Question 2 Heidi is the manager of Division C of Manoto Ltd. She was appointed to...

  

Transcribed Image Text:

Question 2 Heidi is the manager of Division C of Manoto Ltd. She was appointed to the role about 3 years ago and is well established in the company as an excellent salesperson, although she readily accepts that finances are not her strongest point. One day she arrives in work to find the following email: To: Heidi Warwick From: Date: 4 January 2021 Subject: Performance Report Dear Heidi, The company has decided to adopt a system of responsibility accounting, so we will be sending you a Flexed Budgeted Profit Statement every 3 months, which we will compare to your actual results. We have also decided to link your performance against the budget to our appraisal system. Kevin Moore - Manoto Ltd., Finance Division Responsibility accounting means that you are responsible for ensuring that the performance of your division is kept in line with the budget and the actual performance will be compared with it. Any differences will be highlighted by us, so that you can identify important variations from the budget and take any necessary corrective action. Any variation in excess of the budget must be investigated and an explanatory email sent back to me, giving reasons and any proposed corrective action. We will be using the information below to calculate your Flexed Budgeted Profit Statement for the 3 months to 31 December 2020. Currently it is operating at a normal level of activity of 50% which represents an output of 6250 units. Kevin Moore believes that a realistic forecast for the next budget period would be a level of activity of 35% Information: Direct materials Direct wages Production overhead Administration overhead Selling overhead Total cost 50% 62,500 43.750 51,250 35,000 47,500 240,000 60% 75,000 52,500 57,500 35,000 55,000 275,000 ======= 70% 87,500 61,250 63,750 35,000 62,500 310,000 ======= Profit is 25% of selling price. You have recently been appointed as the Management Accountant for Manoto Ltd., which is a new role within the company and it has become clear to you over the last few weeks that the morale of the managers of the division is low. Heidi's morale is not high. Required: a) Discuss the possible effects of the Performance Report on the way the Information was communicated to Heidi. (10 marks) b) Use the information above to produce a Flexed Budgeted Profit Statement for Division C for the 3 months to 31 December 2020, which shows the expected Contribution. (20 marks) c) Explain the differences between participation and non-participation as styles of budgeting and discuss the advantages of each. (10 marks) d) Mantolo are using their budget system for control and Responsibility Accounting purposes. Identify and explain 2 other purposes Mantolo Ltd. could use the budget system for. (10 marks) Total: 50 marks Question 2 Heidi is the manager of Division C of Manoto Ltd. She was appointed to the role about 3 years ago and is well established in the company as an excellent salesperson, although she readily accepts that finances are not her strongest point. One day she arrives in work to find the following email: To: Heidi Warwick From: Date: 4 January 2021 Subject: Performance Report Dear Heidi, The company has decided to adopt a system of responsibility accounting, so we will be sending you a Flexed Budgeted Profit Statement every 3 months, which we will compare to your actual results. We have also decided to link your performance against the budget to our appraisal system. Kevin Moore - Manoto Ltd., Finance Division Responsibility accounting means that you are responsible for ensuring that the performance of your division is kept in line with the budget and the actual performance will be compared with it. Any differences will be highlighted by us, so that you can identify important variations from the budget and take any necessary corrective action. Any variation in excess of the budget must be investigated and an explanatory email sent back to me, giving reasons and any proposed corrective action. We will be using the information below to calculate your Flexed Budgeted Profit Statement for the 3 months to 31 December 2020. Currently it is operating at a normal level of activity of 50% which represents an output of 6250 units. Kevin Moore believes that a realistic forecast for the next budget period would be a level of activity of 35% Information: Direct materials Direct wages Production overhead Administration overhead Selling overhead Total cost 50% 62,500 43.750 51,250 35,000 47,500 240,000 60% 75,000 52,500 57,500 35,000 55,000 275,000 ======= 70% 87,500 61,250 63,750 35,000 62,500 310,000 ======= Profit is 25% of selling price. You have recently been appointed as the Management Accountant for Manoto Ltd., which is a new role within the company and it has become clear to you over the last few weeks that the morale of the managers of the division is low. Heidi's morale is not high. Required: a) Discuss the possible effects of the Performance Report on the way the Information was communicated to Heidi. (10 marks) b) Use the information above to produce a Flexed Budgeted Profit Statement for Division C for the 3 months to 31 December 2020, which shows the expected Contribution. (20 marks) c) Explain the differences between participation and non-participation as styles of budgeting and discuss the advantages of each. (10 marks) d) Mantolo are using their budget system for control and Responsibility Accounting purposes. Identify and explain 2 other purposes Mantolo Ltd. could use the budget system for. (10 marks) Total: 50 marks

Answer rating: 100% (QA)

Level of activity Units Selling overhead Variable cost per unit change in production overhead ... View the full answer