Please note this assignment consists mainly of questions from Horngren, C.T., Sundem, G.L.,
Stratton, W.O. Burgstahler, D., & Shatzberg, J. Introduction to management accounting, (16th edition
2014), however it also has a question from another text by Horngren. Horngren, C. T., Harrison, W. T.
& Oliver M.S., (2012). Internal control and cash. Accounting (9th ed.,) Prentice Hall, which is available
via Interact as Reading 5.
You are required to complete all questions, in the same sequence as listed below, and submit all
necessary workings. Follow the assignment requirements (refer below to the Requirements section)
very closely.
Question 1
E7-15 E-commerce Control Procedures
Source: Horngren, C. T., Harrison, W. T. & Oliver M.S., (2012). Internal control and cash. Accounting
(9th ed., pp. 386 of Reading 5). Prentice Hall. See Reading 5 in the learning materials within Interact.
The following situations suggest a strength or a weakness in e-commerce internal controls.
a. Netproducts sells merchandise over the Internet. Customers input their credit card information for
payment.
b. Netproducts maintains employee information on the company intranet. Employees can retrieve
information about annual leave, payroll deposits, and benefits, from any computer using their login
information.
c. Netproducts maintains trend information about its customers, products, and pricing on the
company’s intranet.
d. Tax identification numbers for all vendors are maintained in Netproduct’s database.
Requirement
1. Identify the control that will best protect the company.
Question 2
E7-18 Preparing a bank reconciliation, D.J. Harrison
Source: Horngren, C. T., & Harrison, W. T. (2012). Internal control and cash. Accounting (9th ed., pp.
387-388 of Reading 5). Prentice Hall. See Reading 5 in the learning materials within Interact.
D.J. Harrison’s checkbook lists the following:
Date Check No.
Nov 1
4
622
9
13
623
14
624
18
625
26
626
28
627
30
Item
Java Joe’s
Dividends received
Skip’s Market
Fill-N-Go
Cash
Fernwood Golf Course
Upstate Realty, Co.
Paycheck
Check
Deposit
$ 15
$ 130
55
75
60
85
265
1,210
Balance
$ 540
525
655
600
525
465
380
115
1,325
Harrison’s November bank statement shows the following:
Balance
Deposits
Debit checks
$ 540
130
No
622
623
624
625
Amount
$ 15
55
115*
60
Other charges:
Printed checks
Service charge
Balance
*This is the correct amount shown for Check No. 624
(245)
$
35
20
(55)
$ 370
Requirements:
1. Prepare Harrison’s bank reconciliation as at November 30, 2012.
2. How much cash does Harrison actually have on November 30, 2012?
Answer all parts. Solve using a spreadsheet. Include the normal view and formula view and include
an IF function to check balances.
Question 3
1-2 (illustrate your explanation with examples), 1-16, 1-22 (illustrate your explanation with examples),
2-5, 2-9 (illustrate your explanation with examples).
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., pp. 44, 45 & 85).
Pearson.
1-2. “The emphases of financial accounting and management accounting differ.” Explain
1-16. Name the six primary business functions (excluding support functions) that make up the value
chain, and briefly describe each.
1-22. ‘The problem with accounting is that accountants never get to become top managers such as
CEOs.” Do you agree? Explain. Illustrate your explanation with examples.
2-5. “It is confusing to think of fixed costs on a per-unit basis.” Do you agree? Why or why not?
2-9. “Classification of costs into variable and fixed categories depends on the decision situation.”
Explain. Illustrate your explanation with examples.
Question 4
1-48 Ethical Issues
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 49). Pearson.
Suppose you are controller of a medium-sized oil exploration company in western Texas. You adhere
to the standards for ethical conduct for management accountants. How would those standards affect
your behaviour in each of the following situations?
1. Late one Friday afternoon you receive a geologist’s report on a newly purchased property. It
indicates a much higher probability of oil than had previously been expected. You are the only one to
read the report that day. At a party on Saturday night, a friend asks about the prospects for the
property.
2. An oil industry stock analyst invites you and your wife to spend a week in Tahiti free of charge. All
she wants in return is to be the first to know about any financial information your company is about to
announce to the public.
3. It is time to make a forecast of the company’s annual earnings. You know that some additional
losses will be recognized before the company prepares its final statements. The company’s president
has asked you to ignore these losses in making your predictions because a lower-than-expected
earnings forecast could adversely affect the chances of obtaining a loan that is being negotiated and
that will be completed before actual earnings are announced.
