Management Accounting
Assessment
Background
You have completed the background learning giving you the base tools and techniques to answer the questions in the assignment. In addition you will be required to investigate and research your answers. This assessment will allow you to apply and development your learning in an applied and research situation.
The criteria by which coursework will be judged including presentation, quality of analysis and argument is set out in detail below.

Coursework Assessment Criteria – Objectives
In writing your coursework, you should be aware that you will be assessed by reference to the extent to which your answer meets the following criteria:
• Clarity of understanding of information presented in the question.
• The extent to which you have answered the question and have prioritised your answer to the critical points pertinent to addressing the problem set in the question.
• The structure of your response, this might include an introduction, background, linear progression of argument, practical illustration of points being made, consolidation of argument/points and summary.
• The accuracy of your analysis, both qualitative and quantitative, including the appropriate use of concepts models, quantitative technique, diagrams and evidence.
• Theoretical research where this is suitable to the question asked. Where theoretical analysis is suitable your sources must be acknowledged and your response should be academically referenced.
• Quality of presentation, style, written analysis and argument should be the quality expected of a management accountant. This includes the quality and suitability of graphs, diagrams, maps and tables to illustrate and effectively communicate information. It also includes spelling, grammar, the avoidance of repetition and good use of paragraphing.
• Understanding of the accounting treatment generally adopted in management accounting.
• Application of management accounting techniques.
• Use of software, especially spreadsheets.
• Application of the ethical framework.
• Practicality and sophistication of the answers.
• Applying knowledge from other modules that you have studied on your UG will also be acknowledged where this is appropriate in developing your answer.
• Completing your answer within the word count limit.
• This is an individual report and you must work alone in your research and report writing.

Marks are allocated 45% to part 1, 10% to part 2 and 45% to part 3.
Obtaining accurate numeric solutions to Part 1 is important. It is also important that you explain your workings and calculations, so that you can be rewarded marks for stated assumptions that are not included in the model answer. For written discursive responses you will be marked for your argument, analysis and research.
Correct answers will be posted to blackboard after coursework is returned.
Feedback will be given on the overall quality of the work and appropriateness of answers. Any errors in your work will not be pointed out in detail. You will be able to identify errors by comparing your answers to the model answers given.

GENERAL GUIDANCE
Before starting this assignment it is very important that you familiarise yourself with the University rules relating to assignments. These can be found in the Undergraduate Student Handbook.
The following high-lights the areas that you must pay attention too, to avoid being penalised in this assignment:
Referencing

Your coursework should clearly distinguish between your original words and ideas, and those of others. When referring to the work of others, from books, journals or any other source (including the internet), it is essential that you make this clear by acknowledging your source and referencing correctly. Failure to reference correctly will lose you marks and may constitute plagiarism or collusion. Unless specified otherwise by the module organiser, Norwich Business School uses the Harvard system of referencing.

General Advice
Before you submit any coursework you should make sure that you are clear and up to date in your knowledge of university policy and practice.
The University’s policy on Submission of Work for Assessment (Taught Programmes): Submission of Anonymised Work for Assessment, Word Limits and Penalties, Extensions and Penalties for Unauthorised Late Submission, Provisional Marks and Feedback, and Retention of Coursework is published in the Calendar, and is available at:
http://www.uea.ac.uk/calendar/Policy+on+Plagiarism+and+Collusion

A penalty will be imposed for exceeding the word limit, which will be clearly stated in the assignment. Students must include their word count on the coursework coversheet when they submit their work. The word count for coursework, written assignments, projects, reports and dissertations shall include: Footnotes and endnotes (irrespective of whether they have been used for the purpose of referencing or not, references (in the main text), tables and illustrations and if applicable the abstract, title page and contents page. Any appendicised material and the bibliography or reference list shall be excluded from the word count.
The questions follow on the next page.
Part 1
Leftfield Manufacturing Limited produces control valves used in the production of oil field equipment. The control valves are sold to various gas and oil engineering companies throughout the World. Projected sales in units for the coming four months are as follows:
January 20,000
February 25,000
March 30,000
April 30,000

