You are a financial accountant at ABC Ltd, a large manufacturing company. Your boss comes to you, and tells you that he is on a cost-cutting mission. He understands the importance of your role in preparing the company’s general purpose financial reports for shareholders and other stakeholders... and that these reports are required by law... so your job is safe. However, he tells you that he is thinking of not replacing the current management accountant who resigned last week. You are quite concerned by this plan, as you know how valuable management accountants are. He leaves your office before you get a chance to present your views.

Required:

Prepare a memo to respond to your boss, explaining the role and importance of management accountants, and how the reports and information prepared by management accountants differs to the general purpose financial reports that you prepare.

Decision making in accounting

You are the management accountant at Bakery Delights Ltd, a business that owns 126 bakeries across Australia. The directors have asked you to undertake some research into cloud based management accounting... they have heard the term ‘cloud based management accounting’ used, but don’t really know what it means. They would also like to know about the potential benefits and risks of moving to a cloud based management accounting system.

Required:

Prepare a business report (as if for the directors of the company) on cloud based management accounting.Note: You must reference using the APA referencing format, and include a reference list at the end of your report.

Cost volume profit (CVP) analysis

During July, Heavenly Hair Salon gave 2,000 haircuts, at a price of $34 per haircut. Fixed costs for the salon are $21,000 per month, and variable costs are 60% of sales.

Required:

1. i) What is the number of haircuts that Heavenly Hair Salon must complete each month to (a) break even, and (b) make a target net income of $12,000? What net income did Heavenly Hair Salon make for July?
2. ii) Create a CVP chart in Excel to show the results of your analysis. Show the data area, and clearly label your CVP chart.

iii) In two months time, Heavenly Hair Salon will need to increase the wages paid to its employees due to an increase in the minimum award rates. The increase will cause variable costs to increase from 60% to 65% of sales. The owner of the hair salon would like to know how the wage rise will impact the number of haircuts needed each month to (a) break even, and (b) make a target net income of $12,000.

Decision making

Use this page for your survey.

Suppose you're on a TV game show, and you're given the choice of three doors. Behind one door is a brand new car, behind the others, nothing. You pick a door. The TV host, who knows what's behind the doors, chooses another door and opens it to show you that it has nothing. Should you change your decision.

Required:

1. i) Suppose you're on a TV game show, and you're given the choice of three doors. Behind one door is a brand new car, behind the others, nothing. You pick a door. The TV host, who knows what's behind the doors, chooses another door and opens it to show you that it has nothing. Should you change your decision?

Don’t think about this too deeply just yet. Do you feel (intuit?) that you should change your choice? Answer initially without researching the question. What is the thinking behind your answer?

Conduct a survey of ten of your friends/colleagues to give their opinion. You may wish to provide them with a copy of the problem. Prepare a table in Excel, setting out the results of your survey. Also create a simple chart in Excel to present the results of your survey.

1. ii) After you answer the first part of this question, search the Internet for the Monty Hall problem. Provide your own explanation of the correct answer. Why do so many people get the wrong answer Did you.

A man goes to see his medical doctor to find out whether or not he has a deadly disease. The test is positive. The test is 98% accurate and one in one thousand men of his age has this disease. What is the probability he has the disease? When this question was put to a group of student doctors, 80% of them answered “98%”. He now plans to sell up all his assets, quit his job on the spot and live in Bora Bora in the time he has left. Is this a rational decision? Explain. (Hint: research conditional probability)

Suppose an urn contains 100 marbles, 65 red and 35 black. A marble is drawn at random from the urn and you are asked to guess what colour you believe the marble to be. The marble is then shown, replaced, and the urn's contents again randomised. The aim is to maximise the number of correct guesses. Before reading any further, what strategy would you employ? What would you guess?

Assume that 5 red marbles come out in a row. What would your next guess be? Why? Include a brief discussion of the gambler's fallacy (Monte Carlo fallacy).

After working through the above scenarios, what does this tell you about the rationality of human decision making? What lessons can managers learn from these scenarios and apply when making business decisions?

