Case Study Reflection/Analysis Report

I need help making page 3 of the attached PDF professional.  This is the instruction for that part.

The CFO is anxious to increase the company’s profit and has   asked you to prepare an analysis and summary of your findings. Prepare an   analysis report  to support the   business decision. You may use graphs and other statistical data to present   findings. Apply advanced formatting features to present and produce a   professional document. Create the information to present to users in a   visually interesting and organized manner.

Reflection on the case study attached below. (excel document)

Microsoft Word, write an essay (full introduction and conclusion), which includes the following:

Describe the knowledge, skills and/or attitudes regarding each of the transferable skills that you’ve gained as a result of completing this particular project/assignment.

Discuss the ways that you are going to incorporate the transferable skills (the transferable skills that you showcased in your exemplary project) into your work within your chosen career field.

Describe your future goals based on the transferable skills that you’ve chosen to showcase.

Write your paper utilizing proper tone, spelling and grammar.

Deliverables Chart
Time Line
Week
Assignment
01
Case Study – Financial Accounting: Excel file – Module 01 Page 1, Page 2 and Page 3
02
Case Study – Financial Statement Analysis: Excel file – Module 02 Page 1, Page 2 and Page 3
03
Case Study – Full Disclosure in Financial Reporting and Management Responsibility: Excel file – Module 03 Page 1 and Page 2
04
Case Study – Management Decision: Excel file – Module 04 Page 1 and Page 2
05
Case Study – Professional Business Ethics and Internal Control: Excel file – Module 05 Page 1, Page 2 and Page 3
06
Case Study – Presentation and Final Exam
Requirements
Your final deliverable is a Case Study presentation addressed to your instructor which outlines the financial situation of the company. In this proposal,
you will comment on each of the business areas or challenges outlined in the timeline above (e.g. Financial Accounting, Financial Statement Analysis,
and so on). The proposal should include adequate and credible research to support your decision about these areas or challenges. In addition, when
outside sources are used, you must include APA-style in-text citations and a reference list. For more information on APA, visit the APA Guide:
http://guides.rasmussen.edu/apa
Due Date
Your final project is due in Module 6. The Case Study project is the main project for this course and will be due along the way. The assignments and
modules that are due are noted in bold in the timeline below. As you can see, your first assignment “Case Study – Financial Reporting” is due in Module
01.
Evaluation
Each assignment leading up to the final project is evaluated and graded independently. Your instructor will provide specific grading criteria for each step
of the project prior to its due date.
Case Study Introduction
Transferable Skills are a set of essential abilities that will position students for success as they develop and build their
careers. College faculty and staff believe it is important that all Rasmussen graduates develop these skill sets, as having
expertise in these areas will be beneficial throughout one’s life. Employers have also identified these skills as being
essential in well-rounded employees.
In this course, you will have the opportunity to learn and demonstrate each of these skills. These skills will be measured as
a portion of our course project that has been designed to replicate an authentic workplace project. These skills are the
following: Communication, Critical Thinking, Digital Fluency, Diversity and Teamwork, Ethics and Professional
Responsibility, and Information Literacy.
How can I learn more about the Transferrable Skills? Rasmussen College faculty and staff have worked together to create
a visual guide to each of the Transferable Skills. You are able to view the entire set of six guides at the following location:
http://guides.rasmussen.edu/transferableskills
This Case Study is the major lesson material for this course and incorporates the use of transferable skills.
Case Study
Company Name: GolfPro Center
Introduction
Millions of people every day must make informed decisions about organizations. To make the decisions these people need
information. Accountants measure the activities of an organization and communicate those measurements to others.
Accounting information provided for internal users, such as managers, is referred to as managerial accounting; accounting
information provided to external users is referred to as financial accounting. The two functions of financial accounting are to
measure business activities of a company and then to communicate those measurements to external parties for decisionmaking purposes.
GolfPro Center
Let’s say you are ready to begin your new venture of working as the Accounting Manager for a new start-up golf center
called GolfPro Center. The purpose of the golf center is to provide PGA-certified golf instruction and essentials to
customers, such as junior players to develop their opportunity for top university programs. By using the base network of
customers, the company intends to expand to sell nationwide as an integrated multi-channel retailer. The target market of
junior league will be to individual golf pro shops, golf teams and eventually lead to selling through an online store. In
additional to future new store openings, a significant part of the company’s strategy is to continue to enhance the internet
