ACC514 Financial Accounting Assignment

ACC514 Financial Accounting Assignment

ACC514 Financial Accounting Assignment

In this ACC514 Financial Accounting Assignment calculation the profit and loss Ishtar Ltd using the costing method.

1. Decision making and relevant information

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.

SCENARIO

 

(A)

 

(B)

Particular

 

Amount

 

Amount

Sales Revenue

    

Coffee flavour

360,000

 

975,000

 

Chocolate flavour

900,000

 

-  

 

Vanilla flavour

450,000

1,710,000

-  

975,000

Variable manufacturing costs per month

    

Coffee flavour

240,000

 

487,500

 

Chocolate flavour

60,000

 

-  

 

Vanilla flavour

255,000

555,000

-  

487,500

Variable costs per set up per month

    

Coffee flavour

12,000

 

1,000

 

Chocolate flavour

18,000

 

-  

 

Vanilla flavour

9,000

39,000

             -  

1,000

Variable marketing costs

    

Coffee flavour

12,000

 

32,500

 

Chocolate flavour

21,000

 

-  

 

Vanilla flavour

       9,750

42,750

-  

32,500

Total variable cost

 

636,750

 

521,000

CONTRIBUTION MARGIN

 

   1,073,250

 

454,000

Fixed Cost

 

 

 

 

Fixed manufacturing costs per month

     50,000

 

     50,000

 

Fixed marketing costs per month

     25,000

 

     25,000

 

Total Fixed Cost

 

75,000

 

75,000

OPERATING INCOME

 

998,250

 

379,000

Working note 1: Revenue (Scenario A)

Particulars

Calculations

Amount

Coffee flavour

60,000 litres / 6 litres = 10,000 cartons * 36

360,000

Chocolate flavour

90,000 litres / 6 litres = 15,000 cartons * 60

900,000

Vanilla flavour

45,000 litres / 6 litres =7500 cartons * 50

450,000

Total

 

1,710,000

Since one bottle contains 500 ml of flavoured energy drink that is sold by Ishtar Ltd in its business therefore one carton has 6 litres of flavoured energy drink i.e. 12 boltless multiplied by 0.50 litres = 6 litres in one carton.

Working note 2: Variable manufacturing costs per month (Scenario A)

Particulars

Calculations

Amount

Coffee flavour

60,000 litres / 6 litres = 10,000 cartons * 24

240,000

Chocolate flavour

90,000 litres / 6 litres = 15,000 cartons * 40

600,000

Vanilla flavour

45,000 litres / 6 litres =7500 cartons * 34

255,000

Total

 

1,095,000

Working note 3: Variable costs per set up per month for making different flavor energy drinks (Scenario A)

Particulars

Calculations

Amount

Coffee flavour

60,000 litres / 5000 litres = 12 set ups * 1000

12,000

Chocolate flavour

90,000 litres / 5000 litres = 18 set ups * 1000

18,000

Vanilla flavour

45,000 litres / 5000 litres = 9 set ups * 1000

9,000

Total

 

39,000

Working note 4: Variable marketing costs per month sold per flavour (Scenario A)

Particulars

Calculations

Amount

Coffee flavour

60,000 litres / 6 litres = 10,000 cartons * 1.20

12,000

Chocolate flavour

90,000 litres / 6 litres = 15,000 cartons * 1.40

21,000

Vanilla flavour

45,000 litres / 6 litres =7500 cartons * 1.30

9,750

Total

 

42,750

Working note 1: Revenue (Scenario B)

Particulars

Calculations

Amount

Coffee flavour

195,000 litres / 6 litres = 32,500 cartons * 30

975,000

Working note 2: Variable manufacturing costs per month (Scenario B)

Particulars

Calculations

Amount

Coffee flavour

195,000 litres / 6 litres = 32,500 cartons  * 15

487,500

Working note 3: Variable marketing costs per month sold per flavour (Scenario B)

Particulars

Calculations

Amount

Coffee flavour

195,000 litres / 6 litres = 32,500 cartons  * 1

32,500

Working note 4: Variable costs per set up will be 1000 since only set is required (Scenario B)

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

Relevant cost can be defined as the cost which will be undertaken for the purpose of decision making and on these costs decisions are taken by the management or project management accountants of the company. Relevant cost changes when there is change in the level of activity in the organisation (Averkamp, 2015). On the other hand irrelevant cost can be defined as the cost which does not change with the change in the activity. Irrelevant cost can be further defined as the cost which will only incur if new project or change in level of production will be done otherwise this cost is not incurred. 

