Final Exam Cover Sheet

Accounting, Behaviour and Control ACCT3001

Due: 1.00pm Thursday, 18 June 2020

Family Name / Surname:

Goh

Other Names:
Chia Yen

Student ID:
19583794/700026646

Question One
1. The range of transfer price is $9-$12 as the variable costs per kg is $9 and the restaurant
division buy at $12 per kg from Megaco.

2. Increase in overall monthly profit for Langford Kitchen

= ($12 x 2500 – ($10 x 2500)) + 0
= (30,000-25,000) + 0
= 5,000

3a. Increase in overall monthly profit for Restaurant division

= $12 x 2500 – ($10 x 2500) + 2,500
=30,000-25,000 + 2,500
=5,000 + 2500
=7,500

3b.
Incremental revenue per kg $10
Incremental cost per kg
Product cost ($6)
Selling, administration and general expenses ($3)
Contribution margin per kg $1

Megaco’s additional monthly contribution margin

=$1x 2500
=$2500

4.
Maximum capacity 12,000
Current usage (8,000)
Supply to restaurant division (2,500)
Unutilized capacity 1,500
Existing customer increase 2,500kgs order
2500-1500=1000 (exceed)
Total cost
= (2500 x9) + (1000 x6)
= 22500 + 6000
=28500
Minimum transfer price
28500
=
2500
=$11.40 per kg

Question Two
1. Multinational corporations can use transfer pricing to minimize the cost of goods
transferred to countries with high import tariff at a minimal transfer price. In addition, they
can increase revenues in countries with low tax which they can earn more profits and not
paying as much taxes. Furthermore, they can increase costs in countries with high tax which
they carry out high cost of manufacturing activities to earn more profit. Moreover, to acquire
higher profit margins, companies can use tactics such as overpricing products that have been
relocated to countries with low tariff rates to minimize income and corporate tax in countries
with high tariff rates.

2a. Cost-based transfer prices are useful when it is inappropriate, inaccessible, or too pricey
to acquire market price. When the manger use standard absorption cost, they may
overcharging the price of the products which the manager may include too much costs and
expenditure and the products become too pricey and become dysfunctional because those
inefficiency will then get transferring throughout the buying division. In addition, the selling
division can record down some sort of contribution margin and that contribution margin are
covered the fixed cost when the managers use standard variable cost plus mark up.
2b. Negotiated transfer price appears from the result of a negotiation procedure among
buying and selling department. One of the advantages is this process retains the independence
of the selling and buying division and is constant with the essence of decentralization.
Behavioural implication in using this transfer price is the managers may spend much
management time to negotiate the price. It is time consuming in the bargaining process. In
addition, negotiated price is depending on negotiation skills of the manager and not beneficial
of overall corporation performance. It may lead to the division disagreement.

Question Three
 Income
1. ROI¿
Invested Capital

Automotive division

4,100 , 000
ROI( 2018 )=
12,500 , 000
= 0.328
= 32.80%

1,800 , 000
ROI( 2019 )=
12,500 , 000
= 0.144
= 14.4%

Outboard division

800 , 000
ROI( 2018 )=
2,400 , 000
= 0.3333
= 33.33%

600 , 000
ROI( 2019 )=
2,200 , 000
= 0.2727
= 27.27%

Lawnmower division

1,800 , 000
ROI( 2018 )=
4,700 ,000
= 38.30%

1,600 , 000
ROI( 2019 )=
4,900 ,000
= 0.3265
= 32.65%

Based on ROI, the profitability of Automotive division has decreased significantly from
32.8% to 14.4% between 2018 and 2019 as the operating income of this division has a
significant drop from $4,100,000 to $1,800,000 over these two years. However, the invested
capital remains as the same.

The ROI of Outboard division has dropped from 33.33% to 27.27% as the operating income
and invested assets have declined slightly between 2018 and 2019.
Since the operating income of Lawnmower division has decreased and the invested capital
has increased from 2018 to 2019. However, the increase of invested capital will affect the
profitability of this division since the income has declined so the profitability of this division
has dropped from 38.30% to 32.65%.

Lawnmower division has the best performance among the other two divisions due to it has
the highest ROI with 38.30% and 32.65% in 2018 and 2019. Automotive division has the
lowest ROI in 2018 and 2019 so this division has the lowest profitability.

2. RI (2018)= Income – (RRR x Investment)

RI(2018)=(4100,000+800,000+1800,000)–(10% x (12,500,000+2400,000+4700,000))
RI (2018) = 6700,000 – (10% x 19,600,000)
RI (2018) = 6700,000 -1960,000
RI (2018) = $4740,000

Bonus pool available for 2018

= $4740,000 x 12%
= $568800
 
RI (2019) = Income – (RRR x Investment)
  RI (2019) = 1800,000+600,000+1600,000 – (10% x
(12500,000+2200,000+4900,000))
RI (2019) = 4000,000 – (10% x 19,600,000)
RI (2019) = 4000,000 -1960,000
RI (2019) = $2040,000

Bonus pool available for 2019

= $2040,000 x 12%
= $244,800

3. Automotive division
RI (2018)= Income – (RRR x Investment)
  RI (2018) = 4100,000– (10% x 12,500,000)
RI (2018) = 4100,000 – 1250,000
RI (2018) = $2850,000

