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Page 1 of 44
SEMINAR 2, WEEK 3
WEEK COMMENCING MARCH 21
PRODUCT COSTING AND COST BEHAVIOUR
Readings:
BBS
Chapter 12
Chapter 14, pp. 649-651
Homework:
BBS
P 12.4
P 12.5
E 14.1
Practise SoloMike
REMINDER: Friday 25
March is Good Friday.
If your seminars are on
Fridays you must
attend an alternative
seminar this week and
present a Visitor’s
Form to your tutor next
week.
Additional Questions
1. Mike’s Bikes report questions attached
2. Mike’s Bikes questions attached
3. A large manufacturer of electronic equipment gave
the following statement as one of its objectives:
“The company should become the low-cost producer in its industry.”
Discuss how management accounting can assist the company in achieving its
stated goals.
4. Cost terminology problem attached.
Time planner from seminar 1
Other Seminar Activities:
Group formation
Analytical framework
Mike’s Bikes Initial Quiz based on Solo Mike next week in seminar 3
ATTENTION TUTORS:
See seminar 7 for information regarding discussion questions.
Seminar 2 – Recommended Time Planner
00-05
05-10
10-70
70-115
115-120
start seminar five minutes past hour
administration – roll call, homework checking
cover content including analytical framework
teamwork
conclude seminar five minutes to hour
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Prepare a cost of goods manufactured schedule, a partial statement of financial performance, and a partial
statement of financial position.
(LO5,6,7)
P12.4 The following data were taken from the records of Buckley Manufacturing Ltd for the
year ended 31 December 2004.
Raw Materials Inventory
1/1/04
Raw Materials Inventory
31/12/04
Finished Goods Inventory
1/1/04
Finished Goods Inventory
31/12/04
Work in Process
Inventory 1/1/04
Work in Process
Inventory 31/12/04
Direct Labour
Indirect Labour
$ 43 500
44 200
85 000
77 800
10 200
6 500
145 100
19 100
Accounts Receivable
Factory Insurance
Factory Machinery Depreciation
Freight-in on Raw Materials
Purchased
Factory Power
Office Power Expense
Sales
Sales Discounts
Factory Manager’s Salary
Factory Rates and Taxes
Factory Repairs
Raw Materials Purchases
Cash
27 000
5 400
7 700
3 900
15 900
8 600
475 000
3 200
30 000
6 100
800
64 600
28 000
Required
(a) Prepare a cost of goods manufactured schedule.
(b)
Prepare a statement of financial performance to gross profit.
(c)
Prepare the current assets section of the statement of financial position as at
31 December 2004.
PROBLEM 12.4
Buckley Manufacturing Ltd
Cost of Goods Manufactured Schedule
For the year ended 31 December 2004
(a)
Work in process inventory, 1/1
Direct materials:
Raw materials inventory, 1/1
Raw materials purchases
Freight-in on materials purchased
Total raw materials available for use
Less: Raw materials inventory, 31/12
Direct materials used
Direct labour
Manufacturing overhead:
Factory manager’s salary
Indirect labour
Factory power
Factory machinery, depreciation
Factory rates and taxes
Factory insurance
Factory repairs
Total manufacturing overheads
Total manufacturing costs
Total cost of work in process
Less: Work in process, 31/12
Cost of goods manufactured
$10,200
$43,500
64,600
3,900
112,000
(44,200)
$67,800
145,100
30,000
19,100
15,900
7,700
6,100
5,400
800
85,000
297,900
308,100
(6,500)
$301,600
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(b)
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Buckley Manufacturing Ltd
Statement of Financial Performance (Partial)
for the year ended 31 December 2004
Sales revenues:
Sales
Less: Sales discounts
Net sales
Cost of goods sold:
Finished goods inventory, 1/1
Cost of goods manufactured (see schedule)
Cost of goods available for sale
Finished goods inventory, 31/12
Cost of goods sold
Gross profit
(c)
$475,000
3,200
471,800
85,000
301,600
386,600
77,800
308,800
$163,000
Buckley Manufacturing Ltd
Statement of Financial Position (Partial)
as at 31 December 2004
Current assets
Cash
Accounts receivable
Inventories:
Raw materials
Work in process
Finished goods
Total current assets
$28,000
27,000
$44,200
6,500
77,800
128,500
$183,500
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Prepare a cost of goods manufactured schedule and a correct statement of financial performance.
(LO5,6)
P12.5 Noonan Ltd is a manufacturer of computers. Its senior accountant resigned in
October 2005.
An inexperienced assistant accountant has prepared the following statement of
financial performance for the month of October 2004.
NOONAN LTD
Statement of Financial Performance
for the month ended 31 October 2004
Sales (net)
Less: Operating expenses
Raw materials purchased
Direct labour cost
Advertising expense
Selling and administrative salaries
Rent on factory
Depreciation on sales equipment
Depreciation on factory equipment
Indirect labour cost
Factory power
Factory insurance
Loss
$780 000
$260 000
190 000
90 000
75 000
60 000
45 000
30 000
25 000
12 000
8 000
795 000
$ (15 000)
Before October 2004 the company had been profitable every month. The
company’s CEO is concerned about the accuracy of the statement of financial
performance above. As a friend of the CEO, you have been asked to review the
statement of financial performance and make necessary corrections. After examining
other manufacturing cost data, you have acquired additional information as follows:
1. Inventory balances at the beginning and end of October were:
1 October
Raw materials
Work in process
Finished goods
$15 000
16 000
30 000
31
October
$31 000
14 000
48 000
2. Only 80% of the power expense and 70% of the insurance expense apply to factory
operations; the remaining amounts should be charged to selling and administrative
activities.
Required
(a)
Prepare a cost of goods manufactured schedule for October 2004.
(b)
Prepare a corrected statement of financial performance for October 2004.
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PROBLEM 12.5
Noonan Ltd
Cost of Goods Manufactured Schedule
for the month ended 31 October 2004
(a)
(b)
Work in process inventory, 1/10
Direct materials:
Raw materials inventory, 1/10 $15,000
Raw materials purchased
Total raw materials available for use
Less: Raw materials inventory, 31/10
Direct materials used
Direct labour
Manufacturing overhead:
Factory rent
Depreciation on equipment
Indirect labour
Factor power (12,000 x .8)
Factory insurance (8,000 x .7) 5,600
Total manufacturing overhead
Total manufacturing costs
Total cost of work in process
Less: Work in process, 31/10
Cost of goods manufactured
$16,000
260,000
275,000
(31,000)
$244,000
190,000
60,000
30,000
25,000
9,600
130,200
564,200
580,200
(14,000)
$566,200
Noonan Ltd
Statement of Financial Performance
for the month ended 31 October 2004
Sales (net)
Cost of goods sold:
Finished goods inventory, 1/10
Cost of goods manufactured
Cost of goods available for sale
Less: Finished goods inventory, 31/10
Cost of goods sold:
Gross profit
Operating expenses
Advertising expenses
Selling and administrative expenses
Depreciation expense
Power expense ($12,000 x .2)
Insurance expense ($8,000 x .3)
Total operating expenses
Profit
$780,000
$30,000
566,200
596,200
48,000
548,200
231,800
90,000
75,000
45,000
2,400
2,400
214,800
$17,000
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Define and classify variable, fixed, and mixed costs.
