Rose Systems manufactures Hard Disc and currently sells 20,000 units annually to producers of laptop computers: Accounting Assignment, OUM, Malaysia

Question 1

Rose Systems manufactures Hard Disc and currently sells 20,000 units annually to producers of laptop computers. Raqib, president of the company, anticipates a 30 percent increase in the cost per unit of direct labor on January 1 of next year. He expects all other costs and expenses to remain unchanged. Raqib has asked you to assist him in developing the information he needs to formulate a reasonable product strategy for next year.

You are satisfied that volume is the primary factor affecting costs and expenses and have separated the semi-variable costs into their fixed and variable segments. Beginning and ending inventories remain at a level of 1,000 units. Current plant capacity is 20,000 units.

Required

(a) In anticipation of 30 percent increase of direct labor cost next year, evaluate the appropriate PRICING strategy that the Mr Raqib need to implement in order to maintain the current contribution margin ratio of 20 percent.

(b) If however, the sales price is to be remained at current (RM250) level and the 30 percent wage increase will still goes into effect, assess the sales volume the company need to achieve in order to maintain the current operating income of RM250,000.

(c) Raqib believes that an additional RM500,000 of machinery (to be depreciated at 10 percent annually) will increase the capacity to 25,000 units. If all units produced can be sold at the present price of RM250 per unit and the wage increase goes into effect, compare and contrast the profitability of the company before and after the production capacity has been increased by constructing proforma income statement.

Question 2

Fella Design Co. uses a standard cost system. One of the company’s most popular products is a cherry wood desk. The per-unit standard costs of the desk, assuming a “normal” volume of 2,000 units per month, are as follows:

During May, 1,500 desks were scheduled and produced at the following actual unit costs:

Required:

Evaluate the performance of the company in terms of materials price and quantity variances, the labor rate and efficiency variances, and the overhead spending and volume variances for the month.
Evaluate the possible reasons behind each of the variances.

Question 3

A business manufactures refrigerators for domestic use. There are three models; A, B, and C. The models, their quality and their prices are targeted at varying markets. Product costs are computed using a blanket overhead rate. Products absorb overheads on the basis of labour hour. Generally, prices are set according to cost plus 25%. The following information is given:

The budgeted overheads for the business for the year are RM4,410,000. Meanwhile, direct labour is RM10 an hour. The business is currently facing rising competition, especially from imported goods. Consequently, the selling price of X is reduced to a level that produces very low profit margin.

To address this problem, an activity-based costing (ABC) approach is proposed. The overheads have been analysed and it is found that these are grouped around main business activities of machining (RM2,780,000), logistics (RM590,000), and establishment costs (RM1,040,000). It is maintained that these costs could be allocated based respectively on cost drivers of machine hours, material orders and space, to reflect the use of resources in each of these areas. After analyzing, the following proportionate statistics are produced as shown below:

Required:

(C) Calculate the full cost and selling price determined for each product from:

The traditional costing method
The activity-based costing method

(d) Critically evaluate the benefits of International Accounting Standards (IAS 2 Inventories) from the perspective of relevant stakeholders

Question 4

The International Ethics Standards Board for Accountants (IESBA) recently restructured and revised its Code of Ethics for Professional Accountants. While the IESBA Code isn’t specifically geared toward management accounting and finance professionals, it does extend beyond public accountants and auditors to the private sector. At the March 2019 meeting of the IESBA board of directors in New York City, IESBA members discussed the new changes to the Code and debated other hot-button ethical issues that may require future updates. The context of the changes to the IESBA Code is the rapid transformation of technology during the post-financial crisis period, leading to technological disruption that affects the accounting profession.

The IESBA Code contains five fundamental principles that outline accountants’ ethical obligations: integrity, objectivity, confidentiality, competence and due care, and professional behavior. “We believe that these fundamental principles remain strong and valid, but they may require new content and applications, and therefore there are new opportunities for complying with them but also risks to compliance,” said Stavros Thomadakis, chairman of IESBA and an emeritus professor of financial economics at the University of Athens.

“Confidentiality now has a new dimension related to cybersecurity, proprietary data, databases, and the cloud. That’s an example of how an existing principle morphs into something that we never imagined 20 years ago. Objectivity generally means lack of bias—now you have machines and algorithms that learn, so the bias is not just the bias in your head or mine, but it’s the potential bias of the algorithm itself.”

Required:

Define the Accounting ethics and give the example accounting ethics. Critically synthesize the advantages and disadvantages of the accounting ethics.  

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