Managerial accounting
Page 1 of 4 Master of Professional Accounting TACC 607 Managerial Accounting Term 1, 2020 (30 March 2020 – 12 June 2020) Lecturer: Dr Gerry LI Individual Assignment (Due on 31 May 2020 by 11:59 pm) Read carefully the following Case information before planning to write the Report Fantastic Sky Tours Pty Ltd is a small sightseeing tour company in Sydney that specialises in aerial tours of the New South Wales area. Until recently, the company had not had an accounting department. Routine bookkeeping tasks, such as billing, had been handled by a person who had little formal training in accounting. As the business began to grow, however, the owner recognised the need for more formal accounting procedures. Miranda Jenkins, a CPA, was recently hired as the new management accountant, and she has the authority to hire an assistant. During her first week on the job, Miranda was given the performance report on the next page. The report was prepared by Robert Smith, the company’s manager of Aircraft Operations, who was planning to present it to the owner, David Lowry, the next morning. ‘Look at these favourable variances for fuel and so forth,’ Robert pointed out as he showed the report to Miranda. ‘My operations people are really doing a great job.’ Later that day, Miranda looked at the performance report more carefully. She immediately realised that it was improperly prepared and would be misleading to the company’s owner. See next page: Performance Report prepared by the manager of Aircraft Operations Page 2 of 4 Fantastic Sky Tours Pty Ltd Performance Report for the month of April 2020 Formula flexible budget (per air-km) Actual (32 000 air-km) Static budget (35 000 air-km) Variance Passenger revenue $3.50 $112 000 $122 500 $10 500 U Less Variable costs: Fuel 0.50 17 000 17 500 500 F Aircraft maintenance 0.75 23 500 26 250 2 750 F Flight crew salaries 0.40 13 100 14 000 900 F Selling and administration 0.80 24 900 28 000 3 100 F Total variable expenses $2.45 $ 78 500 $ 85 750 $ 7 250 F Contribution margin $1.05 $ 33 500 $ 36 750 $ 3 250 U Less Fixed costs: Depreciation on aircraft $2 900 $ 2 900 $ 2 900 $ 0 Landing fees 900 1 000 900 100 U Supervisory salaries 9 000 8 600 9 000 400 F Selling and administrative 11 000 12 400 11 000 1 400 U Total fixed expenses $23 800 $ 24 900 $ 23 800 $ 1 100 U Net profit $ 8 600 $ 12 950 $ 4 350 U Page 3 of 4 Assignment Tasks and Report Requirements Assuming the role of Miranda Jenkins at Fantastic Sky Tours Pty Ltd, prepare a report to the owner of the company providing explanations and revised reports in relation to the operating performance in April 2020, and address her ethical obligations arising from the response from the manager of Aircraft Operations. Your report should contain the following three parts: Part I 1. Explain why the company’s April net profit was only about two-thirds of the expected level, despite several favourable variable expense variances shown in the above performance report. 2. Explain why the original performance/variance report prepared by the manager of Aircraft Operations is misleading. Part II 1. Prepare flexible budgets for the company based on the following activity levels: (a) 32 000 air-kilometres. (b) 35 000 air-kilometres. (c) 38 000 air-kilometres. 2. Prepare a revised performance report showing the proper variances for April, based on the flexible budget that you prepared above. Part III Miranda Jenkins presented her revised performance report to Robert Smith, along with the explanation why the original performance report was misleading. Robert did not take it well. He complained of Miranda’s ‘interference’ and pointed out that the company had been doing just fine without her. ‘I am taking my report to the owner tomorrow,’ Robert insisted. ‘Yours just makes us look bad.’ What are Miranda’s ethical obligations as a CPA in this matter? What should she do? Page 4 of 4 Format and Submission of the Assignment Report 1. The final assignment report format, contents and structure should be decided by each of you, but it must include the three major parts listed on the previous page, and the report should be presented in a professional and quality manner. 2. All the numbers in various budgets as required by the Case must be provided and relevant qualitative issues of static/flexible budgeting and various analysis under standard costing in organisations should be addressed. 3. Relevant headings/sub-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. 5. You may include a small list of references (maximum one page) of any materials (academic, business, professional) referenced and cited. In addition, you may have an appendix (or appendices) at the end of the report attaching materials to support your arguments / concepts / examples addressed in the report. 10% of the assessment is allocated to proper research on relevant topics. 6. The cover page of the report must follow the format provided by IMC. 7. The report is to be submitted on Moodle link through Turnitin checking for plagiarism on or before 31 May 2020 by 11:59 pm. 8. Report body length: 1,500-1,800 words (excluding the flexible budgets and performance report with variance analysis) containing proper page numbers with the following settings: • Font style/size: Times New Roman “12” • Line spacing: 1.5 lines (except tables with numbers) • Margins: Top (2.5 cm), Bottom (1.5 cm), Left (2.5 cm), Right (2.0 cm) • Paper size: A4