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FinalExamrevisionquestions

FlexiblebudgetsandvarianceanalysisQ1
CandymanufacturingproducesboxesofcandythataresoldallaroundSydneystores.Thecompany
revealsthefollowingbudgetaryinformationrelatingtoitsstandarddirectmaterialanddirectlabour
costsforaboxofcandy:
Directmaterials:

$4perkg*2kgperbox=$8perbox

Directlabour:

$20perhour*15minutesperbox=$5perbox

ManagementisconcernedthatstaffmayhaveworkedsuboptimallyinJuly,andhaverequesteda
flexiblebudgetbeconstructedforthatperiod.Theyinformyouthat800boxeswereproducedin
themonth.300boxesfromlastmonthwereunsoldandthereforealreadyavailableforsaleatthe
startofJuly,while100boxeswerestillunsoldattheendofJuly.Julystotalsalesrevenuewas
$50,000.Managementhadexpectedtoselltheboxesfor$52each.InJuly,directlabourstaffhad
actuallyworked230hoursandwerepaid$4,140.Also,2700kilogramsofdirectmaterialswere
purchasedinJuly,for$10,000.Thedirectmaterialsbalanceintherawmaterialswarehousewas500
kilogramsatthestartofJuly,and800kilogramsattheendofJuly.

Required
1. PleaseconstructaflexiblebudgetforJuly,identifyingtheflexiblebudgetnumbersforsales
revenue,directmaterialsanddirectlabour.
2. PleaseidentifythedirectmaterialsanddirectlabourvariancesforJuly

Solutionpart1:
1. Flexiblebudget(July)
QtySold=BegFingoodsEndFingoods+Qtyproduced
Qtysold=300100+800=1,000units

SalesRevenue(1,000unitssold*$52)

$52,000
DirectMaterials(1,000unitssold*$8stdperbox)

($8,000)
DirectLabour(1,000unitssold*$5stdperbox)

($5,000)

Note:Asnootherexpensesweregiven,includingoverheads,wecannotcalculategrossprofitornet
profithence,wedonotcalculateaprofitfigureinthisflexiblebudget.Weonlyidentifythe
threeflexiblebudgetvalues.

Solutionpart2:

Actualqty

Purchased

Actualprice

2700kg

$3.7037perkg
=$10,000

MPV

$800F

Actualhours
X

Actualrate

230hours

$18

=$4,140

LRV

$460F

ActualqtyActualqty
Purchasedused

XX

Std.PriceStd.Price

2700kg2400kg

800units*2kgperunit
(1,600kg)
X
X

X
$4perkg$4perkg

$4perkg
=$10,800=$9,600
=$6,400

MUVorMQV(samething)

$3,200U

Actualhours
X
Std.rate

230hours

X
$20
=$4,600

800units*0.25hours

=200hours

$20

=$4,000

LEV
$600U

Flexbudgetqty
used

X
Std.Price

Flexbudgethrs

X
Std.rate

FlexiblebudgetsandvarianceanalysisQ2
Shandymanufacturingproducescartonsofbeersoldinternationally.Thecompanyrevealsthe
followingbudgetaryinformationrelatingtoitsstandarddirectmaterialanddirectlabourcostsfora
cartonofbeerin2010:
Directmaterials:

$1.50perkg*5kgpercarton=$7.50percarton

Directlabour:

$25perhour*12minutespercarton=$5percarton

Youareinformedthat4,000cartonsweresoldin2010.300cartonswerereadyforsaleatthe
beginningof2010and800finishedcartonswereinstockattheendof2010.In2010,directlabour
staffhadactuallyworked1000hoursandwerepaid$26,500.Further,25,000kilogramsofdirect
materialswerepurchasedinJuly,for$40,000.Thedirectmaterialsbalanceintherawmaterials
warehousewas2000kilogramsatthestartof2010,and6,000kilogramsattheendof2010.
Required:Pleaseidentifythedirectmaterialsanddirectlabourvariancesfor2010.
Directmaterialsused=BegDM+DMpurchasesendDM=