The following data pertain to production policies and manufacturing specifications followed by Leftfield Manufacturing Limited:
a. Finished goods inventory on January 1st is 13,000 units. The desired ending inventory for each month is 70 percent of the next month’s sales.

b. The data on materials used are as follows:
Direct Material Per-Unit Usage Unit Cost
Part 714 5 £4
Part 502 3 £3

Inventory policy dictates that sufficient materials be on hand at the beginning of the month to produce 50 percent of that month’s estimates sales. This is exactly the amount of material on hand on January 1st.
c. The direct labor used per unit of output is two hours. The average direct labor cost per hour is £15.
d. Overhead each month is estimated using a flexible budget formula. (Activity is measured in direct labor hours.)

Fixed Cost Component Variable Cost Component
Supplies £1.00
Power £0.20
Maintenance 28,000 £1.10
Supervision 14,000
Depreciation 100,000
Taxes 7,000
Other 81,000 £1.60

e. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Activity is measure in units sold.)

Fixed Costs Variable Costs
Salaries £30,000
Commissions £0.75
Depreciation 5,000
Shipping 2.60
Other 10,000 0.40

f. The unit-selling price of the control valve is £90.

g. In February, the company plans to purchase land for future expansion. The land costs £90,000.

h. All sales and purchases are for cash. Cash balance on January 1st equals £162,900. If he firm develops a cash shortage by the end of the month, sufficient cash is borrowed. The interest rate is 12 percent per annum, or 1% a month.

Part 1 – Required
Prepare a monthly operating budget for the first quarter with the following schedules:
1. Sales budget
2. Production budget
3. Direct materials purchases budget
4. Direct labor budget
5. Overhead budget
6. Selling and administrative expense budget
7. Ending finished goods inventory budget (for the whole quarter only)
8. Cost of goods sold budget (for the whole quarter only)
9. Budgeted income statement (for the whole quarter only) (ignore income taxes)
10. Cash budget

Part 2

Required

1. Discuss how the budget will be used by the business for control and motivation purposes.

Part 3
You have recently joined Leftfield Manufacturing Limited’s accounting staff and you are interested in learning as much as possible about the company’s budgeting process. During a recent lunch with Marge Atkins, sales manager, and Peter Granger, production manager, you initiated the following conversation.
YOU: “Since I’m new around here and am going to be involved with the preparation of the annual budget, I’d be interested in learning how the two of you estimate sales and production numbers.”
ATKINS: “We start out very methodically by looking at recent history discussing what we know about current accounts, potential customers, and the general state of consumer spending. Then, we add that usual does of intuition to come up with the best forecast we can.”
GRANGER: “I usually take the sales projections as the basis for my projections. Of course, we have to make an estimate of what this year’s closing inventories will be, which is sometimes difficult.”
YOU: “Why does that present a problem? There must have been an estimate of closing inventories in the budget for the current year.”
GRANGER: “Those numbers aren’t always reliable since Marge makes some adjustments to the sales numbers before passing them on to me.”
YOU: “What kind of adjustments?”
ATKINS: “Well, we don’t want to fall short of the sales projections so we generally give ourselves a little breathing room by lowering the initial sales projection anywhere from 5 to 10 percent.”
GRANGER: “So, you can see why this year’s budget is not a very reliable starting point. We always have to adjust the projected production rates as the year progresses, and of course, this changes the ending inventory estimates. By the way, we make similar adjustments to expenses by adding a least 10 percent to the estimates. I think everyone around here does the same thing.”
Marge Akins and Pete Granger have described the use of budgetary slack.
Part 3 – required:
1. Explain why Atkins and Granger behave in this manner, and describe the benefits they expect to realise from the use of budgetary slack.

2. Using the CIMA guidelines on ethics explain whether you consider the actions of Atkins and Granger to be ethical.

3. Describe each of the stakeholder groups that are affected by the situation.

4. Explain for each stakeholder group why you consider them to be affected and the extent that you consider the effect to be direct or remote, justifying your answers by giving illustrations of the consequences on each stakeholder group.

5. As a management accountant set out at least 3 courses of action that you could take in response to Atkins and Grangers proposals.

6. Finally, make a recommendation as to what action you should take as a management accountant.