RELEVANT COST

IRRELEVANT COST

Variable manufacturing costs

Fixed manufacturing costs per month

Variable marketing costs

Fixed marketing costs per month

Variable costs per set up

 

(b): Other non-financial issues.

Non financial issues in the present situation in the operations and in the decision making process of Ishtar Ltd can be define as the issues that does not requires cash or financial touch in it and other related matters can be related to economic condition of country, export and import conditions, etc. In case of present situation of Ishtar Ltd flowing are some non financial issues that can be faced by the Ishtar Ltd because of decision taken by Julius (management accountant) of Ishtar Ltd:

Fair Trade Transaction- Fair trade transactions leads to development of whole world’s business community or it is the situation of making business entity of third country involved in the business transitions so that overall profit in the transaction will be earned and received by respective countries involve (Khan, 2012). As per international trade practices and being responsible towards world community, Ishtar Ltd can make transaction with Kenya for their second option of buying coffee beans and produce and sell only coffee flavoured energy drinks.

Loss to Local Market- Another non financial issue that Ishtar Ltd shall undertake is of loss to local market in case when Ishtar Ltd imports all coffee beans from the Kenya and stop production of other flavoured drinks along with purchase of coffee beans from the local market. This decision of Ishtar Ltd or of Julius (management accountant) if undertaken this will cause loss to local coffee market. As in current situation, Ishtar Ltd buys coffee beans from the local Australian coffee farmer in the Atherton Tableland in Queensland. Therefore it will lead towards the situation of loss in the local market and ultimately it affects economy of the country and price inflation.

Import will Increase- Another important consideration that can be considered is of the import and export conditions of countries involved in the transactions. Therefore Ishtar Ltd and Julius (management accountant) shall take decisions related to their business operations in the organisation. They are considering importing coffee beans from the Kenya so that they are able to use this in their manufacturing process of flavoured energy drink. Import export relations, import expert procedure and foreign currency exchange rates is another non financial issues that Ishtar Ltd and Julius needs to undertake while making decisions related to importing of coffee beans from Kenya.

(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.

Julius as management accountant is liable to provide information to the management of Ishtar Ltd so that they are able to take correct decisions on the basis this information. Information to be provided to management shall be free from any error and shall be fully disclosed (Ingram, 2012). Since Julius is management accountant of Ishtar Ltd therefore there is some Code of Ethics for Professional Management Accountants on him as a member of CIMA .Following are some ethical issue that has been breached by Julius as management accountant as required by CIMA:

Integrity- Julius has breached the ethical code or standard or principle of integrity under which Julius is required to disclose full, honest, straight and true information to the management of Ishtar Ltd so that they can take appropriate decision (glance, 2016). In this case, Julius has decided to not to disclose the relationship between Julius and his close friend in Kenya, and this leads to breach of code of ethical for health professional management accountant.

Objectivity- Another code of ethics for professional management accountants that has been breached is of objectivity. Under this code, Julius need to overcome biasness and conflict of interest in the business operations and in decision making process. But in this case Julius has failed to do so as he has provided management of Ishtar Ltd with biased decision making information (glance, 2016). As he has conflict of interest i.e. self interest of providing contract to his friend in Kenya for the coffee beans.

Bibliography:

Averkamp, H. (2015). Cost behavior and Decision Making. Accounting Coach , 1.
glance, E. c. (2016, January 01). Ethics code at a glance. Retrieved April 04, 2016, from cimaglobal.com: http://www.cimaglobal.com/Professional-ethics/Ethics/CIMAs-code-at-a-glance/
Hedberg, B. (2010). Organisation and Cost Management. Sydney: City Press.
Ingram, D. (2012). How to Resolve Ethical Dilemmas in the Workplace. Demand Media , 1.
Khan, N. S. (2012). Types of tools and techniques used in cost management. Project Management , 1.