= 2000kg+25000kg6000kg=21000kg
Cartonsproduced=EndCartons+CartonssoldBegcartons

=800cartons+4000cartons300cartons=4500cartons

Actualqty

ActualqtyActualqty

Flexbudgetqty
Purchased

Purchasedused

used
X

XX

X
Actualprice

Std.PriceStd.Price

Std.Price

25,000kg

25000kg21000kg
4500cartons*5kgperunit

(22,500kg)
X

X
X

X
$1.60perkg

$1.50perkg$1.50perkg
$1.50perkg
=$40,000

=$37,500=$31,500
=$33,750

MPV

MUVorMQV(samething)

$2,500U

$2,250F

Actualhours

Actualhours

Flexbudgethrs
X

X
Actualrate

Std.rate

Std.rate
1000hours

1000hours

4500cartons*0.2hours

=900hrs
X

X
$26.50

$25

$25
=$26,500

=$25,000

=$22,500

LRV$1,500U

LEV$2,500U

Costs for decision making Q1:


Joseph Enterprises, has the capacity to produce 12,000 units per year. Its expected operations for the year
are:

Sales (10,000 units @ $20)


Manufacturing costs:
Variable
Fixed
Marketing and administrative costs:
Variable
Fixed

$200,000
$8 per Unit
$40,000

$3 per Unit
$20,000

Required:
(a)

What is the expected level of operating profits?

(b)

Should the company accept a special order for 1,000 units at a selling price of $15 if variable
marketing expenses associated with this special order would be $2 per unit? Calculate the
incremental profits if the order is accepted.

(c)

What is the minimum selling price the company can charge for a special order for 3,000 units , if
variable marketing expenses are half their ordinary rate, and fixed manufacturing costs increase
by 30% as a result of the special order?

Solution:

a)

$200,000 $8*10,000 - $3*10,000 - $40000 - $20000 = $30,000

b)

Relevant incremental costs from special order are: $8 + $2 = $10 per unit (fixed costs do not change).
The incremental profit from the special order will be the selling price less incremental costs will therefore
be $15*1000 - $10*1000 = $5000

c)

Relevant costs: $8* 3,000 units + 0.5*$3 * 3,000 units + 0.3*$40,000 = $40,500; At the very least,
additional revenues must equal additional costs arising from this special order. Therefore, revenues must
be at a minimum, $40,500 for 3,000 units. This equates to a selling price of :$40,500/3,000 = $13.50 If the
price is any lower than $13.50, we will not be able to cover our additional costs arising from the special
order!

Costs for decision making Q2:


New Brands Company is currently operating at 80 percent capacity. Worried about the company's
performance, the general manager reviewed the company's operating performance.
Geographic Segments (000s)
North

South

East

West

Sales

30

40

20

10

Less Variable costs

12

21

Contribution margin

18

32

(1)

Less fixed costs

12

Operating profit (loss)

20

(7)

(1)

(Note: All fixed costs are UNAVOIDABLE)


Required:
(a)
(b)

What is the current operating profit for the company as a whole?


If the manager eliminated the unprofitable segments, what would be the new operating profit for
the company as a whole?
What strategy should management adopt in order to maximise corporate profits in the short run?
Calculate profit for the Company under your chosen strategy.

(c)

Solution:
a) Tally up all the operating profits/(losses) - $9 + $20 -$7 - $1 = $21

b) If the manager eliminated the unprofitable segments, East and West divisions will lose all their revenues
and variable costs, but not their fixed costs ($6 East, and $3 West) as they are unavoidable... these will
remain as part of the profitability calculation, as they do not disappear - Therefore, total profit will now
effectively be:
$20 North + $9 South $6 East $3 West = $20
c)

To maximise corporate profits, management should drop the East Division but not the west division. This
is because the West Division is yielding a positive contribution margin, while the East Division exhibits a
negative contribution margin. Eliminating just the East Division will cause the profitability calculation to
become:
$20 North + $9 South - $6 East - $1 West = $22 This option maximises profitability,
relative to dropping both unprofitable divisions.

