ACCT19060 Term 1 2016
Assessment task 2: Part A Assignment
Due date: Monday of Week 5 [11:45pm [AEST] 4 April 2016] ASSESSMENT
There are two parts to assessment task 2. You can choose to do Part A and/or Part B as either an individual or in a pair (thus maximum 2 students). You can choose to work with the same or a different student for the two parts. Please read the Assessment Criteria in the Course Profile for the requirements to do the assignment in a pair.
Part A is designed to enhance your analytical skills that are essential in making decisions. It is expected that you will demonstrate an ability to identify underlying issues and more subtle points based on an understanding of the scenario presented in this assignment in terms of the environment in which it operates. You should be able to do calculations, analyse the alternatives, develop an opinion and make a decision. Your decision should be justified with well-reasoned arguments.
The word count for Question 2 of Part A is limited to a maximum of 800 words. You should make every effort and attempt to stay within the prescribed limit. The exact word count for this question must be included on the marking criteria sheet that must be the first page of your assignment. Retain a copy of your assignment for your records.
• Spend time unnecessarily paraphrasing the information provided about the case in the assignment question.
• Just simply identify the issue. You need to elaborate on it, explain exactly what you mean and justify your argument.
• Ask questions while presenting your answer. You are required to discuss issues and not to ask questions and leave it up to the marker to “answer” your questions. For example, in the past some students asked questions such as: How will this impact other employees? The marker may think “good” whereas you actually meant the impact might be “bad”. No marks will be given if you ask questions without providing the answers yourself.
• Simply say that you require more information. Make assumptions as far as possible.
• Answer any question using the five-step decision-making process on pages 11-12 of the prescribed textbook.
Academic Learning Centre
It is highly recommended to seek help and guidance for Part A from the Academic Learning Centre (ALC), especially if English is not your first language. The ALC can help you with the written communication by checking your assignment for grammatical correctness and that your arguments are logical. Also, that you are actually answering the questions in Part A by applying theoretical knowledge to a practical situation. You will not receive any marks if you make generic, theoretical, vague and stray claims and statements without applying them to the practical situation of the case in this assignment.
Please keep in mind that the assignments are marked in soft copy and hence specific formatting is required. This is to ensure that the marking can be done in a time efficient and effective way. Hence, 1 mark is allocated for the formatting. To obtain this mark, ensure you comply with the following:
• Font: Times New Roman, 12 point, 1.5 line spacing
• Submit only one document onto Moodle that must be in Word format, allowing the marker to use track-changes to provide comments and indicate where you received marks. Please do not submit a pdf document as this will not be marked. Also, please do not submit an excel file for question 1 to show the figures and calculations as this will also not be marked. Instead, include a table in your Word document using the “insert table” function. Ensure that the marker will be able to use track-changes in this table to indicate where you received or lost marks.
• Page: portrait orientation
• Footer: Your full name and student ID, page number and number of pages (i.e. Pat Jones s0123456, page 1 of 3)
• Marking criteria sheet contains your name and student ID and is the first page of your assignment.
Work submitted by a student that is the work of another person with no referencing or acknowledgement is considered to be plagiarism. If the turnitin score is high, plagiarism may be suspected and your assignment will be investigated. Hence it may take a considerable amount of time before your assignment will be returned. Furthermore, if there is evidence of plagiarism, a Plagiarism Incident Report (PIR) will be lodged. You will then receive notification from the University with details of the necessary course of action.
You can check your turnitin score when submitting your assignment. Please note: if you choose to resubmit the assignment, it will take 24 hours before turnitin will give you another score. Also note that the turnitin scores keep on changing as more students submit their assignments and more similarities between assignments are found and reported in the system. It is therefore possible that your assignment may be investigated for plagiarism even if the initial plagiarism score might have been low. To avoid any concern, anxiety and stress about the turnitin score, do your own work.
You must submit your assignment electronically through the secure upload facility in the Moodle system. Please ensure you add your student name and ID, and the required word count in the marking criteria sheet and ensure that it is the first page of your assignment. Also ensure you include your student name and ID name in the file name when you save the document, and ensure that you include the appropriate .doc or .docx at the end. For example, save your file as: Pat Bird s0123456.docx
Please note: 2 marks are allocated for complying with formatting and submission requirements.
