Differential Costing As pointed out earlier in ‘‘Here’s the Real Kicker,’’ Kicker changed banks a couple of years ago because the loan officer at its bank moved out of state. Kicker saw that as an opportunity to take bids for its banking business and to fine-tune the banking services it was using. This problem uses that situation as the underlying scenario but uses three banks: FirstBank, Community Bank, and Regional One Bank. A set of representative data was presented to each bank for the purpose of preparing a bid. The data are as follows: Checking accounts needed: 6 Checks per month:* 2,000 Foreign debits/credits on checking accounts per month: 200 Deposits per month:* 300 Returned checks:* 25 per month Credit card charges per month: 4,000 Wire transfers per month: 100, of which 60 are to foreign bank accounts Monthly credit needs (line of credit availability and cost): $100,000 average monthly usage *These are overall totals for the six accounts during a month. Internet banking services? Knowledgeable loan officer? Responsiveness of bank?

FirstBank Bid:

Checking accounts: $5 monthly maintenance fee per account $0.10 foreign debit/credit $0.50 earned for each deposit $3 per returned check Credit card fees: $0.50 per item Wire transfers: $15 to domestic bank accounts, $50 to foreign bank accounts Line of credit: Yes, this amount is available, interest charged at prime plus 2 percent, subject to a 6 percent minimum interest rate Internet banking services? Yes, full online banking available: $15 one-time setup fee for each account $20 monthly fee for software module The loan officer assigned to the potential Kicker account had 10 years of experience with medium to large business banking and showed an understanding of the audio industry.

Community Bank Bid: Checking accounts: No fees for the accounts, and no credits earned on deposits $2.00 per returned check Credit card fees: $0.50 per item, $7 per batch processed. Only manual processing was available, and Kicker estimated 20 batches per month Wire transfers: $30 per wire transfer Line of credit: Yes, this amount is available: interest charged at prime plus 2 percent subject to a 7 percent minimum interest rate Internet banking services? Not currently, but within the next six months The loan officer assigned to the potential Kicker account had four years of experience with medium to large business banking, none of which pertained to the audio industry. RegionalOne Bank Bid: Checking accounts: $5 monthly maintenance fee per account to be waived for Kicker $0.20 foreign debit/credit $0.30 earned for each deposit $3.80 per returned check Credit card fees: $0.50 per item Wire transfers: $10 to domestic bank accounts, $55 to foreign bank accounts Line of credit: Yes, this amount is available: interest charged at prime plus 2 percent subject to a 6.5 percent minimum interest rate Internet banking services? Yes, full online banking available: one-time setup fee for each account waived for Kicker $20 monthly fee for software module The loan officer assigned to the potential Kicker account had two years of experience with large business banking. Another branch of the bank had expertise in the audio industry and would be willing to help as needed. This bank was the first one to submit a bid.

Required:

1. Calculate the predicted monthly cost of banking with each bank.

2. Conceptual Connection: Suppose Kicker felt that full online Internet banking was critical. How would that affect your analysis from Requirement 1? How would you incorporate the subjective factors (e.g., experience, access to expertise)

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The basis of direct-labor

Laurence Coffee Ltd. makes two types of coffee, Gourmet and Espresso, and applies overhead on the basis of direct-labor hours when the traditional costing system is used. Anticipated manufacturing overhead for the upcoming accounting period is $350,000. Information about the products follows.

Further investigations show that Brown’s manufacturing overhead of $350,000 consist of:

,and Brown’s pays factory insurance $2,000 (only for Espresso) annually.

The costs in the table are driven by number of Setups, machine hours worked, and the number of inspections, respectively. Data relevant to these activities follow.

Maintenance is performed prior to each production run. Each production run can produce 250 packs of Gourmet coffee or 150 packs of Espresso. Espresso used 45% of the 40,000 total machine hours.

Moreover, 60% of office personnel’s job is to record the results of inspections. Their salary in this coming accounting period is $10,000. They spend rest of their time to deal with customers. (Assume actual activities are the same as estimated activities.)

Required:

1. Calculate the cost per unit of each product using traditional costing method, assuming use

of direct-labor hours to apply overhead to production.

2. Assuming use of activity-based costing, compute the unit costs of the Gourmet and

Espresso coffee. (Please round to two decimals for the unit costs.)

3. By using direct-labor hours as an application base, which product is over-costed and

which product is under-costed? Calculate the total amount of cost distortion for each

product.

4. In January 2017 Britt Coffee house has requested 1,100 packs of Espresso for its coffee

shops. You want the “free marketing” that this will provide so you are willing to offer

them 1,100 packs Espresso at a price equal to your “cost”. Please calculate and explain

any additional Maintenance costs for the 1,100 packs of Espresso.