4. You do not know whether a particular expense is deductible for income tax purposes. You are
debating whether to research the tax laws or simply assume the item is deductible. After all, if you are
not audited, no one will ever know the difference. If you are audited, you can plead ignorance of the
law.
Question 5
2-48 Super Valu Grocery Chain, Variable and Fixed Costing
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 91). Pearson.
Maintaining a clean shopping environment is a key success factor for Super Valu, a large grocery
chain based in Minnesota. Three of the most costly resources to clean a supermarket are labor,
equipment, and cleaning supplies. The cost driver of these resources is “number of times cleaned.”
Wages for cleaning laborers (called porters) and rent for cleaning equipment are all the same
regardless of the number of times the supermarket is cleaned. Supplies used for each regular daily
cleaning and for each special cleaning are about the same.
A typical store has about 48,000 square feet. Regular cleaning is performed each day from midnight
until 7.00 AM. Special cleaning of floors and fixtures is performed in the various departments as
needed. Special cleaning varies from 10 to 30 times a month depending on the amount of traffic
through the store. Thus, the number of times a store is cleaned varies from 40 to 60 times a month.
Suppose that in one of Super Valu’s stores in Minnesota, cleaning was performed 60 times during
March. For the month, the cost of labor and rent on equipment was $21,000 and the cleaning supplies
used cost $12,000. The sales budget for the next quarter (April through June) and better weather
conditions indicate that the store will need to be cleaned 50, 46, and 35 times in April, May and June
respectively.
1. Prepare a table that shows how labor cost, rent, cleaning supplies, total cost, and total cost per
cleaning changes in response to the number of times the store is cleaned. Show costs for 35, 40, 45,
50, 55, and 60 cleanings. What is the predicted total cost of cleaning the Minnesota store for the next
quarter?
2. Prepare a single graph that can be used to predict the fixed, variable, and total cleaning cost of the
Super Valu store.
3. Suppose the manager of the Super Valu store can fire an outside cleaning company to clean the
store as needed. The charge rate is $720 per cleaning. If the outside cleaning company is hired,
Super Valu can lay off the workers who are now cleaning the store, eliminate the need for equipment
rent, and stop purchasing cleaning supplies. Will Super Valu save money with the outside cleaning
company over the next quarter? Prepare a schedule that supports your answer.
Solve using a spreadsheet. Question 2 includes preparing a spreadsheet graph. Search online for
examples and also see the spreadsheet examples in the Spreadsheet Advice section in Interact and
the study modules on this topic.
Solve using a spreadsheet. Section 2 includes preparing a spreadsheet graph. Search online for
examples and also see the spreadsheet examples in the Spreadsheet Advice section in Interact and
the study modules on this topic.
Question 6
5-7, 5-12.
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 227). Pearson.
5-7. What is the advantage of the contribution approach as compared with the absorption
approach?
5-12. “Basing pricing on only the variable costs of a job results in suicidal underpricing.” Do you
agree? Why?
Question 7
5-31 Straightfoward Absorption Statement, 5-32 Straightforward Contribution Income Statement
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 228). Pearson.
5-31. The Kerwin Company had the following data (in thousands) for a given period:
Sales
Direct Materials
Direct labor
Indirect manufacturing costs
Selling and administrative expenses
$ 780
180
230
210
130
There were no beginning or ending inventories. Compute the (1) manufacturing costs of goods sold,
(2) gross profit, (3) operating income, and (4) conversion costs (total manufacturing costs less
material costs).
Solve using a spreadsheet. Include the normal view and formula view.
5-32. Masa Ltd., had the following data (in millions of yen) for a given period:
Sales
Direct Materials
Direct labor
Variable factory overhead
Variable selling and administrative expenses
Fixed factory overhead
Fixed selling and administrative expenses
¥ 990
250
140
65
115
110
75
There were no beginning or ending inventories. Compute the (a) variable manufacturing cost of goods
sold, (b) contribution margin, and (c) operating income.
Solve using a spreadsheet. Include the normal view and formula view.
Question 8
6-3, 6-4 (illustrate your explanation with examples), 6-20 (illustrate your explanation with examples)
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., pp. 268-269).
Pearson.
6-3. “Accountants do not ordinarily record opportunity costs in the formal accounting records.” Why?
6-4. Distinguish between and incremental cost and a differential cost. Illustrate your explanation with
examples.
6-20. There are two reasons why unit costs should be analysed with care in decision making. What
are they? Illustrate your explanation with examples.