Bonus for Automotive division for 2018

=$2850,000 x 12%
=$342,000

RI (2019)= Income – (RRR x Investment)

RI (2019) = 1800,000 – (10% x 12500,000)
RI (2019) = 1800,000 – 1250,000
RI (2019) = $550,000

Bonus for Automotive division for 2019

 =$550,000 x 12%
=$66,000

Outboard division
RI (2018)= Income – (RRR x Investment)
  RI (2018) = 800,000– (10% x 2400,000)
RI (2018) = 800,000 – 240,000
RI (2018) = $560,000

Bonus for Outboard division for 2018

=$560,000 x 12%
=$67200

RI (2019)= Income – (RRR x Investment)

RI (2019) = 600,000 – (10% x 2200,000)
RI (2019) = 600,000 – 220,000
RI (2019) = $380,000

Bonus for Outboard division for 2019

=$380,000 x 12%
=$45600

Lawnmower division
RI (2018)= Income – (RRR x Investment)
  RI (2018) = 1800,000– (10% x 4700,000)
RI (2018) = 1800,000 – 470,000
RI (2018) = $1330,000

Bonus for Lawnmower division for 2018

=$1330,000 x 12%
=$159,600

RI (2019)= Income – (RRR x Investment)

RI (2019) = 1600,000 – (10% x 4900,000)
RI (2019) = 1600,000 – 490,000
RI (2019) = 1110,000

Bonus for Lawnmower division for 2019

=$1110,000 x 12%
=$133,200

4. The advantages of establishing the bonus on corporate-wide residual income is to

encourage the sharing of firm-wide resources. The managers with high potential who are in
operating department do not have the ability to carry out the expectation may be assisted by
this bonus plan. They may be motivated by this bonus plan. The calculation of this bonus
plan is not complicated since they only based on the overall residual income.

The disadvantages of establishing the bonus on corporate-wide residual income are

divisional managers are not able to control the factors. Some profitable division may feel
unfair and unsatisfied because they do not receive the profits which they supposed to be
received due to unprofitable divisions. The managers and staff who operates under profitable
division may lose their motivation to achieve the objectives set by the company.

Question Four

The corporation should provide cash incentives to realtors. Realtors who have good
performance can get the bonus which they may be paid in cash or in another method. For
example, when realtors achieve the target set by the corporation, they can get cash bonuses.

Based on performance-related systems, we can use share option plans to reward realtors.
Realtors are granted with the authority to buy the shares in their corporations, at an agreed
price at some certain future period. According to profit-sharing plans, realtors are entitled to
cash bonuses, based on a given proportion of the corporation’s profit. Based on gainsharing,
cash incentives are allocated to realtors when the execution of the corporations, or their
corporation sectors, surpass some execution objectives.

The corporation may use team-based incentive plan which a person is rewarded in
accordance with their work, team achieves more particular performance objectives or use
individual incentive plan to reward individuals who achieve their own performance
objectives.

One of the factors has to take into consideration is the team-based incentive plan will cause
an increment of free riders since some realtors may not execute well, but they will be
provided the identical reward as those realtors who have excellent execution. The high
performing realtor may feel unsatisfied and unfair. They may lose their motivation to achieve
the objectives set by the corporations.

Question Five
1. One of the key financial performance measures is the cash flow statement. For example,
the university monitors the tuition fees of students and the expenditure of overall expenses
such as water and electricity expenses. Thus, the university can know how the operation of
the university is and how much is the cash on hand they have. Another indicator is current
ratio whether the university has the capability to fulfil the short-term financial liabilities such
as the university’s current assets and current liabilities will be taken into the account.

One of the non-financial performance measures are the quality of student learning as the
students will feel happy and satisfied with the university when they provide a highly effective
learning environment. Another measure is the performance of faculty and staff. They play a
crucial role in the operation of university as they provide good customer services and an
attractive learning environment to achieve the requirements of students. Another measure is
student experience and evaluation. If the students are not satisfied with the learning
environment or services and give feedback to the university, the university can check and see
how well the performance of the management and improve it. In addition, the university may
measure the ratio of student retention and rate of graduation. When students take longer time
to graduate their degree, it may lead to lesser student loan obligation.

2. The corporations cannot achieve their main business targets effectively since they do not
have the latest performance measure to manage the company and they may measure the key
performance inaccurately. The key performance indicators may not be accurate since the
organizations have external change which the customer expectations or demands will be
different, and the economy will change over the time.

Question Six
1. Financial Perspective
-Net amounts of fund-raising
-The amount of services costs and overhead expenses

Customer Perspective
- Clientele satisfaction for quality of community service
- The attitude and communication of the staff and volunteer

Internal business process Perspective

- The number of process improvement to enhance children or senior comfort
- The skill and knowledge to meet targeted community needs

Learning and growth Perspective

- Number of hours per volunteer and staff in training time
- Volunteer and staff retention

2.
-A lack of professionalism because of the insufficiency of business professionals in welfare
institution.

-As supporters or donators expect the major part of the granted funds are distributed to the
purpose of charity and monitor the proportion of donations are transferred to administration
expenditure. Therefore, there will be a lack of funds to adopt the balance scorecard.

-A lack of IT support since non-profit organizations do not have extra funds to implement
computing technology or hire the staffs who are expertise in information technology.
of organisation to adjust to the changing
- Inadequate of involvement of the leader or top manager may lead to implement the balance
scorecard hardly.