Avonside Ltd is preparing its cash budget for May 2016. The following information relating to sales and purchases is available:

Sales
• Each month’s sales are invoiced on the last day of each month.
• Customers are allowed a 2% discount if payment is made within 10 days after the invoice date.
• 60% of invoices are collected within the discount period, 20% are collected by the end of the month following date of sale, 15% are collected by the end of the second month following date of sale and 5% prove to be uncollectible.

Purchases
• 54% of all purchases of inventory as well as selling, general and administrative (SGA)
expenses are paid in the month of purchase and the remainder in the following month.
• Avonside requires that each month’s units of ending inventory is equal to 120% of the next month’s sales units.
• The cost of each unit of inventory is $10.
• Total SGA expenses are equal to 10% of the current month’s sales and include $2500 of
depreciation.

Projected sales are:

Month $ units
March 177 000 11 800
April 181 500 12 100
May 178 500 11 900
June 171 000 11 400
July 180 000 12 000
August 183 000 12 200

Required:

1. Calculate cash receipts from sales for May 2016.
2. Calculate cash payments for May 2016.
Question Two (Module Seven) 25 Marks

Budgetary control is a key aspect of the budgeting process and requires the monitoring of actual performance against estimated targets. However budgetary control has limitations that organisations may struggle to overcome.

Required:

1. Identify any limitations of budgetary control that you believe may exist in organisations.
2. Address the limitations you have identified by suggesting conditions/organisational process that may alleviate these.
3. In your view is the process of setting budgetary targets a process of organisational negotiation or an ethical dilemma for the participants involved in this activity? Provide a critical analysis. You may wish to discuss this in the context of different styles of budgeting (i.e. authoritarian and participative).

You should limit your discussion to approximately 800 words. You should provide references at the end of the document to any cited works. Use the university approved Harvard referencing system.

Deep South Mineral Waters produces its unique product from its special underground spa water reserves. These reserves are physically limited to a maximum extraction rate of
69,500 litres per month. Deep South currently produces and sells 61,000 litres per month at
$11 per one litre bottle. The cost of extraction, packaging etc. at the present production level is as follows:
per litre
Direct materials $1.50
Direct labour 4.10
Variable overheads 1.30
Fixed overheads 1.80
Total costs $8.70

Recently, Deep South received an unexpected order for “trial batch” of the health spa water, of 3,000 litres from an overseas government health department official who offered a price $8.40 per litre (“landed” in the overseas company). This is lower than the “full” cost of normal production which is $8.70 (see above costing). The official indicated that if proven beneficial health-wise, subsequent orders (of around 10,000 litres per month) might be forthcoming. Overseas shipping costs work out at $0.10 per litre, and the official requires a
5% “commission” for his efforts.

Required:
1. From a purely financial point of view, is the “trial-batch” order attractive for Deep
South?
2. If the product is successful and the government orders increase to the official’s
projected level, should Deep South accept them?
3. Discuss the non-economic considerations and ethical issues involved in making this decision?
Question Four (Module Eight) 20 Marks

Part One

Dunsandel Ltd manufactures three models of agricultural equipment: Monsoon, Aqua and
HydroDrip. Product information is provided below.

Unit selling price Monsoon
$150 Aqua
$250 HydroDrip
$500
Unit costs:
Variable manufacturing
(60)
(120)
(200)
Fixed manufacturing (40) (50) (120)
Variable selling and administrative (30) (30) (30)
Unit profit $ 20 $ 50 $150
Demand in units 100 120 100
Machine-hours per unit 20 40 100

The maximum machine-hours available are 6,000 per week.

Required: How many of each model should be produced, using a short-run profit maximising strategy?