Relevant information and special decisions

Miya Manufacturing Ltd has four operating divisions. During the first quarter of 2018, the company reported a total profit from operations of $120,000 and the following division results:

Division
	1 >	2	3	4
Sales	$490 000	$410 000	$200 000	$300 000
Variable expenses	230 000	240 000	220 000	240 000
Fixed expenses	130 000	90 000	40 000	90 000
Profit/(loss) from operations	$130 000	$80 000	($60 000)	($30 000)

The directors are very concerned about divisions 3 and 4, and are considering discontinuing one or both of them. The directors make the comment: ‘if divisions 3 and 4 are eliminated, total profits would increase by $90,000.’

If division 3 is discontinued, $20,000 of the division’s fixed costs would be eliminated. If division 4 is discontinued, $45,000 of the division’s fixed costs would be eliminated. 

If both division 3 and division 4 are discontinued, there would be enough idle space to open a new division – a division that the directors have previously considered, but haven’t had the space available to open it. If this new division is opened, the directors estimate that it could generate $65,000 in sales, generate a 20% contribution margin percentage, and have additional avoidable fixed costs of $5,000.

Required:

What course of action do you recommend the directors take for division 3 and division 4? Should they close division 3 or division 4? Alternatively, should they close both division 3 and division 4, and open the new division? Show calculations to support your recommendations.

Question 1- internal control bank reconciliation

1. Bank reconciliation statement

Bargain Buys ltd
Bank Reconciliation as at 31 July 2018
Cash balance as per bank Statement				25,720.92
Add:
Outstanding Deposits		1190.4
Bank fees	60
1482	unrecorded cheque payments			475.5
1485	recording error	90
27,536.82
Less:
Unpresented Cheques	Cheque amount
1470	410
1474	1027
1478	538
1481	807
1483	2360
1484	832
1486	972	6946.6
interest received	148.62
Recording receipt errors		1009
Unrecorded receipts		2423
Balance as per cash book		17,009.6

1. Journal entries

account title	debit	credit
Cash	149
interest income	148.62
Cash	2423
account receivable	2423
cash	1000
account receivabble		1000
cash	9
account receivable	9
bank fees expense	60
cash	60
account payable	476
cash	475.5
account payable	90
cash	90

bank ledger account
Debit		Credit
Details	amount	details	amount
Balance	$ 17,009.60
interest income	$ 148.62	bank fees expense	$ 60.00
account receivable	$ 2,423.00	account payables	$ 475.50
account receivable	$ 1,000.00	account payables	$ 90.00
account receivable	$ 9.00	account payables
			$ 19,964.72
	$ 20,590.22		$ 20,590.22
adjusted balance	$ 19,964.72

Question 2-Internal control

1. Internal control over cash

Segregation of duties (Arens, et al., 2012)

The manager inserts the rolls of tickets in machines, removes the tickets, completes the cash count, puts the cash into a safe in the accountant office and takes the cash count sheet to accountant.

The cashiers receives cash, issues tickets and initiates cash count

Doorman receives the ticket confirm it validity, tears the ticket into half deposits one half into a locked box and gives the other to customer before admitting the customer.

Accountant receives cash count sheet, deposit the cash receipts for each week to the bank, and record the cash receipts and banking deposits in an accounting system.

Safeguarding of assets and records

Cash receipts are put into a safe while tickets pieces are stored into a locked box.

Cash receipts are banked every week and recorded in an accounting system.

Internal checks

Several different persons are involved in transaction, handing and counting of cash for example cashiers are checked by manager who is checked by accountant.

Weakness

Depositing of cash at end of each week may expose it theft or pilferage by employees such as accountant.

Internal checks are weak because manager has a huge control over cash and can therefore defraud the company if he wish to.

Suggestion

The company should deposit cash more often to the bank and the manager should have someone to check his tasks. For example the accountant can check the numbers of rolls the manager inserts in the machines and confirm the cash receipts agrees with the half pieces of tickets in the box.

1. If the door and cashier decided to collaborate to misappropriate cash the cashier can issue duplicate tickets and the door person could agree not place the half of the duplicate in the box.