IntraCompanyaccountingquestion1

PottertextbookE117requirement1),page630
Solutions:
Req.1

Whenapplicationmoniesreceived:
1. BankTrust(13000sharesx$25)
Application

applicationsreceivedfor13000ordinaryshares

Whensharesareallotted:
2. Application(10000sharesx$25)
Allotment
Ordinarysharecapital(10000*$25)
Sharesallotted,offsettingexcessmoniesagainstamountsdueon
allotment.

3.Bank
Banktrust
Transfermoneytobankaccount

4.Allotment(10000sharesx$15)
Ordinarysharecapital
Amountsdueonallotment

Whenallotmentmoniesreceived:

5. Cash(10000*$7.50)

Allotment
thebalanceofallotmentmoniesreceived
(overapplicationswere3000x$25=75000/10000=$7.5pershare
allotted$15=7.50remaining)

Whencallismade:
6. Call(10000sharesx$10)
Ordinarysharecapital...

Callmoniesreceivedfor8000shares
7. Cash(8000*$10)
Call

Callmoniesreceivedon8000shares.

Torecordtheforfeiture:

100000
8.Ordinarysharecapital(2000*50)
Forfeitedsharesreserve(2000*$40)

325000

325000

325000

325000

150000

75000
250000

325000

150000

75000

75000

100000

100000

80000

80000

80000

Call(2000*$10)

20000

Torecordthereissue:
9.Cash(2000*45). 90000
Forfeitedsharesreserve(2000*$5).
10000
Ordinarysharecapital(+SE)

100000
Sharesreissuedaspaidto$50forpaymentof$45therefore;reissueisfundedpartlyfromthe
forfeitedsharesreserve.

Repurchaseofshares
10.Ordinarysharecapital(1000*$50)50000
Retainedearnings(1000*$2)

2000
Cash

52000

IntraCompanyaccountingquestion2

PottertextbookE117withthefollowingvariation:
Amountsdue:$12onApplication,$20onAllotment,callmadefor$10(remainingamount
willbecalledforsometimeinthefuture).
Excessmoniesreceivedonapplicationarerefundedtotheshareholders.The2000forfeited
sharesarereissuedfor$42pershare.Remainingfundsfromtheforfeiturearerefundedto
therespectiveshareholders.

Solutions

Whenapplicationmoniesreceived:
1. BankTrust(13000sharesx$12)
156000
Application

156000
applicationsreceivedfor13000ordinaryshares


Whensharesareallotted:
2. Application(10000sharesx$12)
120000
Ordinarysharecapital(10000*$12)

120000
Sharesallotted

120000
3.Bank

36000
Application
156000
Banktrust

Transfermoneytobankaccount,refundexcesss

200000
4.Allotment(10000sharesx$20)
200000

Ordinarysharecapital
Amountsdueonallotment


Whenallotmentmoniesreceived:

5. Cash(10000*$20)

200000
Allotment

200000
allotmentmoniesreceived


Whencallismade:
6. Call(10000sharesx$10)
100000
Ordinarysharecapital...

100000


Callmoniesreceivedfor8000shares
7. Cash(8000*$10)
80000

Call

80000
Callmoniesreceivedon8000shares.

Torecordtheforfeiture:

84000
8.Ordinarysharecapital(2000*$42)
Forfeitedsharesreserve(2000*$40)

64000
Call(2000*$10)

20000

Torecordthereissue:
9.Cash(2000*42). 84000
Ordinarysharecapital

84000
Sharesreissuedat$42partiallyreissuedforpaymentof$42nodiscounttherefore
forfeitshareaccountisnotaffected.

Forfeitedsharereserve64000
Cash
64000
Refundofforfeitedshares

Repurchaseofshares
10.Ordinarysharecapital(1000*$42)42000
Retainedearnings(1000*$10)

10000
Cash

52000

IntraCompanyAccountingquestion3

PottertextbookE1116,page633

Solutions:
Feb.25:
BankTrust(22000sharesx$32)