Part Two

Answer the following independent questions. Provide all supporting calculations.

a) The average cost per unit was $234 at a volume of 1200 units and $205 at a volume of 1400 units. The profit was $24 000 at the lower volume. Estimate the variable cost per unit.

b) Sparkle Car Wash Supplier sells a hose washer for $0.25 that it buys from the manufacturer for $0.12. Variable selling costs are $0.02 per hose washer. Breakeven is currently at a sales volume of $10 600 per month. What are the monthly fixed costs associated with the washer?

c) Monthly fixed costs are $24 000 when volume is at or below 200 units and $36 000 when monthly volume is above 200 units. The variable cost per unit is $200 and the selling price is $300 per unit. What is the breakeven quantity?
Higgins Ltd recently announced a bonus plan to be awarded to the manager of the most profitable division. The three divisional managers are to choose whether ROI or RI will be used to measure performance. In addition, they must also decide whether investment will be measured using gross book value or net book value of assets. Higgins Ltd defines operating income as operating profit and investment as total assets. The following information is available for the year just ended:
Division Gross Book Value of
Assets Accumulated
Depreciation
Operating Profit
Cookies $1 400 000 $545 000 $149 000
Cake $1 340 000 $715 000 $145 550
Savoury $850 000 $620 000 $98 100

To calculate residual income Higgins Ltd uses a required rate of return of 12% on investment.

Required:

a) Each division manager has selected a method of bonus calculation that ranks his or her division highest. Identify the method for performance evaluation that each manager has selected. Provide calculations to support your answer.
b) Assume each division operates in a different country. What special problems might arise when evaluating performance in multinational companies?

Part Two

In their seminal article published in the Harvard Business Review, Kaplan and Norton advocated for the use of a balanced scorecard as a means to present a balanced view of financial and operational measures (Kaplan & Norton 1992). One aspect of this approach was to incorporate increased use of non-financial performance indicators in organisational performance systems. Explain what is meant by non-financial indicators in the context of monitoring and controlling organisational performance. Identify the advantages and disadvantages of using non-financial indicators in organisational performance measurement.

Requirements:

You should limit your discussion to approximately 500 words. You should provide references at the end of the document to any cited works. Use the university approved Harvard referencing system.
Marking Guide

Question Task Marks
Question One Calculate cash receipts from sales for May 2016. 4 Marks
Calculate cash payments for May 2016. 8 Marks
Question Two Identify any limitations of budgetary control that you
believe may exist in organisations. 8 Marks
Address the limitations you have identified by
suggesting conditions/organisational process that may alleviate these. 8 Marks
In your view is the process of setting budgetary
targets a process of organisational negotiation or an ethical dilemma for the participants involved in this activity? Provide a critical analysis. 9 Marks
Question Three From a purely financial point of view, is the “trial-
batch” order attractive for Deep South? 7 Marks
If the product is successful and the government orders
increase to the official’s projected level, should Deep
South accept them? 8 Marks
Discuss the non-economic considerations and ethical
issues involved in making this decision? 3 Marks
Question Four
(Part One) How many of each model should be produced, using a short-run profit maximising strategy? 11 Marks
Question Four
(Part Two)
(a) – (c)
3 Marks each

Question Five

(Part One) Each division manager has selected a method of
bonus calculation that ranks his or her division highest. Identify the method for performance evaluation that each manager has selected. Provide calculations to support your answer. 12 Marks
Assume each division operates in a different country.
What special problems might arise when evaluating performance in multinational companies? 3 Marks

Question Five

(Part Two) Explain what is meant by non-financial indicators in
the context of monitoring and controlling organisational performance. Identify the advantages and disadvantages of using non-financial indicators in organisational performance measurement. 10 Marks
Total Marks 100 Marks

Sources withheld: Questions for this assignment are taken from other sources. Details of this source have been withheld for assessment purposes. This material is reproduced under the provisions of the Section 200 (1) (b) of the Copyright Amendment Act 1980.)

References
Kaplan, RS & Norton, DP 1992, ‘The Balanced Scorecard–Measures That Drive Performance’,
Harvard Business Review, vol. 70, no. 1, pp. 71-9.