Master of Professional Accounting

TACC 507 Managerial Accounting

2019 Summer Semester
(December 2019 – February 2020)
Lecturer: Dr Gerry LI

Group Assignment Report and Presentation

(Both due on 6 February 2020 at 2:00 pm)

Group Assignment Report

1. Form groups of FOUR.

2. Discuss within the group and prepare a Group Report addressing the requirements of Case
9.42 on pages 472-475 of the Textbook (see attached).

3. The assignment report format, contents and structure should be decided by each group and
presented in professional and quality manners. All the numbers in various budgets as required
by the Case must be provided and relevant qualitative issues of budgeting in organisations
should be addressed. Relevant headings/sections in the report should be designed
appropriately to cover the relevant issues in the Case. Credit will be given for identification
and organisation of the relevant issues discussed in the report.

4. The report should contain a cover page, a table of contents, the report body including an
introductory section and a conclusion section, and a list of references (at least five references
and maximum one page) of any materials (academic, business, professional) referenced and
cited. In addition, you could have an appendix (or appendices) at the end of the report
attaching materials to support your arguments / concepts / examples addressed in the report.

5. The cover page of the report must follow the format provided by IMC and each member of
the group must submit the Peer and Self-Assessment of Teamwork on individual basis.

6. Report body length: 1,200-1,500 words (excluding tables for all budgets) containing proper
page numbers with the following settings:
• Font style/size: Calibri “12”
• Line spacing: 1.5 lines (except tables for budget numbers)
• All margins: 2.5 cm
• Paper size/printing: A4 double-sided

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Group Presentation – Powerpoint

1. Each group is required to make a Powerpoint presentation on the above group assignment
report submitted.

2. Each group must submit a hard copy of the PowerPoint slides on the day of presentation:
• First slide contains the topic and the student IDs and names of all group members;
• Maximum 20 slides excluding the first slide;
• Print 2 slides on one A4 page.

3. Each group is allowed a maximum of 20 minutes to deliver the presentation (followed by

Q&A, if any). Marks will be deducted for presentations in excess of 20 minutes.

4. All members in the group must participate in the presentation, though the length of time for
each member may vary.

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 Case Information and Requirements

Source: Case 9.42

Langfield-Smith, K., Smith, D., Andon, P., Hilton, R. and Thorne, H. 2018,
Management Accounting: Information for Creating and Managing Value,
8th edition, McGraw-Hill Education (Australia) Pty Ltd.

Universal Electric Company is a small, rapidly growing wholesaler of consumer

electrical products. The firm’s main product lines are small kitchen appliances and
power tools. Marcia Wilcox, Universal’s general manager of marketing, has recently
completed a sales forecast. She believes that the company’s sales during the first quarter
of next year will increase by 10 per cent each month over the previous month’s sales.
Wilcox then expects sales to remain constant for several months. Universal’s projected
balance sheet as at 31 December this year is as follows:
Cash $ 35 000
Accounts receivable 270 000
Marketable securities 15 000
Inventory 154 000
Buildings and equipment (net of acc. depr.) 626 000
Total assets $1 100 000

Accounts payable $176 400

Long-term loan interest payable 12 500
Property taxes payable 3 600
Long-term loan payable (10% p.a.) 300 000
Share capital 500 000
Retained earnings 107 500
Total liabilities and shareholders’ equity $1 100 000

Jack Hanson, the assistant accountant, is now preparing a monthly budget for the first
quarter of next year. In the process, the following information has been accumulated:

▪ Projected sales for December this year are $400 000. Credit sales typically are 75
per cent of total sales. Universal’s credit experience indicates that 10 per cent of the
credit sales are collected during the month of sale, and the remainder are collected
during the following month.
▪ Universal’s cost of goods sold generally runs at 70 per cent of sales. Inventory is
purchased on credit, and 40 per cent of each month’s purchases is paid during the
month of purchase. The remainder is paid during the following month. In order to
have adequate inventory on hand, the firm aims to have inventory at the end of each
month equal to half of the next month’s projected cost of goods sold. Hanson has
estimated that Universal’s other monthly expenses will be as follows:
Sales salaries $18 000
Advertising and promotion 19 000
Administrative salaries 21 000
Depreciation 25 000
Interest on long-term loan 2 500
Property taxes 900

In addition, sales commissions run at the rate of 1 per cent of sales.

