BUACC3714: Advanced Management Accounting - Martini Ltd - Accounting and Finance

Assignment Task:

This assignment has four parts. 

Part A: 

Martini Ltd is organised into three divisions: Metro, Regional and Rural. Data for these divisions for the 2019 financial year end were as follows: Metro Regional Rural Production and sales in units 47,500 30,000 35,000 Average selling price per unit $25 $30 $10 Average variable manufacturing cost per unit $8 $10 $5 Average variable selling cost per unit $4 $5 $1 Fixed expenses controlled by division managers $250,000 $230,000 $60,000 Fixed expenses allocated to the divisions $200,000 $80,000 $110,000 Common fixed expenses $90,000 

Required: 

1. Prepare a profit statement that highlights the performance of the three divisions and the performance of three divisional managers. 

2. Explain why it is important to distinguish between the performance of division managers and the performance of divisions. 

Part B: 

Armando Corporation consists of two manufacturing divisions: Crater Division and Dollar Division. The Crater Division manufactures and transfers partially processed components to the Dollar Division at a predetermined transfer price. It could also sell these components to outside buyers at $480 per unit in a perfectly competitive market. 

The standard cost per unit in each division is as follows: 

Crater Division Dollar Division Direct material $90 $160 Direct labour $120 $110 Manufacturing overhead $450* $360** 

*Manufacturing overhead is 50% variable and 50% fixed. **Manufacturing overhead is 40% variable and 60% fixed. 

The Dollar Division can sell the finished product to outsiders at $1,140 per unit. 

Required: 

1. What the transfer price would you recommend if there was no outside market for the partially processed component and Crater Division had spare capacity? Does it matter if Crater Division is identified as a cost centre or a profit centre? Explain your answer. 

2. Assume that the head office has intervened to dictate the transfer price at standard absorption cost plus a 10% mark up. The Dollar Division has been approached with a special order for 300 components at $940 each. From the perspective of Armando Corporation as a whole, should the special order be accepted or rejected? Explain and show the supporting calculations. 

3. Advise whether is desirable for the head office to dictate the transfer price? Explain your answer. 

Part C: 

Essendon company manufactures guidance systems for rockets that are used to launch commercial satellites. The company’s Software Business Division reported the following data for the last year: 

Sales revenue $1,000,000 Sales returns $60,000 Cost of goods sold $550,000 Operating expenses $300,000 Total assets at year-beginning $900,000 Total assets at year-end $940,000 Total current liabilities at year-beginning $30,000 Total current liabilities at year-end $34,000 

The company’s required rate of return is 9 percent. 

Additional information: 

• The total assets at year-end include a piece of vacant land valued at $240,000. It is identified as a non-productive asset by the corporate management. 

• The divisional manager manages all current liabilities. 

• The use of average balances is recommended. 

In an attempt to improve its return on investment (ROI), Essendon company is planning to: 

• speed-up the collection of all account receivables by $85,000. 

• write-off and discard $45,000 of obsolete inventory. 

Required: 

1. Calculate the Software Business Division’s return on investment (ROI) and residual income (RI). (Note: Textbook Chapter 13 “Learning objective 13.5-Measuring Profit and Invested capital” will be a good guide to define profit and invested capital in the ROI and RI calculations). 

2. Explain should the above plans be adopted in order to improve its ROI for Software Business Division? 

3. If profit and sales remain the same in the coming year, but the investment turnover increases to 0.80, calculate the new ROI? 

Part D: 

Corporate social responsibility (CSR) and sustainability are key issues in the current business environment. According to Martin and Steele (2010 p.13, available on Moodle), “The two principal professional associations in Australia – CPA Australia (the CPA) and the Institute of Chartered Accountants in Australia (the Institute) have indicated their awareness of the significance of issues of sustainability reporting and development of appropriate skill sets in word and in deed. The commitment of both organisations to sustainability principles has been shown by their adoption of, and support for, sustainability-focused reporting approaches and by their opting to take up membership of the Accounting for Sustainability Forum.” 

Required: 

Discuss the stance and initiatives of the Australian accounting profession on corporate social responsibility and sustainability. In your view, what role can the accounting profession play in this context? Using at least two academic research articles to support your background research. 

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