Application

Applicationsreceivedfor220000ordinaryshares

March5:
CashatBank(20000sharesx$32)
Application(2000*32)
BankTrust

Application
Contributedequityordinaryshares

704000

704000

640000
64000

640000

704000

640000

Sharesallotted,excessmoneyreturned


Allotment(20000*$15)
300000
ContributedequityOrdinaryshares

300000
Allotmentmoniesnowdue.


March31
CashatBank(20000*$15)
300000
Allotment

300000
allotmentmoniesreceived


April25:
Call1(20000sharesx$3)
60000

Contributedequityordinaryshares

60000
30May


CashatBank(13000*$3)
39000

Call1

39000
Callmoniesreceivedon13000shares.


30May


Contributedequityordinaryshares(7000*50)
350000
Call1

21000
Forfeitedsharesreserve(7000*47)

329000
30June


CashatBank(7000*$46)
322000
Forfeitedsharesreserve(7000*4)
28000

Contributedequityordinaryshare(7000*$50)

350000
Partlyfunded(previouslyforfeitedsharesarereissued)


30July
Forfeitedsharesreserve
301000
CashatBank

301000
Excessmoniesreturnedtooriginalholdersofshares.

InterCompanyAccountingquestion1

PotterTextbookP125,p688

Solutions:
Req.1
CASEA ThefairvaluemethodmustbeusedbyCompanyDbecauseitowns12%
(360030000)ofthetotaloutstandingcommonsharesofCompanyC.Thefairvaluemethod
mustbeusedwhenlessthan20%oftheoutstandingsharesareownedbecausetheinvestor
(CompanyD)cannotexercisesignificantinfluenceorcontrol.
CASEB TheequitymethodmustbeusedbyCompanyDbecauseitowns35%(1050030000)ofthe
outstandingcommonsharesofCompanyC.Theequitymethodmustbeusedifthelevel
ofownershipisatleast20%butnotmorethan50%becausetheinvestor(CompanyD)can
exercisesignificantinfluence,butnotcontrol,overtheoperatingandfinancingpoliciesof
CompanyC.

Req.2

CaseA12%
CaseB35%
a. January1,2012purchase:



InvestmentinSAS(+A)
90000

(3600sharesx$25)

Cash(A)

90000

Investmentinassoc.co.(+A)

262500

(10500sharesx$25)

Cash(A)


262500



b. IncomereportedbyCompanyC:
None



Investmentinassoc.company(+A)

17500

Equityinearningsofassoc.co.



(+R,+SE)

17500
($50000x35%)



c. DividendsdeclaredandpaidbyCo.C:



Cash(+A)

3060

Investmentincome(+R,+SE)

3060
*

Cash(+A)

8925

Investmentinassoc.company(A)


8925

*Computations
$25500x12%=$3060

$25500x35%=$8925

d. Netunrealisedloss/gain(SE)
10800

None

AllowancetovalueatmarketSAS

(A)
10800

3600sharesx($22market$25cost)=

$10800.

Req.3

CaseA12%

CaseB35%
StatementofFinancialPosition:


Investments:


InvestmentinSAS(1)
$79200


Investmentinassociatedcompany(2)

$271075

ShareholdersEquity:


Othercomprehensiveincome:


Netunrealisedloss/gainSAS

(10800
)

None

StatementofComprehensiveIncome:


Investmentincome
3060

None

Equityinearningsofassociatedco.
None
17500
(1) Cost$90000Allowancetovalueatmarket$10800=$79200fairvalue(reportedon
StatementofFinancialPosition)
(2) Cost$262500+%Investeesnetprofit$17500%Investeesdividendsdeclared$8925=
$271075bookvalue(reportedonStatementofFinancialPosition)

Req.4

Assets(investments),shareholdersequity(retainedearnings),andrevenues(frominvestments)are
differentbecause(1)differentmethodsofrecognisingrevenuearerequiredand(2)adjustmentsfor
changesinfairvaluearerecordedonlyunderthefairvaluemethod.Thedifferentamountsare
understandablesincetheobjectiveistorepresentthedifferentdimensionsoftherelationship
betweeninvestorandinvesteeineachcase.