Question 3 –Memo

Date: 10/10/2018

To: Manager

From: Financial accountant

Subject: Role and Importance of management Accountants

Whereas financial accounting is concerned with providing information to external user’s management accounting provides very useful information to management or internal users which aid planning, control and decision making processes. Management accounting provides the indispensable information with which organizations are actually run and which affects the performance of the business. On the other hand financial accounting measures the company performance based on past results hence financial accounting measure effectiveness of management accounting role. While the financial accounting is focused on the past results management accounting is more forwarding looking and tries to improve the current decisions so as to realize good future results using the past and current data.

Management accounting focuses on both monetary and non-monetary information that inform management decisions and activities such as planning and budgeting, ensuring efficient use of resources, performance measurement and formulation of business policy and strategy. The role of a management accountant cannot be ignore as help management make decision that maximizes, creates, and protects the wealth/interests of an organization’s stakeholders.

Through planning and budgeting management accounting provides effective business control, because the results are measured and compared to the set targets. Any deviation is identified, investigated and necessary action taken to control it.

The role nad importance management account is equally important as that of the financial accountant despite the role not being a legal requirement. The benefits of management accountant outweighs the cost and I would recommend hiring of a management accountant.

Regards

Financial accountant. (Pant, n.d.)

Question 4 – Decision making in Accounting

Report On cloud based management accounting

This report discusses the cloud based management accounting. The report defines the cloud based management accounting, argues the benefits of using a cloud based management accounting system and critically analysis the risks associated with cloud based management accounting. In addition the report looks at the development and evolution of cloud based management accounting.

Cloud based management accounting is use of remote servers to store data for ease access and processing from anywhere in similar way to the use of software as a service. Cloud computing solutions refers to a structure of computer hardware and software whereby the physical location of data and software doesn’t have to be related to where the end-user will access the data or processes data (Strauss, et al., 2015). Cloud computing technology acts as an enabling solution to management accounting in it decision making role by, improving, facilitating, and or influencing management accounting processes or systems.

Evolution and development of technology is positively affecting the way management accounting is done. Technology advancement in cloud computing has made it easy for management accountant to access and process data for easier decision making. Cloud computing allows sharing of resources among the company users without geographical limitation and at relatively low prices. With modern globalization trends cloud based management accounting is very reasonable system to use for any organization with operations at various different locations. The other reason for increased use of cloud computing in management decision making is the increased use of internet as platform for many transactions including retail, banking, health and working.

Benefits of Cloud based management accounting.

There are several benefits of using a cloud based management accounting solution including the following;

Cost effectiveness

Cloud based management accounting is very cost effective as an organization with different location can share it resources remotely at all it branches without investing physical storage devices. The firm can also avoid software installation on all it computer hence saving costs of installation as cloud based software is accessible through internet or other medium and works well without installing the software on a computer.

The cloud based management accounting has low maintenance costs because the cloud service provider updates the software and backups data automatically without the need to upload updated software to computer manually and also without causing disruptions to operations. The work of It department is also significantly reduced as most of their functions in maintain software is delegated to the cloud service provider. Money is also saved as traditional expenditure in initial server’s infrastructures and software are avoided.

Increased data security

There is misguided perception that cloud based management accounting increases the risk of data security being breached. Cloud based management accounting offers a similarly secure medium of storing management accounting data to the traditional management accounting software and sometimes even more secure. For example an organization computer or storage device with very important management information may break down, crash get lost or even get stolen leading to loss of information. On the other hand information stored in cloud based solution can assessed from other devices even after of devices get lost or breaks down because the information is not stored in a physical device. The data is secured by use of passwords and is encrypted. According to (Strauss, et al., 2015) cloud service providers normally provide more secure services than the traditional solutions.

Ease of access and processing of data

Cloud computing solutions provide management accounting with an easy platform of accessing data from anywhere (Furth, 2017). So many users at different locations can still access data provided they have the required authorization details such as PIN and passwords as opposed to the traditional solutions which required transfer of data or sharing of resources in the same physical location (Kinsella, n.d.).

Cloud based data is backed up to more than one server

This provides the benefits of no disruption to operations when one server is not working as the employees will continue accessing data because cloud services providers usually backs up data to several servers (Anon., n.d.).

Additionally cloud technology improves the management accounting decision making capabilities by increasing the ability of the management to process information effectively.

Risks and limitation of using cloud based management accounting solution.

