management accounting

Arab Open University

B321: TMA – 3rd Semester 2017 – 2018

Cut-Off Date: TBA

About TMA:

The TMA covers the management 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 Sessions 1, 3, 6, 8, 9, 11 and 16 beside the supplementary material. This TMA requires you to apply the course concepts. The TMA is intended to:

· Assess students’ understanding of key learning points within Sessions 1, 3, 6, 8, 9, 11 and 16.

· Increase the students’ knowledge about the reality of the Managerial Accounting as a profession.

· Develop students’ communication skills, such as memo writing, essay writing, analysis and presentation of material.

· Develop the ability to understand and interact with the nature of the managerial accounting tools in reality .

· Develop basic ICT skills such as using the internet.

The TMA:

This TMA is based around two cases of “ Carla Cash Budget. ” and “ Transfer Pricing and Variances ”. 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 sessions beside the supplementary materials.

2- Conduct a simple information search using the internet and the e-library.

3- Present your findings in not more than 1,110 words ± 10% (300 words for part A and 810 for part B).

4- You should use a Microsoft Office Word and Times New Roman Font of 12 points.

5- You should read and follow the instructions below carefully. Each part of the process will carry marks for the assignment.

Criteria for Grade Distribution:

The TMA Questions

PART A: Carle Cash Budget

Carla, owner of Carla shop, is negotiating with the bank for a $160,000, 6 months, 6% (yearly rate) loan effective August of the current year, 2018. In case the loan is granted, the bank will deduct the interest in advance and will give her the remaining amount of the $160,000. Carla intends to use the amount received on August 1st as follows: she will pay the accounts payable, $64,000; purchase equipment, $24,000; and will add the remaining amount to her bank balance.

The current working capital position of Carla shop as of July 31st, is as follows:

The loan officer needs a forecast of Carla’s cash receipts and cash payments for the next three months to demonstrate that the loan can be repaid at the end of January, 2018.

Carla has made the following estimates to be used in preparing a six months cash budget: Sales (all on account) for Aug., $160,000; expected to increase by $20,000 each month. Past experience indicates that 50% of the receivables will be collected during the month of sales, 30% in any month following the sale, 17% will be collected in the second month following the sales, and the remaining 3% will prove uncollectable. Carla expects to collect $46,000 of the July 31st receivables in August and the remaining in September.

Cost of goods sold approximates about 45% of sales. Operating expenses are estimated at a fixed amount of $15,000 (including $3,500 per month as depreciation expense) and a variable amount equal 3% of sales. All operating expenses are on account and are paid in the month following their incurrence; while the purchases of merchandise are paid 50% during the same month and 50% in the month following their incurrence.

Carla plans to keep a merchandise stock at the end of each month that will cover 60% of the following month’s sales.

Required:

a. Prepare a monthly cash budget showing the estimated cash receipts and cash payments for August, September and October, and the cash balance at the end of each month. Using your cash forecast explaining whether she will be able to repay the $160,000.

[Marks: 30]

PART B: Transfer Pricing and Variances

Greta Company produces cars. Two of the profit centers, Tires center and Assembly center, were in conflict over the price of tires. External suppliers of tires offered Carla, the manager of the Assembly center, the same type and quality of tire for $100. Carla used to buy these tires internally for $130 each.

Kamal the CEO of the company called for a meeting with the managers of both centers in order to solve the issue. Dani the manager of the Tires Centre explained that the tires produced by his department have been a market leader for the past 30 years and are distributed by the company worldwide.”

Tires Center: Cost per tire

Carla answered that the external suppliers offered the same specifications and quality for a $30 less, and that she should be able to buy them internally at least at the same price.

Required:

Kamal wishes to assess the situation prior to finalizing his recommendations as he plans to present his findings during next week board meeting. As a consultant, he asked you to:

1. Discuss the transfer pricing and elaborate on whether the Assembly Centre should buy tires from inside or outside the firm. Show your workings (130 words)

2. Based on your answer and analysis in the previous requirement, provide a proper transfer price. Justify your answer.(100 words)

3. The Tires Centre had a capacity of 80,000 tires per year, and the Assembly Centre use around 180,000 tires per year. The Tires center could sell all of its production externally for $130, based on these circumstances provide a recommendation for Greta Company whether these two centers should buy/sell internally or externally. Justify your answer. (50 words)

4. Explain why setting transfer prices by Greta can be controversial when a product is being transferred between two profit centers. (130 words)

5. The Accountant of Greta Company provided you the following information concerning another department, that produces milk and yogurt:

Required:

Discuss the performance of the company for the past year. Show your workings. (400 words)

[Marks: (8+8+6+8+40) =70]

Total Marks: 30 + 70 - 10 Marks of deductions for general presentation and references]

In your answer, you should explain each point or inquiry separately .

All answers should be supported by examples from the case study.

Use the following headings (below) to make up the different sections of your work:

Good Luck!