(LO1)
E14.1 Massey & Co. manufactures a single product. Annual
production costs incurred in the manufacturing process are shown
below for two levels of production:
Production in units
Production costs
Direct materials
Direct labour
Electricity
Rent
Maintenance
Supervisors’ salaries
Costs incurred
5000
10 000
Total
Cost/
Total
Cost/
cost
unit
cost
unit
$8 250 $1.65 $16 500 $1.65
9 500
1.90 19 000
1.90
1 400
0.28
2300
0.23
4 000
0.80
4 000
0.40
800
0.16
1 100
0.11
1 000
0.20
1 000
0.10
Required
(a) Define the terms variable costs, fixed costs and mixed costs.
(b) Classify each cost above as either variable, fixed or mixed.
Massey & Co.
(a)
The determination as to whether a cost is variable, fixed or mixed
can be made by comparing the cost in total and on a per-unit basis
at two different levels of production.
Variable Costs Vary in total but remain constant on a per-unit basis.
Fixed Costs
Remain constant in total but vary on a per-unit basis.
Mixed Costs
Contain both a fixed element and a variable element.
Vary both in total and on a per-unit basis.
(b)
Using these criteria as a guideline, the classification is as follows:
Direct materials
Direct labour
Electricity
Variable
Variable
Mixed
Rent
Maintenance
Supervisors’
salaries
Fixed
Mixed
Fixed
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Additional Questions based on MB Reports
The following actual reports are available from Report>>Financial Reports. Use the
information provided to answer the questions following each screen printout.
Required: Calculate the Prime Cost per unit in 2003 and reconcile this figure with
that provided in the Products – Sales, Margin, Production report.
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Direct Raw Materials
Material Overhead Applied
Standard Direct Labour
Direct Labour Efficiency Variance
Labour Overhead Applied
Machine Overhead Applied
Production (Units)
Average Manufacturing Cost Per Unit
Prime Cost per unit = (DM + DL)/Nr units.
Page 8 of 44
$3,626,467
$118,593
$1,036,133
$43,408
$1,887,119
$1,070,000
$7,781,720
15,542
$500.69 ($7,781,720 / 15,542)
302.79
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Page 9 of 44
Required:
Indicating the source of data (i.e. which report you get which amount from),
calculate the value of:
a) opening stock at cost;
b) closing stock at cost;
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a)
Opening Inventory $
b)
Closing Inventory
Units
Average
Manufacturing Cost
Per Unit
Opening Inventory $
Page 10 of 44
$300,000
(Ex Gross Margin Report)
575
(Ex Products - Sales, Margin, Production
Report)
$500.69
(Ex Products - Sales, Margin, Production
Report + Cost of Goods Manufactured
Report)
$287,897
575 x $500.69 (Check is on Gross Margin
Report)
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Required:
Comparing the 2004 data above with the data for 2003, what are the possible
explanations for the change in the Average Manufacturing Cost per Unit?
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NOT Change in Cost of Direct Materials
Part Change in Materials Overhead Applied
NOT Change in Cost of Direct Labour
Part Change in Direct Labour Efficiency
Variance
Part Change in Labour Overhead Applied
Part Change in Machine Overhead Applied
Page 12 of 44
$233.33 per SCU for both years
$0.08 per Direct Material Dollar in 2004 compared to $0.03 in 2003
$66.67 per SCU for both years
$18.62 per Direct Labour Hour in 2004 compared to $22.77 in 2003
$38.38 per Direct Machine Hour in 2004 compared to $17.21 in 2003
Note that the firm has become less labour intensive and more machine intensive in this period
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Page 14 of 44
Required:
Examine the Average Manufacturing Cost Per Unit for 2005 with the figure for 2004
and 2003. Provide an explanation for any changes in this figure over the 2003 to 2005
period.
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Page 15 of 44
There has been a progressive change in automation in the firm coupled with an
increase in labour productivity during the period.
With the introduction of the Café Cruiser, the fixed costs of the firm are now
shared by two products as opposed to being borne soley by the
RC_Rockhopper
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Additional Mike’s Bikes Questions
PRODUCT PRIME COST
How do you determine the prime cost of your products in Mike’s Bikes?
A product's prime cost is the sum of the direct material and wage costs required to
make one unit. It includes the direct raw materials cost (with an allowance for
wastage) and the wage costs of the workers while producing the product. It does not
include overheads such as setup, rework etc.
CALCULATION OF PRIME COST AND AVERAGE COST OF GOODS
MANUFACTURED
From the following data (which can be found in the Mike’s Bikes COGM and Gross
Margin Report), calculate the Prime Cost per unit and the average Cost of Goods
Manufactured per unit.
Production (units)
Materials Costs
Direct Raw Materials
Materials Overhead Applied
15,542
$3,626,467
$118,593
Labour Costs
Standard Direct Labour
Labour Overhead Applied
$1,036,133
$1,887,119
Machine Costs
Machine Overhead Applied
$1,070,000
Prime Cost = $300
Average COGM = $500.69
TARGET PRIME COST
What is the significance of setting a Target Prime Cost when developing a Mike’s
Bike product and how would you go about it?
Setting the target prime cost when developing a new product or modifying an existing
one is an important decision. Specify an unrealistically low target - and the product
development team will have to spend a lot of time and money trying to achieve your
request and have less time to spend on making any other changes to the product. On
the other hand, if a product costs too much to produce (in time and materials) it will
hamper the factory's ability to produce it in the required quantity and marketing's
ability to sell it at a profit.
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A good place to start is with estimating the likely retail and wholesale prices and the
expected sales volumes. Now, estimate and subtract direct marketing costs associated
with the product and the product's share of company overheads (remembering that
some may increase because of the product). Subtract the profit the firm requires from
this product, and some allowance to repay the cost of developing the product. What
remains is essentially the amount you can afford to pay in direct costs to produce it.
Determine the lowest economic Target Prime Cost for an Adventurer Bike and why?
At approximately $215, the Adventurer bike is at the lowest possible economic Target
Prime Cost. To achieve reductions beyond that means spending disproportionate
amounts for each dollar of reduction. The answer is found on the Data - Product
Development - Target Product Prime Cost screen of Mike’s Bikes.
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Additional question
A large manufacturer of electronic equipment gave the following statement as one of
its objectives:
The company should become the low-cost producer in its industry.
Discuss how management accounting can assist the company in achieving its stated
goals.
Points to consider in an answer:

The link between management accounting and strategy, particularly the use of
information for decision making;

Becoming the low-cost producer in an industry requires a clear understanding
by management of the costs incurred in its production process as well as the
resources used;

Reports and analysis of these costs are a primary function of management
accounting;

Performance measures that focus on costs would also be important, to allow
management to discharge their duties, particularly the control function.
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Additional Problem: Cost Terminology
Rodger Smyth was employed as warehouse manager at A.R. and Son Pty .Ltd.
Unfortunately, Rodger did not obtain the pay rise he was hoping for and resigned
from the company. On the night of his resignation, a fire mysteriously destroyed the
factory and the warehouse, along with all inventory. Fortunately, inventory and
buildings were insured and certain accounting records were kept in a different
building. These reveal the following for the period from January 1 to February 26,
2005.
Direct materials purchased
WIP, 1/1/2005
Direct materials, 1/2/2005
Finished goods, 1/1/2005
Indirect manufacturing costs
Sales revenue
Direct manufacturing labour
Prime cost
Gross margin % based on revenue
Cost of goods available for sale
$160,000
$34,000
$16,000
$30,000
40% of conversion costs
$500,000
$180,000
$294,000
20%
$450,000
The fire totally destroyed the inventory, which is fully covered by insurance. In
negotiating the pay-out for the claim, the insurance company is interested in
determining the following amounts:
1. Finished goods inventory on 26/2/2005;
2. WIP Inventory, 26/2/2005;
3. Direct materials inventory, 26/2/2005.
Exam marker’s tip:
This problem is not as easy as it first appears, and requires you to carefully think
about the basic relationships between categories of costs (i.e. what makes up prime
costs and conversion cost). Consult the Manufacturing Cost Classifications and Cost
Flows flowchart. Once you have this information, along with the other data given, it is
relatively easy to solve for COGM and ending inventory.
Answers:
1. = $50,000
2. = $28,000
3. = $62,000
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Solution (NOT TO BE INCLUDED IN STUDENT’S VERSIONS OR
RELEASED ON BLACKBOARD)
ATTENTION TUTORS: (very serious about this!!!)
DO NOT SIMPLY REVEAL THE ANSWER. STUDENTS MUST SHOW
YOU THEIR SERIOUS ATTEMPT AT THIS QUESTION, GIVEN THAT
HINTS AND CHECK FIGURES ARE PROVIDED.
ALSO NOTE THAT THERE ARE TWO WAYS OF APPROACHING THE
SOLUTION, SO TAKE YOUR CUE FROM THE CLASS. IF THE CLASS IS
NOT WILLING TO ENGAGE IN DISUCUSSION, DO NOT REVEAL THE
ANSWER.
These answers are obtained by working from the known figures to the unknowns in
the schedule below. The basic relationships between categories of costs are:
Prime costs (given)
Direct materials used
costs
= $294,000
= $294,000 – Direct manufacturing labour
= $294,000 – $180,000
= $114,000
= Direct manufacturing labour costs ÷ 0.6
$180,000 ÷ 0.6
= $300,000
= $300,000 – $180,000
= $120,000
(or 0.40  $300,000)
Conversion costs
Indirect manuf. costs
Schedule of Computations
Direct materials, 1/1/2005
Direct materials purchased
Direct materials available for use
Direct materials, 2/26/2005
Direct materials used ($294,000 – $180,000)
Direct manufacturing labour costs
Prime costs
3=
294,000
Indirect manufacturing costs
Manufacturing costs incurred during the
current period
Add work in process, 1/1/2005
Manufacturing costs to account for
Deduct work in process, 2/26/2005
Cost of goods manufactured
Add finished goods, 1/1/2005
Cost of goods available for sale (given)
Deduct finished goods, 2/26/2005
Cost of goods sold (80% of $500,000)
$ 16,000
160,000
176,000
62,000
114,000
180,000
120,000
2=
414,000
34,000
448,000
28,000
420,000
30,000
450,000
1=
50,000
$400,000
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Alternative: (NOT FOR RELEASE ON BLACKBOARD)
Alternatively, you may wish to place the key amounts in a Work in Process Taccount. This requires are reconstructing three T-accounts in order to trace the flow
of costs through the general ledger (amounts in thousands):
Work in Process
Finished Goods
Cost of Goods Sold
BI
34
BI
30
DM used
114
COGM 420 ------->
420 COGS 400 ---->400
DL
180
OH
120
Available
To account for
448
for sale
450
EI
28
EI
50
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Team Tasks
Newspaper Team Task: Information for Students
The newspaper team task involves the use of the analytical framework (introduced in
this seminar) to prepare a 3-page written critique and a 10 to 15-minute presentation
on a newspaper article that relates to an ethical issue, which may or may not directly
relate to the subject matter of the unit of study.
Teams are formed in this seminar. Each student will be a member of one team; each
seminar will consist of four or five teams of as equal size as is practicable. Each team
is required to complete the newspaper team task (oral presentation and written critique)
once during semester (as indicated on the Team Activities Schedule). All members of
the team are required to orally contribute to the presentation. The newspaper team
presentation, based on your analysis, will take approximately 10 to 15 minutes (no
longer). If your presentation exceeds the 15-minute time limit marks will be deducted
and your presentation stopped.
The analytical framework helps you think through a variety of ethical issues in
business, government and society and analyse unstructured problems, such as ethical
cases from your text and newspaper articles. The framework provides a logical
structure for your analysis, spoken presentation and written critique of your
newspaper article, as well as the ethics essay question in the final examination.
Your tutors will take you step-by-step through a model analysis of the Educational
Service Providers (ESP) case in this seminar using the analytical framework. The
answer will be posted on Blackboard. In addition, there will be a practice analysis in
Seminar 4.
Use the analytical framework and the newspaper task oral presentation feedback sheet
to prepare for your oral presentation. (Additional information about team
presentations is provided in this seminar and in seminar 4). Your team will be
assessed on your ability to choose a relevant issue, your critical analysis of the issue
(guided by the analytical framework) and your capacity to present this analysis orally
and engage the class in discussion.
If you do not attend the seminar in which your team is presenting the newspaper task
without a documented reason for non-attendance and prior notification to your tutor
and team you will not be awarded the marks that your team earns for this task.
The marking criteria for the newspaper team presentation and the written component
are available on Blackboard and are also found in this seminar.
The Newspaper task is designed to encourage you to:
 Read newspapers on a regular basis
 See the link between the course content and the ‘real world’
 Realise how often ethical issues are part and parcel of commercial decision
making process/our actions (commercial or non-commercial)
 Apply a generic analytical framework to reading and thinking about
newspaper articles
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