As with every other solution the cloud computing technology has it shortcomings and decision to use the cloud technology will depend on an entity needs other factors. The major concern with the use of cloud computing technology in management accounting has been security, privacy and integrity of the data stored and processed through cloud technology. Although some has argued that security of data stored in cloud based platforms is more secure than the traditional forms the concern of data security is still high because the control of data is left in the hands of the service provider.

Another limitation of using cloud based management accounting solution is lack of high speed connection in some areas making this solution untenable.

The risk of cyber-attacks and hacking is also a concern for most organisation as this can cause breach of data security, integrity and privacy exposing the organization huge losses.

Another issue with cloud computing legal requirements in some jurisdictions for example in European Union companies are required to store data with the EU region.

The last issue is bankruptcy issues with cloud service provider and cost of transferring the data and cloud service from one vendor to another after bankruptcy of the initial provider.

There also the issue of suck cost as the company will be forced to invest in new solution before the end of economic lives of existing traditional structures.

Question 5

selling Price	100%	$ 34.00
variable cost	60%	$ 20.40
Contribution margin	40%	$ 13.60
Fixed cost		21000
target income		12000

break even units= fixed cost/ contribution margin= 21000/13.6=1,544.12

13. Target income units= (fixed cost + target income)/contribution margin=(21000+12000)/13.6= 2,426.47

July net income $6,200.00

selling Price	100%	$ 34.00
variable cost	65%	$ 22.10
Contribution margin	35%	$ 11.90
Fixed cost		21000
target income		12000

target income units =21000+12000)/11.9=2,773.11 target unit also increases.

Question 6

Tv game

My decision is Yes because if the TV host had two chances of showing me the door with nothing but he chose one and left the other so it has a probability that it has a car behind.

TV game Survey
Friend	decision
1	No
2	No
3	YES
4	YES
5	YES
6	No
7	YES
8	No
9	YES
10	Yes

6 out of 10 student got it right. When I originally picked one door the probability of winning was 1/3 but then when the host picked one door form the remaining two his action provide new information that the other door is likely to contain the car because it was not chosen by the host presuming an equal initial probabilities the unchosen door has a probability of 2/3 after host action as the revelation of the other door having nothing increases the probability that the unchosen door has a car (BetterExplined, n.d.).

Many people get it wrong because they fail to recognize that by choosing one door and not the other the host provides new information that the other door is likely to have a car. Simple the two remaining door after My choice have a probability of 2/3 of having a car behind but after revealing that one door has nothing the probabilities of the remaining door increases to (2/3-0) =2/3

I got it right

Condition probabilities
Has disease	No Disease
Test +	98	198	296
Test-	2	9702	9704
Total	100	9900	10000
probability he has the disease			33.108%

This is an irrational decision because the actual probability is much less than he has been made to believe.

1. I would pick red as it has a higher probability of being selected 65% compare to blue 35%.

Since the marble are being replaced I would stick to my choice of red to maximize my correct predictions.

Monte Carlo Gambler’s fallacy is the belief that if something happen more frequently in the past or present it is likely to occur less in the future (CROSON & SUNDALI, 2005).

1. Using the available information to make management decision and re-evaluating decisions as and when information changes.

Question 7

Close	division 3 only	Division 4 only	Both division 4 &3 and open division
Contribution margin other divisions	$ 490,000.00	$ 410,000.00	$ 430,000.00
Fixed costs (current)	350,000	350,000	350,000
less avoidable fixed costs	-20000	-45000	-70000
new fixed costs	330,000	305,000	280,000
new contribution margin	0	0	13000
New profit	$ 160,000.00	$ 105,000.00	$ 163,000.00

The management should close both division 3 and 4 to maximize profit.

