cost savings that have been estimated for this proposal. Explain the actions that they can take to ensure that the estimates of: costs, revenues, and cash flows are not overly optimistic or pessimistic.
[Marks (Words): 15(150) + 10(150) + 10(150) +10(200) + 10(200) = 55(850)]
In your answer, you should explain each point or inquire separately. Use the following headings (below) to make up the different sections of your work:
The PT3 form (It is Available on LMS)
| |
Title and contents page
| |
Part A
|
Absorption and Marginal Costing
|
Part B
|
Capital Investment Decisions
|
References (Recorded according to the Harvard style - Available on LMS)
|
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