Part A – Decision making and relevant information 20 marks
Ishtar Ltd makes an energy drink sold mainly at gyms. Currently the energy drink is available in 500 ml bottles in three different flavours (Coffee, Chocolate, and Vanilla). The energy drink is sold to gyms in cartons containing 12 bottles of the same flavour. Due to the downturn in the economy and competitors entering the market, sales have dropped significantly. The CEO of Ishtar Ltd is concerned about the decline in the profit of the company. The CEO believes that cutting the cost of manufacturing the energy drink will enable Ishtar Ltd to reduce the selling price and regain some of its market. She asked the management accountant (Julius) to investigate the cost structure of making the energy drink. Julius provides the following information about the current monthly activity level:
Selling price per carton: Coffee flavour 36
Selling price per carton: Chocolate flavour 60
Selling price per carton: Vanilla flavour 50
Variable manufacturing costs per carton that vary with number of units produced
Coffee flavour (for producing 60 000 litres)
Chocolate flavour (for producing 90 000 litres)
Vanilla flavour (for producing 45 000 litres) 24
Variable costs per set up for making different flavour energy drinks (see additional information below) 1 000
Fixed manufacturing costs per month 50 000
Fixed marketing costs per month 25 000
Variable marketing costs per carton sold per flavour:
Coffee flavour (for producing and selling 60 000 litres)
Chocolate flavour (for producing and selling 90 000 litres)
Vanilla flavour (for producing and selling 45 000 litres) 1.20
Ishtar Ltd only has one manufacturing plant and can only make one flavour of energy drink at a time. It sets the plant up to make 5 000 litres of one flavour at a time, starting with Coffee flavour, followed by Chocolate flavour and then the Vanilla flavour and then repeat that sequence until the 45 000 litres of Vanilla flavour has been produced. It then starts again with making 5 000 litres of the Coffee flavour, followed by the Chocolate flavour. Once the 60 000 litres of the Coffee flavour energy drink is manufactured, it sets up the plant once to manufacture the remainder of the Chocolate flavour. The company has the capacity to manufacture 195 000 litres of energy drink per month. Currently, it operates at full capacity and makes and sells the following levels per flavour per month:
Coffee flavour Chocolate flavour Vanilla flavour
60 000 litres 90 000 litres 45 000 litres
While investigating the cost structure of the energy drink, Julius (who was born in Kenya) contacted a very close friend in Kenya who has a coffee plantation. Julius discovered that coffee beans could be imported from Kenya at a cost much lower than what Ishtar Ltd currently pays. Currently Ishtar Ltd buys the coffee beans from an Australian coffee farmer in the Atherton Tableland in Queensland. Should Ishtar Ltd import the coffee beans from Kenya, the variable manufacturing costs per carton of the coffee flavour energy drink will decrease to $15, the variable marketing costs will be $1.00 per carton and each carton can then be sold for $30. Assume only one set-up will be required to make the 195 000 litres of Coffee flavour energy drink. Furthermore, Julius believes that importing the coffee beans from Kenya will also be the right thing to do ethically, as it is a fair trade transaction, helping a third world country. Julius decided not to tell the CEO about his relationship with the source of the coffee beans from Kenya. Julies is a member of CIMA, and bound to CIMA’s Code of Ethics for Professional Management Accountants.
Julius proposes that Ishtar Ltd imports the coffee beans from Kenya, and use the full capacity to make and sell only Coffee flavoured energy drinks.
1. Calculate the operating profit / (loss) for one month for Ishtar Ltd using variable costing method for the two scenarios: (a) business as usual and (b) import the coffee beans from Kenya. Use the format of figure 8.4 on page 304 of the prescribed textbook to show your calculations. Show the Income Statements for the two scenarios (a) and (b) next to each other in one table. (10 marks)
To receive maximum marks, please show all your workings and calculations. You will receive zero marks if your figures are incorrect and you do not show any calculations as the marker will not be able to give you partial marks.
Tip: calculate the number of cartons that need to be made and sold per month.
2. Discuss the following issues that Ishtar Ltd will have to consider in making the decision whether to accept or reject Julius’ proposal to import the coffee beans from Kenya and to use the full capacity to make and sell Coffee flavour energy drinks only:
(a) Relevant and irrelevant costs and revenue (identify which are relevant and which are irrelevant and justify your decision). (2 marks)
(b) Other non-financial issues. (4 marks)
(c) Any ethical issues that Julius, as a member of CIMA and being bound to CIMA’s Code of Ethics for Professional Management Accountants, should consider in making this proposal. Tip: Not all fundamental principles may be relevant, only discuss the relevant principles and justify why it is relevant. (2 marks):
Please note that 2 marks are allocated for complying with the formatting requirements.
Please fill in your student name and ID and the word count in the marking criteria sheet and submit it as the FIRST page of your answer to Part A
Word count for question 2
Part A Marking Criteria Sheet Marks available Marks awarded
1. Calculation of profit for two scenarios 10
2. (a) Identify relevant and irrelevant costs and revenue 2
2. (b) Discuss other non-financial issues 4
2. (c) Discuss ethical issues to be considered under CIMA Code of Conduct 2
Complying with formatting and submission requirements 2
Part A Assignment Total 20 marks
Part A Assignment: 10% weighting 10 marks
Additional comments from marker