aspects of the direct to customer channel. The plan also entails the ongoing development of their own brand portfolio as
they continue to grow.
Golf Industry
The golf retail industry is highly fragmented among mass merchants, off course specialty retailers, Internet merchants,
warehouse type merchants and on course pro shops. The off course specialty golf retail industry has become extremely
competitive as general sporting goods or their golf specialty retails have expanded their markets. The company will face
competition as competitors enter the marketplace in the existing markets.
Company Information
Steve Smith is the owner and Chief Executive Officer of the company. He has appointed a close family member, Mike
Smith as the Chief Financial Officer. You were recently hired by Mike Smith as the Accounting Manager. Your first main
function is to set up the accounting department structure and financial statements. The corporate office is located in
Chandler, Arizona. Let’s look at some initial activities of functions within the new company. The company opened business
on December 1, 2016. You also started employment on this same date. You have been tasked with setting up the
accounting department and internal control process. The financial statements, which you will prepare, will be the first set of
financials for the company. You will also be tasked with setting up the financial notes and management’s discussion and
analysis portion of the financial statements. This will include company information, accounting policies, revenue recognition
and inventory components. You will also encounter a few ethical situations along the way which will define your accounting
educational activities.
Let’s talk about how the company developed the investment for opening the business. The company needed about
$35,000 to get the business up and going. Since the company did not have that amount of money to start the business,
they began looking for investors. With their money, investors buy ownership in the company and have the right to share in
the organizations profits. Each share of ownership is typically referred to as a share of common stock. For GolfPro Center
they sell 1,000 shares of common stock for $25 each, receiving cash of $25,000 from investors. The 1,000 shares include
300 sold to family for $7,500, giving them 30% (= 300/1,000) ownership in the company. The company also offered you
100 shares for $2,500, giving you 10% ownership. The remaining 600 shares include 300 to extended partners, 200 to a
friend, and 100 to the owners childhood golf coach. The company now has $25,000 from investors.
To raise the remaining cash needed, the company will borrow $10,000 from a local bank, which is agreed to repay within
three years. Thus, the bank is the creditor. Now, with the $35,000 of cash obtained from investors and creditors, the
company buys equipment. This equipment costs $24,000, leaving $11,000 cash for future use. At this point, the company
has the following resources that can be used for operations.
The investors and creditors has the claims to the company’s resources. Creditors have claims equal to the amount loaned
to the company, $10,000. In other words, $10,000 of the company’s resources are promised to the local bank. Investors
have claims to all remaining resources, $25,000.
You manage the resources of the company on behalf of the owners (stockholders, in this case), while the owner is also an
investor this will help in aligning the interests with the other investors in the company. This is common in many start-up
businesses.
Formally defined, a corporation is a company that is legally separate from its owners. The advantage of being legally
separate is that the stockholders have limited liability. Limited liability prevents stockholders from being held personally
responsible for the financial obligations of the corporation. Stockholders of GolfPro Center can lose their investment of
$25,000 if the company fails, but they cannot lose any of their personal assets (such as homes, cars, computers, and
furniture).
Other common business forms include sole proprietorships and partnerships. A sole proprietorship is a business owned by
one person; a partnership is a business owned by two or more persons. If the owner had decided to start GolfPro Center
without outside investors, he would have formed a sole proprietorship. However, because he did not have the necessary
resources to start the business, being a sole proprietorship (or even one member of a partnership) was not a viable option.
Thus, a disadvantage of selecting the sole proprietorship or partnership form of business is that owners must have
sufficient personal funds to finance the business in addition to the ability to borrow money. Another disadvantage of being a
sole proprietorship or partnership is that neither offers limited liability. Owners (and partners) are held personally
responsible for the activities of the business.
Sole proprietorships and partnerships do offer the advantage of lower taxes compared to corporations. Sole proprietorships
and partnerships are taxed at the owner’s personal income tax rate, which is typically lower than the corporate income tax
rate. In addition, a corporation’s income is taxed twice (known as double taxation): (1) the company first pays corporate
income taxes on income it earns and (2) stockholders then pay personal income taxes when the company distributes that
income as dividends to them.
What information would GolfPro Center’s investors and creditors be interested in knowing to determine whether their