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▪ Universal’s managing director, Beth Davies-Lowry, has indicated that the firm
should, just after the new year begins, invest $125 000 in an automated inventory-
handling system to control the movement of inventory in the firm’s warehouse. To
the extent possible, these equipment purchases would be financed from the firm’s
cash and marketable securities. Davies-Lowry believes that Universal needs to keep
a minimum cash balance of $25 000. If necessary, the remainder of the equipment
purchases would be financed using short-term credit from a local bank. The
minimum period for such a loan is three months. Hanson believes short-term interest
rates will be 5 per cent per year at the time of the equipment purchases. If a loan is
necessary, Davies-Lowry has decided it should be paid off by the end of the first
quarter if possible.

▪ Universal’s board of directors has indicated an intention to declare and pay

dividends of $50 000 on the last day of each quarter.

▪ The interest on any short-term borrowing would be paid when the loan is repaid.
Interest on Universal’s long-term loan is paid semi-annually, on 31 January and 31
July, for the preceding six-month period.

▪ Property taxes are paid half-yearly on 28 February and 31 August for the preceding
six-month period.

Required:

Prepare Universal’s annual budget for the first quarter of next year commencing
1 January by completing the following schedules and statements:

1. Sales budget

Current Next year

year
December January February March 1st quarter
Total sales
Cash sales
Credit sales

2. Cash receipts budget

Cash receipts budget

January February March 1st quarter
Cash sales
Cash receipts from credit
sales made during
current month
Cash receipts from credit
sales made during
preceding month
Total cash receipts

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3. Purchases budget

Current Next year

year

December January February March 1st quarter

Budgeted cost of goods
sold
Add Desired ending
inventory
Total goods needed
Less Expected beginning
inventory
Purchases

4. Cash payments budget

Cash payments budget

January February March 1st quarter
Inventory purchases
Cash payments for
purchases during the
current month*
Cash payments for
purchases during the
preceding month†
Total cash payments for
inventory purchases
Other expenses
Sales salaries
Advertising and promotion
Administrative salaries
Interest on long-term loan‡
Property taxes‡
Sales commissions
Total cash payments for
other expenses
Total cash payments
* 40% of the current month’s purchases (schedule 3).
† 60% of the preceding month’s purchases (schedule 3).
‡ Long-term loan interest is paid every six months, on 31 January and 31 July.
Property taxes are also paid every six months, on 28 February and 31 August.

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5. Complete the first three lines of the summary cash budget. Then do the analysis of short-
term financing needs in requirement 6, and then finish requirement 5.

Summary cash budget

January February March 1st quarter
Cash receipts (from schedule 2)
Less Cash payments
(from schedule 4)
Change in cash balance during
quarter due to operations
Sale of marketable securities
(2 January)
Proceeds from bank loan
(2 January)
Purchase of equipment
Repayment of bank loan
(31 March)
Interest on bank loan
Payment of dividends
Change in cash balance
during 1st quarter
Cash balance, 1 January
Cash balance, 31 March

6. Analysis of short-term financial needs:

• Projected cash balance as at 31 December in current year
• Less Minimum cash balance
• Cash available for equipment purchases
• Projected proceeds from sale of marketable securities
• Cash available
• Less Cost of investment in equipment
• Required short-term borrowing

7. Prepare Universal’s budgeted income statement for the first quarter. (Ignore income
taxes.)

8. Prepare Universal’s budgeted statement of retained earnings for the first quarter.

9. Prepare Universal’s budgeted balance sheet as at 31 March. (Hint: On 31 March, long-

term loan interest payable is $5 000 and property taxes payable are $900.)

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