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Case study on journal entries

On 1 July 2015, Summer Ltd acquired 80% of the share capital to gain control of Winter Ltd. The following intra-group transactions occurred during the year ending 30 June 2016 1)Winter Ltd paid an interim dividend of $150,000 to its shareholders from current year’s profits. 2)Winter Ltd declared a final dividend of $220,000 to its shareholders from current year’s profits. 3)During the 2015 – 2016 period, Summer Ltd sold inventory to Winter Ltd for $350,000. This inventory had previously cost Summer Ltd $300,000. At 30 June 2016, 25% of that inventory remained on hand with Winter Ltd. 4)Winter Ltd paid Summer Ltd, a management fee for administrative services they provided of $25,000. 5)Winter Ltd has an intra-group loan with Summer Ltd (Summer Ltd provided loan) of $2,000,000. The loan charges 5% interest annually. The interest for the current year remains unpaid at 30 June 2016. 6)Winter Ltd performed consulting services for Summer Ltd for which Winter Ltd received revenue of $250,000. Half of this amount remains unpaid at year end. a)Prepare the journal entries required to eliminate the intra-group transactions above.

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Case study on aluminum cylinders

Alum Tubes Ltd (ATL) manufactures aluminium cylinders that are used in a variety of products, such as scuba diving equipment, oxy welding equipment, and fire extinguishers. The company’s executives have been moving towards sustainable practices. A rewards system is being trailed to encourage cost savings, to motivate efficiency, and to support ATL its current progress through the Efficiency phase of sustainability.
The board (including the CEO) has decided to embrace sustainable practices and once ATL has achieved the successful implementation of the Efficiency sustainability phase, the goal is for it to move from this Efficiency phase to the Strategic Proactive phase of sustainability. To provide senior management’s support for this change in focus, they have changed the mission statement to the following:
To provide an intergeneration commitment to its stakeholders through the adoption of Sustainable strategies within its value chain
Information about Trial process
There are four teams in the plant, and each team has been given three quarterly cost-saving performance targets for (1) manufacturing cycle time, (2) material usage and (3) production output. Two of the work teams are organised sequentially, that is, the output of Team Scuba Assembly becomes the input for Team Scuba Finishing. There are two other finishing teams; Team Oxy Finishing and Team Fire Finishing both providing the finishing manufacturing process for their product independently of the other teams. However, Team Scuba Finishing, Team Oxy Finishing, and Team Fire Finishing do share some equipment.
The CEO made the decision not to include Team Fire Finishing in the trial cost efficiency performance-related pay scheme. The reason for this omission of Team Fire Finishing was due to it just introducing some new production technology and therefore management believes the team is facing a steep learning curve at present with this new technology and the lack of knowledge and experience would make it difficult for Team Fire Finishing to achieve any cost efficiency performance targets at this stage.
The trial cost-saving rewards system
In late 2016, ATL introduced a cost-saving performance-related pay system for January to the December 2017 year as a trial in their smallest manufacturing plant in Salisbury (a suburb of Brisbane). Each team was considered to be an eco-efficient cost centre. Employees will receive bonuses, based on their team meeting or exceeding the team’s cost savings performance targets.
A bonus pool of $30,000 has been set aside each quarter. This bonus is to be shared only among each of the participating teams that achieve their targets for the quarter and shared equally among the members of these successful teams. Teams not meeting their quarterly targets will not share any of the $30,000 in the bonus for that quarter.
The employees are excited by the new scheme. They can only gain by such a system.
Assessment of trial cost-saving rewards system
In early 2017, you have just been employed as the management accounting at ATL.
You were recently present during the following discussion about the success of the new evaluations/rewards process between Samantha Smart, a member of Team Scuba Finishing, Milton Friedman the production manager, who is responsible for all teams and production processes.

Samantha: We are now 4 weeks into the second quarter since starting the trial cost efficiency reward system that was introduced in 2017, and it is just not working. Team Scuba Assembly is sabotaging our performance. How can we meet our cost-saving performance targets when Team Scuba Assembly gives us faulty product to process? They have skimped on material, so it takes us much longer to complete our part of the manufacturing process.
This is made worse when the purchasing department orders our material far too late, so we have to wait around for deliveries.
Also, someone has been leaving the calibrator machine in such a mess, so we waste valuable time resetting the gauges before we can use it. I am sure it is a member of Team Oxy Finishing. The system is not fair. The other two teams shared in the bonus in the first quarter because they reach their targets and we did not, and it is not our fault! This quarter, I can see the same happening and the other two teams only sharing the second quarter’s bonus!
Milton: I appreciate your comments, I have just had to deal with a delegation from Team Fire Finishing who is upset because they cannot share in the cost-saving performance bonuses.
After the meeting, you discover that only the three production teams (Team Scuba Assembly, Team Scuba Finishing, Team Oxy Finishing) are evaluated on their cost-saving performance-related pay system. The purchasing department is still evaluated on a price variance analysis. The performance evaluation and reward systems are the same for other support departments.
At this initial testing stage, only three of the four work teams will participate in the scheme. If this system works well, it will be introduced into all of the company’s plants in Australia and Overseas.
After discussion with different teams and reviewing the trial cost efficiency reward system used for this cost-saving evaluation of the efficiency strategy of ATL, you believed the current rewards system would encourage teams to work in silos and not consider the overall (holistic) plan of ATL.
Additional Information
You decide that ATL must get this right for a number of reasons. You therefore plan:
? to demonstrate the disadvantages of the trial rewards evaluation process and the advantages of using activity-based management (ABM) techniques as part of the evaluation process.
? to use this conversation above between Samantha and Milton to highlight the disadvantages of the trial rewards evaluation process and advantages from using ABM and relevant associated measures.
? to introduce to senior staff the need to adopt a Life-Cycle Assessment of the products to reflect the proposed change of focus to a Strategic Proactive phase of sustainability.
? to implement this rewards system into the Malaysian subsidiary for the 1 January 2018 to 31 December 2018 operating year. You will need ATL to consider societal values because the rewards system may need to be modified for different stakeholders (employees or suppliers) in different countries.