Question 9
Decision making
Please be frank and creative in answering the following questions.
a. (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 question. Include in your answer a table setting out the results of this survey. Also create
a simple chart with Excel to present the results of your survey.
a (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 solution. Why do so many get the wrong answer? Did
you?
b. 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 95% accurate and one in one thousand men of his age has this disease. What
is the probability he has the disease? He decides to seek a second opinion but the results are exactly
the same. When this question was put to a group of doctors, 80% of them answered “95%”. He now
plans to sell up all his assets, tell his boss what he really thinks of her, quit his job on the spot and live
in Vanuatu in the time he has left. Is this a rational decision? Explain.
c. Suppose an urn contains 100 marbles, 75 red and 25 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 4 red come out in a row. What would your next guess be? Why? Include a brief discussion of
the gambler's fallacy.
d. Creatively discuss the rationality of human decision making using these and other examples. Use
the Internet as a source (about 300 words for this section).
Question 10
7-35 Cash Budget
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 317). Pearson.
7-35. Consider the budgeted income statement for Carlson Company for 20X4 in Exhibit 7-13.
The cash balance, May 31, 20X4, is $15,000.
Sales proceeds are collected as follows: 80% the month of sale, 10 the second month, and 10% the
third month.
Accounts receivable are $44,000 on May 31, 20X4, consisting of $20,000 from April sales and
$24,000 from May sales.
Accounts payable on May 31, 20X4, are $145,000.
Carlson Company pays 25% of purchases during the month of purchase and the remainder during the
following month.
All operating expenses requiring cash are paid during the month of recognition, except that insurance
and property taxes are paid annually in December for the forthcoming year.
Prepare a cash budget for June. Confine your analysis to the given data. Ignore income taxes. Use a
spreadsheet, with the correct structures, to answer this question.
After you have completed your answer create a second version by changing all the data. Paste the
normal view for both versions and one formula view.
Sales
Inventory, May 31
Purchases
Available for sale
Inventory, June 30
Cost of goods sold
Gross Margin
Operating expenses
Wages
Utilities
Advertising
Depreciation
Office expenses
Insurance and property taxes
Operating income
$290
$ 50
192
242
40
202
88
$36
5
10
1
4
3
59
$ 29
Exhibit 7-13
Carlson Company
Budgeted Income Statement for the Month Ended June 30, 20X4 (in thousands)
Question 11
8-31 Quantity Variances
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 354). Pearson.
8-31. Lindsey Toy Company produced 13,000 stuffed bears. The standard direct-materials allowance
is 1.5 kilograms per bear, at a cost per kilo of $3.20. Actually, 18,700 kilos of materials (input) were
used to produce the 13,000 bears (output0.
Similarly, the standard allowance for direct labor is 5.1 hours to produce one bear, and the standard
hourly labor cost is $6. But 67,100 hours (input) were used to produce the 13,000 bears. Compute the
quantity variances for direct materials and direct labor.
Use a spreadsheet to answer this question. Make and paste a second version of the normal view with
some changed data. Use the IF function. Paste the formula view once only.
Question 12
11-46 NPV, IRR, and Payback
Source: Horngren, et al. (2014). Introduction to management accounting (16th ed., p. 485). Pearson.
11-46. Snuffy’s Drive-In is considering a proposal to invest in a speaker system that would allow its
employees to service drive-through customers. The cost of the system (including installation of
special windows and drive-way modifications) is $28,000. Brad Board, manager of Snuffy’s, expects
the drive-through operations to increase annual sales by $14,000, with a 25% contribution margin
ratio. Assume that the system has an economic life of 10 years, at which time it will have no disposal
value. The required rate of return is 10%. Ignore taxes.
1. Compute the payback period. Is it a good measure of profitability?
2. Compute the NPV. Should Brad accept the proposal? Why or Why not?
3. Using the ARR model, compute the rate of return on the initial investment.
Use a spreadsheet to answer this question. Use the Excel NPV function. As usual, paste a formula
view.
Question 13
Write a business report on the significance of two of the following to managers and the function of
accounting.
(a) Spreadsheets
(b) Black Swans (Taleb)
(c) "Gray" ethical areas in accounting. See http://danariely.com/tag/ethics/
(d) Six Sigma
About 300-400 words each. Use the Internet as a resource. Give examples to illustrate your
discussion.
Refer to the earlier section 'Assessment Information' for essay/report writing skill resources. The
Internet can also be searched for business reporting advice.