Accounting Business Reporting for Decision Making

418 Accounting: Business Reporting for Decision Making

The owner is currently preparing the budget for next year and is considering the following

alternatives:

1. Reducing the cost of sales for food from 50 per cent to 45 per cent. This would be achieved by
   reducing portions and improved purchasing. There would be no other changes.


2. Cutting the food cost from 50 per cent to 45 per cent and spending an additional $1500 on
   advertising. The advertising should attract new customers and increase the volume of both food
   and beverage revenue by 20 per cent on present levels. The new customers would also cause
   monthly other operating expenses to increase as follows.

Wages

Supplies

Administration

Repairs

Utilities

$2000

400

200

150

400

Required

Prepare a budgeted average monthly statement of profit or loss for both alternatives. Advise the

owner which alternative you consider best, with reasons.

9.60 Refer to the article in the chapter relating to the Commonwealth Bank. Discuss the reasons why

the Board has linked executive remuneration to customer satisfaction ratings.

9.61 Vestal Industries operates in the IT industry, producing and selling computer and IT equipment.

It is structured along functional lines (research and design, production, marketing and so on)

and, for  most of its history, it has operated with a fairly authoritarian management style. This

management style is reflected in the budget-setting process, whereby the accounting staff set

budget targets in conjunction with the CEO, and budgets are presented to departmental managers

as non-negotiable reports. Recently, there was a change of CEO, with the appointment of Rosa

Tricky. Tricky has embarked on a reorganisation aimed at a more decentralised decision-making

structure. The budget-setting process is also to be conducted with a higher level of participation

by departmental managers. Accounting staff have been instructed to work more closely with

departmental managers on the setting of budget targets.

Required

a. Outline the advantages of the move to a more participative-style budget process.

b. What is the likely impact of this change on accounting staff?

9.62 A college student, Bruce Worth, plans to sell atomic alarm clocks with CD players over the internet

and by mail order during the semester to help pay his expenses. He buys the clocks for $32 and

sells them for $50. If payment by cheque accompanies the mail orders (estimated to be 40 per

cent of sales), he gives a 10 per cent discount. If customers include a credit card number for either

internet or mail order sales (30 per cent of sales), they receive a 5 per cent discount. The remaining

collections are estimated as follows.

One month following

Two months following

Three months following

Uncollectible

15%

6%

4%

5%

Sales forecasts are as follows.

September

October

November

December

January

120 units

220 units

320 units

400 units

Out of the business