Requirements:
Develop a sustainability business case for the board of directors (including the CEO) who are not accountants. Your business case must provide a suggestion for ATL to implement successfully the Efficiency phase of sustainability and to move to the Strategic Proactive phase of sustainability.
Incorporate the following requirements into your plan [separate your plan into four sections with an appropriate name (e.g., “Changes to the trial system” the heading for requirements 1 and 2); “Proposed cost-saving performance measures” for requirement 3, “Strategy, Vision and Organisational Culture” for requirement 4, and “Modification to accommodate Societal Values” for requirement 5]:
1. What features of the trial cost saving is performance-related pay system causing problems? Support your answer with an explanation.

2. Are the ‘team-based” cost-saving performance measures appropriate for assessing performance and awarding bonuses? Explain your answer.

3. Discuss other (more holistic) cost saving performance measures throughout ALT and other forms of incentive schemes and the performance target measures that may be more suitable for the company.

4. In your sustainability business plan about the Efficiency phase of sustainability and to move to the Strategic Proactive phase of sustainability to the board include
a) the development of new strategies for all four types of strategies (enterprise strategy level, corporate strategy level, business strategy level, and functional strategy level) and one example of appropriate measures you would suggest for each strategy level within the newly redesigned performance measurement system.

b) the communicate the drivers and benefits of environmental sustainability throughout the organisation to create a shared vision as well as to embed the sustainability culture into ATL.

5. The need to accommodate for Societal Values, particularly for the implementation of the proposed rewards system into ATL’s Malaysian subsidiary for the 1 January 2018 to 31 December 2018. The following should be included in your business plan:

a) Describe the modification/s that are needed to the new performance evaluation and reward scheme as well as the employees’ involvement (direct and through communication) in the Strategy, Vision and Organisational Culture.

b) Explain why these modifications will be needed for the successful implementation of the Efficiency phase of sustainability and to move to the Strategic Proactive phase of sustainability to enable it to be successful in other countries. Specifically, how will differences in some societal values for Australia and Malaysia impact upon your business case (in 4 above).

c) How (i.e., what changes) do you suggest in the development of a sustainability culture for employees and value chain stakeholders in Malaysia compared to Australia to overcome these differences.

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Case study on Family Maintenance Enforcement

Your manufacturing organization has a semi-monthly payroll, paying on the 15^th and last day of each month. Your organization pays employees in British Columbia.
On the June 15^th pay date of the current year the following deductions occurred. Using the Current Year calendar in the course material, explain when each payment must be received by the issuer or administrator:

• Family Maintenance Enforcement
• Union Dues (collective agreement states payment due three business days after pay date)
• Registered Defined Contribution Pension Plan (employer matches employee contributions)
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Case study on statement of profit or loss

George and Val set up a company together to trade as decorators. George owns a three-yearold van, which he puts into the company instead of cash for share capital. Val puts in €2000 in cash and they agree the van is worth €2000. They have no premises as such. Materials are stored in their home garage or left in the van. In the first month of business the following transactions take place:
(a) They get an order worth €600 to decorate a small flat. The customer pays €300 in advance.(b) They buy materials worth €125 on credit from Cork Building Merchants which are used in this job.(c) When the job is finished the customer pays a further €100 but says they will have to wait another month for the balance of €200.(d) They get an order to decorate a large house for €120O plus materials. They buy €27O of materials on credit from the same builders’ merchants.(e) At the end of the month they have done 80 per cent of the work on the house painting order and they pay themselves €5OO each as salary. Required: Prepare a spreadsheet to show the transactions and then draw up a statement of profit or loss the month and a statement of financial position as at the end of the month.
Prepare a spreadsheet to show the transactions and then draw up a statement of profit or loss the month and a statement of financial position as at the end of the month.

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