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Identify appropriate commercial/accounting issue(s) and to appreciate how
its/their resolution affects financial reporting and decision making
Identify ethical issues as they relate to contemporary business, social and
political environment and to determine stakeholders affected by it, and to think
about how the protagonists have/could have reacted to the identified issue(s)
Think about how you define ethics and what benchmark you use to determine
whether or not an action is ethical or unethical
Think about whether or not you apply different ethical standards to different
situations
Think about academic honesty and how it applies to your own work
Understand the difference between preparing and delivering a written and an
oral presentation and
Develop confidence in your own understanding and ability to put forward your
argument, and to evaluate the conclusions drawn by others, and to present an
alternative viewpoint both orally and in writing.
Sources for articles
The following sources are likely to be your key sources of articles for the Newspaper
Task:
The Sydney Morning Herald (SMH)
The Australian Financial Review (AFR)
The Australian Business Review Weekly (BRW)
University students receive The Sydney Morning Herald and The Australian Financial
Review for half price when purchased on campus (for example at Wentworth or
Holme Building newsagencies).
These papers and a wide selection of other newspapers and magazines are available at
Level 3 (entry level) of Fisher Library in the ‘Periodicals’ section of Closed Reserve.
Fisher Library also has an electronic database for past Sydney Morning Herald articles.
Past articles from the Australian Financial Review are available on CD-Rom (ask at
the Level 4 Computer desk).
The following websites often contain useful current affairs information and links.
www.abc.net.au
www.afr.com.au
www.smh.com.au
www.theaustralian.com.au
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ANALYTICAL FRAMEWORK
1.
Introduce topic
 Provide background (indicate that you understand what the article is about)
 Identify the issue/ problem/ main idea
2.
Identify the relevant accounting/ commercial/ ethical issues
Indicate how the article is relevant to the accounting/ commercial/ ethical issues
identified
 For accounting issues, identify the relevant accounting problem, show
that you understand the impact of the issue on financial reports and their
impact on decision making by external and internal users. (Keep in mind
that financial statements determine how outsiders view a company.)
 For non-accounting issues, consider the commercial issues: who is
affected financially by the decisions/actions reported and how this is
likely to impact on their decision making/actions
3.
Identify stakeholders
 Identify the stakeholders and their needs/ interests
 Indicate whether there are any potential conflicts of interests that could
influence how the ethical issue is reported and/or resolved
4.
Outline ethical perspectives
 Identify the ethical criteria that appear to have been applied by the
protagonists
 Identify your own ethical perspective
5.
Conclude
 State whether you agree or disagree with the reported outcome, if relevant
 Justify the course of action taken by the protagonists or offer an alternative
course of action that could have been taken
The St James Ethics Centre suggests the following ethical perspectives that you
might consider when analysing the topic you have chosen:
Utilitarian outcomes – benefits outweigh harm?
Duty ethics – does it make a good general rule?
Virtue ethics – what virtues are being promoted and what are being undermined?
Judaeo-Christian tradition – human flourishing & common good? (Only Judaeo
Christian? Here you could substitute your own religious/philosophical perspective)
Sunlight test – how would you feel if your actions were written up on the front
page of the Sydney Morning Herald?
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Page 26 of 44
Here is the ethical case information:
(This case study is reproduced from Hoggett & Edwards 2003 Financial Accounting in Australia, 5 th
edition, Wiley: 57)
Educational Service Providers (ESP) is an organisation dedicated
to improving the educational standards of young people in several
overseas countries. It is concerned with marketing different
university courses overseas, and also involved in the construction
and running of educational institutions, and collecting fees for the
courses it offers.
ESP has just discovered that it has submitted the lowest price for a
major construction contract to build a university complex in a
particular overseas country. This would usually mean that ESP
should win the contract. However, ESP has also learned that the
bid has a much better chance of succeeding if it agrees to pay a
‘service’ fee equivalent to $50,000 to a certain official in the
government of that country. The contract has the potential to be
very profitable and may well lead to additional work in
neighbouring countries. ESP has also learned that the ‘service’
fee is a normal business practice for that country, and that many
companies have been prepared to pay such fees on a regular basis
in order to gain contracts within the country concerned.
Task:
Using the analytical framework to structure your response,
identify the issues, both commercial and ethical, for ESP and the
stakeholders involved.
Recommend a course of action for ESP, with a persuasive rationale.
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HOW THE ANALYTICAL FRAMEWORK STRUCTURES THE RESPONSE TO THE TASK
The analytical framework presented in Seminar 4 is the preferred method for discussing
ethical cases and newspaper cases during this course. It takes students through 5 steps to
assist them to identify and discuss the main issues in a logical order. Below is an
example of using the framework when responding to the ethical case from Hoggett &
Edward, chapter 2, page 57. The course of action recommended here (step 5), however,
is not the only acceptable response. It is possible to argue for a different solution if
students can support it.
1.
Framework
Introduce topic

provide background (indicate that you understand what the article is about)