Question 8

Cash Budget April-June
April	May	June
Cash Receipts
Cash balance	3500	$ 3,000.00	10660
Accounts receivables	$ 19,900.00	$ 24,000.00	$ 23,400.00
Total cash receipts	$ 23,400.00	$ 27,000.00	$ 34,060.00
Cash payments
Accounts payable	$ 10,040.00	$ 10,300.00	$ 11,400.00
Wages and salaries	$ 4,000.00	$ 3,800.00	$ 4,200.00
Gen And admin costs	$ 1,500.00	$ 1,000.00	$ 1,500.00
Insurance	$ 4,100.00	$ -	$ -
income tax	$ 2,000.00	$ -	$ 14,500.00
Total cash payments	$ 21,640.00	$ 15,100.00	$ 31,600.00
Net cash	$ 1,760.00	$ 11,900.00	$ 2,460.00
minimum cash balance	3000	3000	3000
Cash surplus (deficit)	$ (1,240.00)	$ 8,900.00	$ (540.00)
cash Borrowing	$ 1,240.00	$ 540.00
Repayment	$ (1,240.00)
Ending Cash balance	$ 3,000.00	$ 10,660.00	$ 3,000.00

Question 9 - Variance analysis

Direct material Price variance Actual Quantity x Actual Price - Actual Quantity x Standard Price

$(110.00) favourable

Direct labour rate variance Actual Quantity x Actual rate - Actual Quantity x Standard rate

$(1,200.00) Favourable

Direct material quantity variance Actual Quantity x Standard Price-Standard Quantity x Standard Price

300 Adverse

Direct labour quantity variance Actual Hours x Standard Rate - Standard Hours x Standard Rate

550 Adverse

Question 10

Question 10- Capital budgeting
Initial cost		$ 75,000.00
useful year		8
discount rate		9%
Residual value		$ 21,000.00
i) NPV	Year	0	1	2	3	4	5	6	7	8
Cash outflow
Initial cost		$ (75,000.00)
overhaul	$ (5,600.00)
Cash inflows
Towing cash inflows		$ -	$ 8,400.00	$ 8,400.00	$ 8,400.00	$ 8,400.00	$ 8,400.00	$ 8,400.00	$ 8,400.00	$ 8,400.00
residual value		$ 21,000.00
Total cash flow		$ (75,000.00)	$ 8,400.00	$ 8,400.00	$ 8,400.00	$ 2,800.00	$ 8,400.00	$ 8,400.00	$ 8,400.00	$ 29,400.00
Discounted cash flow		$ (75,000.00)	$ 7,706.42	$ 7,070.11	$ 6,486.34	$ 1,983.59	$ 5,459.42	$ 5,008.65	$ 4,595.09	$ 14,754.87
NPV	$ (21,935.51)
Recommendation	The truck should not be purchased as it has negative NPV

References

AccountingExplained, 2018. AccountingExplained.

Anon., n.d. Financialforce:What is Cloud Accounting

Arens, A. A., Elder, R. J. & Beasley, M. S., 2012. Auditing and Assurance Services. 14th ed. s.l.:Pearson.

BetterExplined, n.d. Understanding the Monty Hall Problem

CFI, n.d. Bank Reconciliation. 

Corporate Finance Institute, 2018. Contribution Analysis. 

CPA Australia, 2012. F o u n d a t i o n l e v e l Management Accounting. s.l.:BPP Learning Media Ltd.

CROSON, R. & SUNDALI, J., 2005. The Gambler’s Fallacy and the Hot Hand: Empirical Data from Casinos. The Journal of Risk and Uncertainty, 30(3), p. 195–209.

DeMarzo, P. & Berk, J., 2014. Corporate Finance. 3rd ed. Boston: Pearson.

Dopson, L., 2004. Linking Cost-Volume-Profit Analysis with Goal Value Analysis in the Curriculum Using Spreadsheet Applications. Journal of Hospitality Financial Management, 12(1), pp. 78-80.

Furth, D., 2017. Cloud-Based Accounting Software: What Your Clients Need to Know. 

Kinsella, K., n.d. CPA Ireland:HOW CLOUD COMPUTING CAN BENEFIT ACCOUNTANTS.
[Accessed 10 October 2018].

Millians, P. M., 1947. Profit Planning and Budgetary Control. The Accounting Review, pp. 65-68.

Mongiello, M., 2016. Management accounting. London: University of London.

Pant, S., n.d. 7 Roles of Management Accountant

Ross, S. A., Westerfield, R. W. & Jordan, B. D., 2016. Fundamentals of corporate finance. 11 ed. New York(NY): McGraw Hill Education.

Strauss, E., Kristandl, G. & Quinn, M., 2015. The effects of cloud technology on management accounting and decision making, London: Chartered Institute of Management Accountants.

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