InterCompanyAccountingquestion2

PotterTextbookAP123,p692

Solutions:
Req.1
Thefairvaluemethodofaccountingforlongterminvestmentsmustbeusedinthissituation
because6%oftheoutstandingvotingsharesofSixCompanyareowned.Thefairvaluemethodmust
beusedwhenlessthan20%oftheoutstandingsharesareownedbecausetheinvestorcompany
cannotexercisesignificantinfluenceorcontrol.
Req.2
a. Acquisition:
2011
2012

InvestmentinSAS(+A)
360000

Cash(A)

360000

Purchased12000sharesofSixCo.noparshares



at$30pershare.
b.
IncomereportedbySixCompany:
RevenueshouldnotberecognisedbythecompanyonthebasisofSixCo.incomeineither2011or
2012because,underthefairvaluemethod,revenueisnotrecogniseduntildividendsaredeclared.
c. Dividendsreceived:

Cash(+A)

3600

4800

Investmentincome(+R,+SE)

3600

4800

2011:$60000x6%=$3600

2012:$80000x6%=$4800




d. Fairvalueeffects:

Netunrealisedloss/gainSAS(SE)
24000

AllowancetovalueatmarketSAS




(XA)

24000

AllowancetovalueatmarketSAS(+XA)


12000

Netunrealisedloss/gainSAS(+SE)



12000

ComputationsforYearEndAdjustmentstoMarket:
YearMarketCost=AllowanceBalanceUnadjustedBalance=Adjustment
2011$336000$360000$24000$0$24000
(12000x$28)
20123480003600001200024000+12000
(12000x$29)

Req.3

2011
2012
a. StatementofFinancialPosition:


LongtermInvestments:

InvestmentinSAS(atmarket)

$336000
$348000
b. ShareholdersEquity:


Othercomprehensiveincome:

Netunrealisedgain/lossSAS

(24000
) (12000)
c. StatementofComprehensiveIncome:

Investmentincome
3600
4800

InterCompanyAccountingquestion3

PotterTextbookAP124,p692usethefollowingvariation:

CaseA20000shares
CaseB90000shares

Solutions:
Req.1
CASEA Thefairvaluemethodmustbeusedbythecompanybecauseitowns10%
(20000200000)ofthetotalshares.Whenownershipislessthan20%thefairvalue
methodmustbeusedbecausetheinvestorcannotexerciseeithersignificantinfluenceor
control.
CASEB Theequitymethodmustbeusedbythecompanybecauseitowns45%
(90000200000)ofthetotalshares.Whenownershipisatleast20%butnotmorethan
50%,theequitymethodmustbeusedbecausetheinvestorcanexercisesignificantinfluence,
butnotcontrol,overtheoperatingandfinancingpoliciesoftheothercompany.
Req.2

CaseA10%
CaseB45%
January10,2012:

InvestmentinSAS(+A)
300000

(20000sharesx$15)

Cash(A)

300000

Investmentinassociatedcompany(+A)

1350000

(90000sharesx$15)
Cash(A)


1350000
Purchasedordinarysharesat$15pershare.

December31,2012:
None1

Investmentinassociatedcompany(+A)

40500

Equityinearningsofinvestee(+R,+SE)


40500
CASEB$90000x45%=$40500

December31,2012:

Cash(+A)

12000
54000

Investmentinassoc.company(A)


54000
Investmentincome(+R,+SE)

12000

CASEA20000x$.60=$18000

CASEB90000x$.60=$54000

December31,2012:

Netunrealisedloss/gainSAS(SE)
120000
None2

AllowancetovalueatmarketSAS(xA)

120000

CASEA20000sharesx($9marketprice$15cost)

=$120000unrealisedloss

1
Notrecordedunderfairvaluemethod.2Notrecordedundertheequitymethod.

Req.3

CaseA
CaseB
December31,2012:


StatementofFinancialPosition(partial):


Investments:


Investmentinordinaryshares,MurdochCompany
$180000
$1336500
ShareholdersEquity:


Othercomprehensiveincome:


Netunrealisedloss/gainSAS
(120000)
None
StatementofComprehensiveIncome(partial):


Investmentincome
12000

Equityinearningsofinvestee

40500

CVPAnalysisquestion1

PotterTextbookM165,p870usethefollowingadditionalrequirements:

6.Whatsalesamount(quantityandtotalsales$)isneededtoearnanetprofitaftertaxof28000at
acompanytaxrateof30%

7.WhatpriceshouldPPPchargeperflowerarrangementifasalesvolumeof7000arrangementsis
expectedandthetargetprofitbeforetaxis$40000.Variablecostsremainthesameasperprevious
salesprice.