identify the issue/problem/main idea
Educational Service Providers (ESP) is an organisation which markets, constructs and runs educational
institutions in overseas countries with the aim to improve educational standards for their young people. It has
been informed that its tender for the construction of a university complex in a particular country is the lowest
bid and the addition of a "service fee" to a government official will enhance its chances to win the contract. It
seems that "service fees" are normal business practice in that country.
2.
Identify relevant accounting / commercial /ethical issues
The accounting / commercial issues include:
 the potential to win (or lose) a very profitable contract, & the effects on ESP
 the potential for the organisation to gain additional work in neighbouring countries
 the potential loss of high class educational facilities if ESP doesn’t get the contract
3.
Identify stakeholders (and potential conflicts of interest) involved
The stakeholders in this situation are ESP, the government official who is the recipient of the "service fee",
other bidders to the contract, the government of the country building the university, future university students
and the people of the particular overseas country.
4.
Outline ethical issues, including your ethical perspective you adopt
The ethical issues include:
 ESP paying "service fees" to government officials to win government contracts.
 The bidding and tendering process is compromised. How did ESP know that it was the lowest bidder?
 The fact that the payment of "service fees" to government officials is normal business practice.
 ESP may win the job not because it is the best option but merely because it paid money to the
government official.
 The control procedures to ensure the best tender option is adopted have failed to apply.
 ESP may win further work based on its agreement to ‘play ball’ with the official.
5.
Conclude
Your conclusion would depend on your analysis above, and on the ethical perspective you adopt. For
instance, some may argue that under no circumstances should ESP accept the bribe. Others may argue that the
company should try to work with the government to try to find another (legal) way of getting the contract and
benefiting the community eg by building a community hall in addition to the school. Alternatively, you may
argue that the foreign country and students will be disadvantaged if the school does not go ahead, so ESP
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should pay the bribe to advance their wellbeing. Whatever your conclusion, you should refer to one or more
of the St James Ethics Centre’s ethical perspectives (or your own) to anchor your analysis.
Reference: Answers 3. 4. and 5 are from Solutions Manual CD, Hoggett, J.E. & Edwards, L (2000)
Financial Accounting in Australia 4th edn, John Wiley & Sons, Australia. Chapter 2, page 24.
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Model Response
Notes
This case concerns ethical issues which arise when a business organisation,
Educational Service Providers (ESP), in a tendering process in an overseas
country is expected to pay a “service fee” in order to secure the tender. The
tender is for the construction of a university campus in that country.
Orienting statement
giving general context
acting as introduction
The contract provides enormous potential for ESP since it would be very
profitable and may lead to other profitable contracts from neighbouring
countries. Thus its business interests would dictate that the "service fee" is a
small price to pay for successfully gaining the contract.
Commercial issues
identified (2).
A further consideration is the large number of stakeholders involved. Apart
from ESP and the government official who is the recipient of the "service fee",
other stakeholders include the other bidders to the contract, the government and
the people of the country building the university, and its future university
students. The interests of ESP and its shareholders conflict with the interests of
other bidders to the contract. The government’s and potential students’
interests are best served by the winning tender being the best option. The
corrupt official, by pursuing his own interest, is in conflict with the interests of
his government and the community.
Identification of stakeholders and conflicts
of interest
Students will probably
only get the first 3 3 gets a tick.
This case presents numerous ethical issues. Firstly, there is the issue of ESP
paying "service fees" to a government official in order to win a government
contract. Further is the potential for it to gain addditional work based on this
agreement with the official. Next, the bidding and tendering process has been
compromised since ESP should not have been informed that it was the lowest
bidder. It is obvious that the control procedures to ensure that the best tender
option is adopted have failed to apply. ESP may thus win the job not because it
is the best option but because it paid money to an official. Finally is the fact that
the payment of "service fees" to government officials is normal business
practice.
Identification of
ethical issues.
Students will probably
not get all of these.
Thus this case illustrates the following ethical dilemma for ESP. The short-term
commercial interests of the organisation would favour paying the "service fee"
and winning the contract. However, in those circumstances ESP will never
know if it might have won the contract anyway as the best option and
meanwhile it has compromised its own ethical standards. If it pays the "service
fee" it may gain the additional potential markets of neighbouring countries
whereas its decision not to pay the fee may lead it to lose those markets.
However, not paying the fee also allows ESP to tender for future contracts free
of being tainted by accusations of corruption and unethical behaviour.
Discussion of ethical
issues / beginning of
rationale
The recommended course of action is that ESP should have further discussions
with other government officials. It should disclose that it has been requested to
pay this fee and fully disclose all discussions relating to the tender. It should be
seen to be independent and the best option in its own right. This independence
will assist in current and future building and service contracts. While ESP runs
the risk of losing the contract, this course of action confirms its faith in the
Recommended course
of action + rationale
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quality of its tender and accounting processes. This analysis would fit well with
the ‘sunlight test’ ie ESP is taking a course of action that would not embarrass
them if it became publicly known
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Note:
This model response is not the only possible course of action, and the students are free to make
other recommendations with rationales. Theoretical ethical stance vs. pragmatic realities of
business (utilitarian approach to ethics).
An example of another possible course of action for ESP:
A recommendation to pay the bribe, given that you may not be able to change a whole culture and
everyone else is doing it too: ie the ‘when in Rome’ and ‘level playing field’ reasoning.
Perhaps someone else will just pay the bribe and win anyway.
The consequence is that members of the firm have to live with knowing that this is how the firm
won the tender. The way the members of the firm may be able to justify this decision is that the
only way the firm can really meet its objectives (to improve educational standards for its students)
is to actually win the tender. So by using less ethical means, ESP creates an ethical outcome for
students: i.e the end justifies the means. They also support the interests of their shareholders.
This also implies a belief that the quality of their product is the best possible.
With this scenario, there is a minor risk that if the payment of the bribe became known, the tender
+ future business could be lost in this and neighbouring countries.
This solution has been prepared by the University’s Learning Centre.
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Accounting 1B
Newspaper Team Task
ORAL PRESENTATION FEEDBACK SHEET
Criteria
1. Is the presentation well-chosen, researched and argued?
Good choice of article – interesting ethical and commercial issues
Understanding of topic is demonstrated
Relationships between ideas are made clear
2. Is the presentation well-structured?
Structure reflects framework
Identify problem/summarise article (brief overview only)
Identify accounting/commercial/ethical issues
Identify stakeholders and how they are affected
Identify and discuss ethical issues
Conclusion/recommendation (including your ethical position)
Structural sections of the model well linked
Analysis of problem is perceptive, cogent and supported by appropriate evidence
3. Is the presentation well delivered?
Speech is clear; pace and volume of delivery are appropriate
Language is appropriate (in degree of technicality and formality)
Presentation is completed in appropriate time
Speakers do not read from a full written text
Speakers establish and maintain appropriate eye contact with audience
The presentation is lively, interesting and creative
4. Is the presentation supported well visually?
Visual aids (e.g. handouts, blackboard, Powerpoint, overheads) are well managed and introduced appropriately
Transparencies are legible and succinct
5. Timing
Brevity (no repetition)
Presentation does not exceed fifteen minutes
E
VG
G
A
P
/10
/15
/15
/5
/5
Total Assessment
See over for comments and suggestions for improvement:
Marks
/50
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Accounting 1B
Newspaper Team Task
WRITTEN COMPONENT FEEDBACK SHEET
Criteria
E
VG
G
A
P
1. Introduction
Clear and concise identification of problem
Understanding of topic is demonstrated
Sets tone for discussing issue
2. Identify relevant accounting/commercial/ethical issues
Clear identification of all accounting/commercial/ethical issues with examples
Relevant discussion of ethical issues
Overall level of analysis is satisfactory
3. Identify stakeholders
Major stakeholders identified
Relevance of stakeholders discussed
Positive/negative effects on stakeholders identified and explained with relevant examples
4. Outline ethical perspectives
Perspectives appropriately documented and argued with examples
5. Conclusion
Sensible solution crafted based on facts
Relates back to introduction
6. Quality of writing
Paper is easy to read and understand
Appropriate structure (framework followed)
Evidence is used to support statements (where appropriate)
Appropriate tone
Correct grammar (sentences are well-constructed)
Correct spelling
Does not exceed 3 pages (Times New Roman 12pt, 1.5 spacing)
/5
/10
/5
/5
/5
/20
Total Assessment
See over for comments and suggestions for improvement:
Marks
/50
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TEAMWORK (Total: 50 minutes) (Introduction by Tutor: 2 minutes)
Working in teams or groups has become a normal part of tertiary education and three of the
assessable activities in this subject are team-work based: the Mike’s Bikes task, the homework
task, and the newspaper team task. Students have already had an introduction to teamwork in the
Orientation to Mike’s Bikes/Teamwork presentation in Week 1. In this seminar you will help
students form teams and lead discussions on how to succeed as a team.
At university, team work can give students a chance to:




to apply and reflect on their course material
to gain experience in managing a complex task and collaborating to achieve a common aim
to work with people with different skills and life experiences
to develop interpersonal skills
These latter skills are highly valued by employers. Employers expect students they
employ to have had considerable exposure to group work at university, and to be
proficient team players. Why? Because there is evidence that the output produced
by a fully functioning team is superior to a product produced by individuals
working alone.
Undertaking teamwork at university provides an excellent opportunity to prepare students for
professional life. It is important to emphasize to students that i) they will not usually be given
the chance to work alone in their workplaces; ii) they will not necessarily get on with or be
similar in values, personality, working style, etc. to their team members; and iii) conflict is
normal part of team-building: it is how members deal with conflict that sets the team apart.
Research has shown that spending adequate time on the early stages of the team building process
(i.e. forming, storming and norming), rather than jumping straight into the task (performing)
leads to higher performing and more harmonious teams in the longer term.
If you need more information about teamwork, you can consult the following:
Gibbs, G. (1994) Learning in Teams: A Student Guide. Oxford Brookes University: Oxford.
[UG 378.176 GIB]
Connery, Brian A. & Vohs, John L. (online) Group Work and Collaborative Writing.
Available: http://honors.ucdavis.edu/vohs/index.html Accessed: February 1, 2004]

Activity 1 (10 minutes)
Class Discussion: “How to wreck a team”
This activity could be reframed as “How to succeed as a team”. Both effective and ineffective
approaches and strategies usually emerge during such a discussion regardless of how you
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approach it (e.g. “don’t attend meetings” (ineffective) cf. “attend meetings” (effective)).
Students will usually have had some bad experiences doing team work, and many will probably
have some reservations about doing teamwork, so framing it as “how to fail” will probably
resonate with them. It can also be enjoyable as they will quite happily describe the team from
hell.
You can summarize the discussion on the whiteboard. You might also ask whether the pitfalls
can be prioritized: are any behaviours more likely to lead to disaster?

Activity 2 (10 minutes)
Class Discussion: “How to avoid or fix team problems”
Refer to the previous list of behaviours and ask students to offer a variety of solutions.
Activities 2 and 3 can also act as icebreakers before moving on to team formation.

Activity 3 (15 minutes -)
Team Formation
1.
2.
Divide students into two main groups: those who want to devote a lot of time to this
particular subject and who want to do well in it (e.g. high Credit +), and those for
whom this subject is not so important and would prefer to devote more time to other
subjects, courses, activities. These latter students might be willing to settle for a Pass
or Credit. Let both groups of students know, however, that expectations don’t always
translate into reality as a self-fulfilling prophecy, they might settle for a Pass but in
fact earn a Distinction; the reverse also holds.
To subdivide these two large groups, ask students to compare their schedules. They
should already have filled in the 7 day matrix and blocked out the times when they
have lectures, tutorials, study and work commitments, as well as ongoing extracurricular commitments (sport, music, etc.). This will help form teams based on
availability to meet, which is critical since having members absent from meetings, or
having differing expectations regarding how often and where they will meet, can be
another major source of conflict within a team.
To get people with similar schedules together:
a) those who prefer to meet regularly on campus during working hours (M – F, 9am – 5pm)
b) those who would prefer to meet on campus after hours (e.g. after 5pm and/or on weekends)
c) those for whom meeting on campus regularly might be problematic (because of where they
live, or their working commitments) (C). This latter group (C) (if there is one) might need to
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conduct their meetings as a ‘virtual’ team, meeting face-to-face less often than the other
teams.
d) Any of the above combinations

Activity 4 (5 minutes)
After students are in their teams, ask them to complete the team contact sheet. Once they have
added all the necessary information for all members, ask them to photocopy this sheet, distribute
to members and pass a copy to you in Seminar 3.