Solution:

1. (a)Fixed:Rent,salaries,depreciation.
(b)Variable:costofgoodssold,supplies,salescommissions.

2. Contributionmargin=Salesrevenuevariablecosts
CM=$56($56x58%)($56x7%)($56x5%)
CM=5632.483.922.80
CM=$16.80

Foreveryarrangementsoldat$56thereiscontributiontowardsfixedcostsof$16.80.

3. Breakevenpoint
=Fixedcosts/ContributionMargin
Breakevenpoint
=$77000/16.80

=4584unitssold


Alternativecalculation:
PricexQuantityVariablecostsxquantityfixedcost=profit
56xQ39.2xQ77000=0
Q=4584(roundedupasyoucantsellhalfaunit)

Breakevenpointindollars=unitssoldxunitprice

=4584x$56

=$256704

4. Requiredunitsalesfortargetreturn=(Fixedcosts+targetreturn)/contributionmargin
=($77000+$35000)/$16.80
=$112000/16.80
=6667unitsor$373352insales

Alternativecalculation:
PricexQuantityVariablecostsxquantityfixedcost=profit
56xQ39.2xQ77000=35000
Q=6667unitsrounded

5. Costisonlyonefactorthatneedstobeconsideredwhenlookingatviability.Otherfactors
willincludecontinuedaccesstoflowersandreliablelaboursupply,aswellascontinual
customerdemandtomeettherequiredsalesvolume.

6. PricexQuantityVariablecostsxquantityfixedcost=profitaftertax/(1taxrate)
56xQ39.2xQ77000=28000/(10.3)
Q=6965units(rounded)or$390040insales

7. PricexQuantityVariablecostsxquantityfixedcost=profitaftertax
Px700039.2x700077000=40000
P=55.914

CVPAnalysisquestion2

PotterTextbookM166,p870usethefollowingadditionalrequirements:

6.Whatsalesamount(quantityandtotalsales$)isneededtoearnanetprofitaftertaxof$36000
atacompanytaxrateof40%

7.WhatpriceshouldNickchargeperitemifasalesvolumeof16000arrangementsisexpectedand
thetargetprofitaftertaxis6%oftotalrevenue.

1. (a)Fixed:sellingandadministrationexpenses,depreciationexpense.
(b)Variable:costofgoodssold,salescommissions.
Depreciationisusuallyregardedasafixedcostwithinarelevantrangeofactivity.Shouldoutput
increasethendepreciationmayalsoincreaseifmoredepreciableassetsarerequiredtosupportthis
newlevelofoutput.

2. Contributionmargin=Salesrevenuevariablecosts
CM=$3486


CM=$20perunit

Businessmanagerswillusethisinformationtodeterminehowmanyunitsneedtobesoldto
coverfixedcostsandtherequiredprofit.

3. Breakevenpoint
=Fixedcosts/ContributionMargin
Breakevenpoint
=$280000/$20

=14000unitssold

Alternativecalculation:
PricexQuantityVariablecostsxquantityfixedcost=profit
34xQ14xQ280000=0
Q=14000

Abusinessmanagerwouldwantthisinformationtoknowhowmanyunitsneedtobesoldtocover
fixedcosts.

4. Requiredunitsalesfortargetreturn=(Fixedcosts+targetreturn)/contributionmargin

=($280000+$42000)/$20

=16100units

Alternativecalculation:
PricexQuantityVariablecostsxquantityfixedcost=profit
34xQ14xQ280000=42000
Q=16100

Salesrevenueindollars=unitssoldxunitprice

=16100x$34

=$547400

5. IndecidingwhethertoexpandNickneedstotakeintoaccountseveralfactors;arethere
extracustomerswhowanthisproduct,whatistherelevantrangeforthefixedcostswhen
volumeincreasessomeofthefixedcostsmayalsoincrease,andcanhegetaccesstothe
producttosell,andthestafftoselltheproduct?

6. PricexQuantityVariablecostsxquantityfixedcost=profitaftertax/(1taxrate)
34xQ14xQ280000=36000/(10.4)
Q=17000unitsor$578000insales

7. PricexQuantityVariablecostsxquantityfixedcost=profit
Px1600014x16000280000=[0.06x(Px16000)]/(10.4)
P=$35

CVPAnalysisquestion3

Completethemissingfigures:
Taxrateis30%

Salesprice
Unitssold
Variable
perunit

Expenses
FixedCosts NetProfitafterTax
1
$20
?
$11/unit
$15000
$8400
2
$20
?
$11/unit
$15000
10%ofSales
3
?
4000
$11/unit
$15000
14%oftotalcost
4
$22
3500
?
$15000
$14000
5
$22
3500
$11/unit
?
$15400
6
$20
5000
60%ofsales
$15000
?

1. PricexQuantityVariablecostsxquantityfixedcost=profitaftertax/(1taxrate)
$20xQ$11xQ$15000=$8400/(10.3)
Q=3000units

2. $20xQ$11xQ$15000=0.1($20xQ)/(10.3)
Q=2442units(roundedfrom2441.86)

3. Px4000$11x4000$15000=[0.14($11x4000+$15000)]/(10.3)
P=$17.70

4. $22x3500VCx3500$15000=$14000/(10.3)
VC=$12/unit

5. $22x3500$11x3500FC=$15400/(10.3)
FC=$16500

6. $20x50000.6x($20x5000)$15000=PAT/(10.3)
PAT=$17500

Finalexamrevisionquestions
CorporateSocialResponsibilityQuestion1
ConsiderthefollowingarticlecritiquingtheToyotaCorporationsmanagementofanacceleration
probleminitsvehicles.Yourtaskistoidentifywhetherthisissueisacorporatesocialresponsibility
issueforToyota,andifso,howToyotamightmanagethisdilemma.Inyouranswer,pleasereflect
ontheCSRdefinitionsandguidelinesdiscussedintheABDB.

Articlereference:
http://www.businessweek.com/managing/content/feb2010/ca20100210_477369.htm

Suggestedsolution
Thissolutionrequiresstudentstoreflectontheresponsibilitiesrequiredofcompanieswhendealing
withsociety.Toanextent,thesolutionmightbegreyoruncertain.TowhatextenthasToyota
actuallyletthisproblemgetworse,withoutaddressingit?TowhatextentdoesToyotaneedto
conductsocialreportinginwaysthathighlighttheproblemstheyarefacing,sothattheyhaveeven
greaterincentivetosolvethem?
Solutionguide
Forthissolution,weencourageyoutothinkaboutwhatcanbedonetoimprovetheirproblem
detectionpractices,andtheirreportingofthesameproblems.
Areastoconsider:
1. Identifytheextenttowhichtheaccelerationproblemmightbemanagedand
communicated,fromtheperspectiveofthefollowingsixareas,aspresentedintheCSR
lecture:
a. communityrelationsTowhatextentarethereavenuesforthecommunityto
directlyraisetheirgrievancesregardingaccelerationtoToyotamanagement,with
minimumtiersofcommunication?
b. productsafetyThiscategoryisattheheartoftheproblemwhatprocessesare
Toyotatakingtorectifytheproblem?TowhatextentisToyotarecallingandfixing
theproblempromptly,thenadequatelycompensatingemployees?
c. trainingandeducationReflectongeneralprocessesmanagementcouldtaketo
trainanddevelopemployeeskillsinordertominimisethecommunicationand
managementoftheproblem.
d. SponsorshipCanToyotaexhibitasenseofhumilityandgoodwillbysupporting
notforprofitcausesthathaveamandatetomanageoralleviatetheproblems
relatingtoproblemsassociatedtoaccelerationissues?(accidentprevention
authorities,speeding,sponsoringeventstoaidvictimsofroadaccidents,etc)
e. charitabledonationsToyotamaygenerallydonatefundstofamiliesofaffected
individualsasagestureofgoodwill,independentoflegalresponsibilities.
f. employmentofdisadvantagedgroupsThisareaisprobablyleastrelevantforthis
problematbest,itmayrequireustothinkabouthowinjuredcustomersornon
drivingvictimswhoareaffectedandloseemployment,areprovidedguaranteed
employmentbyToyotaIamstretching,however,whenraisingthispointin
relationtothesituation!