Activity 5 (15 minutes)
Expectations
Instructions for students:
In your newly formed teams, discuss your expectations of the team and try to come up with a
consensus about the issues listed below. In cases where you have different expectations, discuss
how your team will deal with these. Ensure that every member of the team has a say on each of
these questions (keeping in mind personality types: some people are more dominant, others are
quieter, some might be less confident about their spoken English at this point – as a team ensure
that everyone has an opportunity to contribute, and respect differences).

Do you want to spend lots of time on your teamwork or to get through the tasks as
quickly and efficiently as possible? (Consider each of your tasks: Mike’s Bikes,
Newspaper Task)

Do you want your team to be sociable or business-like? Do you want friendship or a
working relationship with others?

Do you have other priorities—for example, other courses which you are finding difficult
or time-consuming, other friendships or activities which are more important to you?

What kinds of activities will you count as a ‘contribution’? (Keep in mind that different
people can make different kinds of contributions, depending on their skills, experience,
personality type, language ability, etc.)

What else do you want out of this project?
(Adapted from G. Gibbs,1994, “Learning in Teams: A Student Manual”)

Activity 6 (8 minutes)
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Instructions for students:
Based on class and team discussions in this seminar, write down what your team believes will be
the most important factors that will lead to success. Indicate which of these aspects will require
more discussion and negotiation in your first team meeting.
Strategies for success
More discussion?
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Homework Activity
Instructions for students:
1)
2)
Read the information on team functions and roles
Plan and conduct your first team meeting:
a)
Use the Jobs List and Team Members’ Jobs List templates (on Blackboard) to
organize your activities on a regular basis. Use the Mike’s Bikes Meeting Agenda
and Minutes templates (available on Blackboard) to organise your MB meetings.
b)
Use the “Team Contract Template” (available on Blackboard) to prepare your team
contract for Seminar 3 (Week 4). You can change some of the headings or add
headings in this template to suit your team. Bring your contract to Seminar 3.
[In Seminar 8 you will have the opportunity to reflect on how well you and your team
have fulfilled the terms of your contract and you will be able to revise your contract
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(by consensus only) and/or determine which behaviours need to be changed to
enhance the performance of your team. You will also be asked to peer-review the
team’s performance at this time.]
c)
In your meeting, choose members (by a democratic method, e.g. through nominations)
to take on the formal roles of Coordinator and Recorder. (Be aware of the other, less
formal roles, members can play in the team, e.g. encouragers, harmonizers, etc.)
d)
Read through the Team Roles/Team Functions table and in your meeting decide
which of these roles/functions each of you fits or prefers (there may be more than
one). Decide if you would like to perform these roles within this particular team or
whether you would like to experiment with new roles (be realistic about capabilities).
Are there any roles that are missing within your team? Are there any overlaps
between members’ preferred roles (e.g. several ‘explorers’ but no ‘controllers’)?
What are the implications of this for your team dynamic? How will you deal with it?
e)
Keep notes on your discussions about teamwork, e.g. team roles, conflicts that arise,
how you approach and solve them, effectiveness of meeting procedures, and so forth.
These will be useful for when you write up your ‘Reflections on Teamwork’ in your
Final Report.
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TEAM CONTACT SHEET
Team
Member’s
Family Name
Seminar:
_______________________________________________
Tutor’s Name:
_______________________________________________
Team name:
_______________________________________________
Team
Member’s
Given Names
Phone Number(s)
USyd Email Address
ONLY
Fax
Mike’s Bikes Role
Once you have filled in your contact details, photocopy this sheet and distribute to each member of the team and pass one to
your tutor.
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TEAM ROLES/TEAM FUNCTIONS
(Margerison & McCann, 1995, cited in TAFE Access Series, 2003, “Communication
for Business”)
Reporter—Advisor
 Good at gathering information
 May give information in written format
(if introverted) or verbal format (if
extroverted)
 Like to gather lots of information before
making a decision or taking action
 Generally avoid conflict
 Can ‘forget’ time
 Tolerant of people; flexible
Explorer—Promoter
 Take ideas and promote them; can be
very persuasive
 Generally know lots of people—that
have contacts
 Usually very energetic
 May have several ideas on the go at one
time
 Good talkers
 Do not pay attention to details
 Need to be interacting with other people;
outgoing
 Not good at working alone
Thruster—Organiser
 Like to make things happen
 Task focused, sometimes at the expense
of people
 Get things done on time and on budget
 Face conflict head on
 Like structure
 Good at organising people and
resource—they ensure everyone knows
what has to be done and when
 Make decisions quickly
Controller—Inspector
 Quiet, reflective
 Enjoy detail; generally careful, precise
 Like facts and figures
 Can focus on one task for long periods
 Like to work alone
 Like to stick to rules and regulations
 Dislike errors
 Prefer one or very few projects at a time
Creator—Innovator
 Ideas people—looking to the future,
thinking up new ways of doing things,
new products, new business ideas, and so
on
 Generally they do not need to see
evidence that the idea will work—happy
to jump in and try it
 May appear disorganised and vague
 Imaginative
 Not always good at working to deadlines
Assessor—Developer
 Excellent at taking an idea and making it
work
 Usually sociable and outgoing
 Consider organisational requirements
when developing ideas
 Have an analytical approach
 May not be interested in the
production—once they have set it up,
they want to move on
 Like to experiment
 Dislike routine
Concluder—Producer
 Practical
 Output oriented—get things finished;
stick with a project until it is completed
 Generally do not like rapid change—like
to establish procedures and stick with
them to maintain order and control
 Like the challenge of doing work
efficiently and effectively
 Patient with routine work
 Stable
 Deliver results
 Time conscious
Upholder—Maintainer
 Strong values and principles
 High people focus—they take notice of
how people feel
 Like things to be done to their standards
 Prefer advising rather than leading
 Can be stubborn in holding to their
values; obstinate rather than loud
tempered
 Loyal
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TEAM MAINTENANCE ROLES
Formal Roles: Coordinator and Recorder
Source: Connery, Brian A. & Vohs, John L. “Group Work and Collaborative Writing”,
Available online: http://honors.ucdavis.edu/vohs/index.html Accessed: February 1,
2004.
“Choose your coordinator or co-coordinators democratically, with nominations
(yes, people can nominate themselves) and a vote, either roll call or secret ballot.
(Don't draw straws: drawing straws creates an atmosphere in which the one
selected is viewed as a loser and you don't want your group being led by a loser.
Your coordinator needs to know that she has the confidence and trust of a
majority of the group members.)
Coordination: There are some important tasks that successful groups must
perform. The coordinator's job is to make certain that these tasks are addressed:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