Accountingandethicsfinalexamrevisionquestion
JaneDoeisaCPAprofessionalaccountantandtaxagentwhohasbeenaskedtoadoptaseriesof
depreciationmethodsbyherlargestclient,thatarewellwithinthechoicesallowedbythetaxguide.
Sheisgenerallyhappytodothis,asthetaxguideallowshertodoso.Generally,herclientwants
hertoadoptanaccelerateddepreciationmethod,inordertomaximisetheirdepreciationexpense,
andsubsequentlyminimisetheirprofitandtaxpayable.
Towhatextentcouldthisproblembeanethicalissue,andwhatAPESprinciplesdoesitchallenge?
Whatarethethreatsthatmightcausehertonotevenperceiveanethicalproblem?Proposean
ethicalframeworkforthinkingaboutthisproblem,andtheresponseyoumightmaketothelargest
clientofJaneDoe,ifyouwereher.
Solutionguide
Thisproblemisclearlynotalegalissue,butcouldbeanethicalissue.Ifthenoncurrentassetsbeing
depreciatedareactuallyusedinamannerthatdoesntreflecttheaccelerateddepreciationmethod,
itisnotideallyappropriateforJanetousethem.Ethically,depreciationexpensemustberecorded
inamannerconsistentwithhowtheassetisused.ReflectingonthefiveAPESethicalprinciples:
1. Integritytheextenttowhichwearestraightforwardandhonestinourreporting
2. ObjectivityUnbiasedjudgementinagivensituation
3. ProfessionalcompetenceandduecareMaintainingsufficientknowledgeandkeepingit
updated
4. ConfidentialityDisclosinginformationthatshouldnotbe,intheinterestoftherelevant
organisation
5. ProfessionalbehaviourActinginawaythatdoesnotdiscredittheprofession.
TowhatextentmightJaneadoptinganaccelerateddepreciationmethodbreachanyoftheabove
fiveprinciples?Discusstheextenttowhichtheyareaffected.Ithinkthatinthissituation,integrity,
objectivityandprofessionalbehaviourarethemostrelevantprinciples.
WhymightJanenotregardthisanethicalproblemorpursuethesuggestionbytheclient
irrespectiveoftheirbeliefontheethicsofthesituation?Considerthe5threatstoethicalconduct,
describedbytheAPESs:
(a)Selfinterest;
(b)Selfreview;
(c)Advocacy;
(d)Familiarity;and
(e)Intimidation

Themostrelevantthreatsgiventheabovesituation,areprobablyselfinterest,advocacyand
possiblyfamiliarity,ifJanehasalongtermrelationshipwithherlargestclient.
HowmightJanetakeastepback,andreflectethicallyaboutthisproblem?ConsidertheAPES
frameworkforethicalthinking:
(a)RelevantfactsJanehastochoosedepreciationmethodsthatmaximisetaxsavings.
(b)Ethicalissuesinvolveddepreciationshouldrelatetohowanassetisusedoveritsusefullife,not
fortaxpurposes,fromareportingperspective.
(c)FundamentalprinciplesrelatedtothematterinquestionTheapplicationofanaccounting
concept(depreciation)inwaysthatarenotconsistentwithitsintendedpurpose.
(d)Establishedinternalprocedureswhichmightrepresentsafeguardsagainsttheidentifiedthreats
Janemightreflectontheextenttowhichsheiswillingtoallowhernametobeassociatedtotax
reductionstrategiesthatarelegal,butnotethical.Shemightinsisttoclientsthattheyadopt
depreciationmethodsthatareconsistentwiththeiruse.
(e)AlternativecoursesofactionShemightalsoexplaintoclientsthatwhattheysaveintaxesnow,
theywillloselater,whentheypaymoretax,astheirdepreciationcostsarelowerinthefuture.
Overall,thiscaseforcesstudentstothinkabouthowtheymighttackleasituationwheretheyare
incentivisedtoactlegally,butnotnecessarilyethicallyinamannerconsistentwithaccurate
reportingtothegovernmentstakeholder(Taxationoffice).