making sure that the group's objectives get defined
maintaining the group's orientation toward those goals
facilitating group action and interaction by making sure that procedures
are established
creating an agenda for each meeting
actively soliciting ideas from every group member
making sure that the group stays on track during the course of meetings
making sure that the points of view of each member are clearly
understood by other members
assigning tasks and projects to members
monitoring group cohesiveness and member satisfaction
trying to move the group towards consensus
bringing the discussion to a definite close
helping the recorder record ideas accurately.
While the coordinator should make sure that these tasks are addressed, this does
not mean that the coordinator does them all. It means that she brings them before
the group at the appropriate time, she presses for decisions from the members,
and sometimes she makes a few herself. Occasionally, she may take on one or
two of these obligations. But the job of the coordinator is not to do all of the
work; rather, it is to ensure that the group members work together to get it done.
Some other behaviors are peculiar to the coordinators, and would be counterproductive if adopted by all the group members. The coordinator needs to be
particularly careful not to use her position in order to impose her own ideas on
the group. Whenever possible, she should deflect attention back to the group. She
should avoid the tendency to offer commentary after every speaker. When
questions are raised, they may be directed at her (for lack of anyone else) but she
should bounce them back to the group. The group members have given the
coordinator a position of power, but she and the group must be careful that the
power is always returned to the group.
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The coordinator should be particularly sensitive to the idea of "constructive
conflict." While remaining neutral in most arguments so as not to use her
position of authority to prejudice group members about the merits of opposed
arguments, she should block any premature resolutions of disagreement. Quick
decisions are often ill considered decisions. Whenever possible, the coordinator
should try to extend the processes of brainstorming, analysis, discussion, and
evaluation. However, when a deadlock seems evident and all the "constructive"
in the "constructive conflict" has been exhausted, the coordinator should help the
group move towards a compromise and consensus.
At the end of the meetings, the coordinator should clarify and paraphrase all the
decisions, agreements, and promises that have been made. This is very important.
The review and summary of agreements will serve to clarify and reinforce the
collective understanding of the members. It helps to lock in the assignments and
obligations that people have accepted. The coordinator should also solicit
suggestions regarding the agenda and procedures for the next meeting. Finally,
the coordinator should ask the group to evaluate the meeting that's just been
completed what worked and what didn't, why, and why not.
Recording: The recorder's job is to make sure that questions, ideas, problems,
suggestions, assignments, and decisions don't evaporate into the rarefied
atmosphere of the group's discussion. He helps to keep the group from wasting
its time going in circles. Too many groups waste time because members do not
recall the important business of the group from meeting to meeting. The recorder
doesn't have to be a secretary, nor does he have to take the minutes of the group
meeting, nothing this formal is required. The recorder is responsible for
recording as accurately as possible the important ideas that are discussed whether
or not the ideas are decided upon positively. Questions that the group needs to
have answered should be noted so that people can be asked to get the necessary
information. It is especially important to keep a record of decisions that have
been made and agreements that have been reached. Sometimes a group reaches
an implied consensus (it appears that everyone agrees, even though the
agreement is not explicit) and it is very helpful for the recorder to note this so it
can be checked and perhaps confirmed at the end of the meeting.”
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Informal Roles:
Source: Connery, Brian A. & Vohs, John L. “Group Work and Collaborative Writing”,
Available online: http://honors.ucdavis.edu/vohs/index.html Accessed: February 1,
2004.
Encouragers
“Encouragers are essential in creating the supportive atmosphere necessary during the
first half of the group's work when you are brainstorming ideas. Encouragers are
quick to support vocally any ideas that they like. They invite the quieter group
members to comment (either positively or negatively) on ideas under discussion and
to offer ideas of their own.
Feeling expressers
Feeling expressers too often are perceived as being digressive not sticking to the work
at hand. But if anything can interfere with group work, it's unexpressed feelings.
Feeling expressers may express their own feelings-anger, pleasure, resentment,
apprehension, pride, or accomplishment or they may help others to express or identify
theirs. The most important skill required of a feeling expresser is remembering to
explicitly identify a feeling as a feeling, and to take responsibility for their own
feelings by using "I statements." Good feeling expressers say things like 'I’m really
upset that there's been so little discussion" instead of saying "Shari keeps dominating
this whole discussion and imposing her own ideas on the rest of us."
Harmonizers
Harmonizers help to resolve disagreements. One way to do this is by depersonalizing
them. Harmonizers insist upon referring to ideas by names that reflect the contents of
the ideas rather than by the name of the person who is arguing for the idea.
Harmonizers consider ideas upon their own merits. Harmonizers can frequently
defuse a volatile and potentially destructive argument by jumping in and paraphrasing
the ideas of the two camps, calling attention objectively to both the advantages and
the disadvantages of both sides. Sometimes a harmonizer will simply crack a joke to
ease the tension, but will be careful to make sure that the joke is not at anyone's
expense. When a good harmonizer is at work whether with humor or with reasoned
compromise, no one member seems to "win" over another member. If an individual
"wins," then someone else loses, and harmonizers don't want losers in their group.
Compromisers
Compromisers model behavior that will be necessary on one or more occasions from
all group members. Compromisers invite criticism of their own ideas. They
sometimes withdraw their ideas and can admit error and fallibility. They create an
atmosphere in the group which is fertile because people are less apprehensive about
being wrong, because harmonizers show that it's always OK to back down and
because people are consequently less afraid to criticize ideas for fear of hurting
someone's feelings. Compromisers show other group members how to detach their
egos from their ideas.
Gatekeepers
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Gatekeepers keep an objective eye on the group's progress during the meeting.
They are concerned with having a balance of member participation in the
group. They help keep individuals from taking too much "air time," and they
help draw quiet members into the discussion. They also remember what has to
be accomplished, and they keep an eye on the clock to make sure that the
group can accomplish it. While they don't condemn humor or gossip, they do
interrupt digressions that are inordinately long. And while they understand that
group maintenance tasks are important, they help the group coordinator keep
to the agenda after group maintenance tasks are complete. They help the group
keep an eye on the tasks before them.”