investment in the company was a good decision? Ultimately, investors and creditors want to know about the company’s
resources and their claims to those resources. Accounting uses some conventional names to describe such resources and
claims.
GolfPro Center has a liability of $10,000 to the local bank. Other examples of liabilities would be amounts owed to
suppliers, employees, utility companies, and the government (in the form of taxes). Liabilities are claims that must be paid
by a specified date.
Investors, or owners, have claims to any resources of the company not owed to creditors. Therefore GolfPro Center, this
amount is $25,000. We refer to owners’ claims to resources as stockholders’ equity, because stockholders are the owners.
The relationship among the three measurement categories is called the accounting equation. GolfPo Center has assets of
$35,000 and liabilities of $10,000. The stockholder equity is $25,000.
Of course, all owners hope their claims to the company’s resources increase over time. This increase occurs when the
company makes a profit. Stockholders claim all resources in excess of amounts owed to creditors; thus, profits of the
company are claimed solely by stockholders.
You will calculate the company’s profits by comparing its revenues and expenses. Revenues are the amounts recorded
when the company sells products or provides services to customers. For example, when you or one of your employees
provides golf training to a customer, the company records revenue. However, as you’ve probably heard, “It takes money to
make money.” To operate the academy, you’ll encounter many costs. For example, you’ll have costs related to salaries,
rent, supplies, and utilities.
You’ll notice the use of the term net to describe a company’s profitability. In business, the term net is used often to describe
the difference between two amounts. Here, we measure revenues net of (or minus) expenses, to calculate the net income
or net loss. If we assume that by the end of the first month of operations GolfPro Center has total revenues of $7,200 and
total expenses of $6,000, then we would say that the company has net income of $1,200 for the month. This amount of
profit increases stockholders’ claims to resources but has no effect on creditors’ claims.
When the company has positive net income, it will either distribute those profits back to its stockholders or retain those
profits to pay for future operations. For example, suppose you decide that because GolfPro Center has net income of
$1,200, a cash payment of $200 should be returned to stockholders at the end of the month. These cash payments to
stockholders are called dividends.
The other $1,000 of net income adds to stockholders’ equity of the company. Thus, when GolfPro Center has net income of
$1,200, stockholders receive a total benefit of $1,200, equal to $200 of dividends received plus $1,000 increase in
stockholders’ equity in the company they own.
Let’s now proceed to the your new journey in accounting with GolfPro Center.
Module 01: Financial Accounting
Preparing the Financial Statements
Your function as accounting manager is to prepare the financial statements for the first operating period of December 2016.
The December 31, 2016 adjusted trial balance for GolfPro Center is presented below. Using the Trial Balance, complete the following:
1. Prepare an income statement for the year ended December 31, 2016
2. Prepare a statement of stockholder’s equity for the year ended December 31, 2016 assuming no common stock was issued during 2016.
3. Prepare a classified balance sheet as of December 31, 2016.
Keep in mind, the beginning balances are zero only because this is the first month of operations for GolfPro Center.
GolfPro Center
Trial Balance December 31, 2016
For the period ending December 31, 2016
Accounts
Cash
Accounts Receivable
Supplies
Prepaid Rent
Equipment
Accumulated Depreciation
Accounts Payable
Salaries Payable
Utilities Payable
Deferred Revenue
Interest Payable
Notes Payable
Common Stock
Retained Earnings
Dividends
Service Revenue
Rent Expense
Supplies Expense
Depreciation Expense
Salaries Expense
Utilities Expense
Interest Expense
Total
1
Debit
$
Credit
6,900
2,700
1,300
5,500
24,000
$
400
2,300
300
900
400
100
10,000
25,000
0
200
7,200
$
500
1,000
400
3,100
900
100
46,600
$
46,600
GolfPro Center
Income Statement
For the period ended December 31, 2016
Revenues
Service Revenue
Expenses
Rent Expense
Supplies Expense
Depreciation Expense
Salaries Expense
Utilities Expense
Interest Expense
$
7,200
500
1,000
400
3,100
900
100
Net Income
2
$
1,200
GolfPro Center
Statement of Stockholder’s Equity
For the period ended December 31, 2016
Accounts
Beginning Balance (Dec 1)
Issuance of common stock
Add: Net Income for the period
Less: Dividends
Ending balance (Dec 31)
Common Stock
$
25,000
25,000
Retained Earnings
$
1,200
(200)
1,000
Total Stockholders Equity
$
25,000
1,200
(200)
26,000
3
GolfPro Center
Balance Sheet
For the period ended December 31, 2016
Assets
Current Assets:
Cash
Accounts Receivable
Supplies
Prepaid Rent
Total Current Assets
Long Term Assets:
Equipment
Less: Accumulated Depreciation
Total Long term assets
$
$
6,900
2,700
1,300
5,500
16,400
$
24,000
(400)
23,600
Liabilities
Current Liabilities:
Accounts Payable
$
Salaries Payable
Utilities Payable
Deferred Revenue
Interest Payable
Total Current Liabilities
$
2,300
300
900
400
100
4,000
Long Term Liabilities:
Notes Payable
Total Liabilities
10,000
$ 14,000
Stockholder’s Equity
Common Stock
25,000
Retained Earnings
1,000
Total Stockholders Equity
26,000
Total Assets
4
5
6
$
40,000
Total Liabilities & Stockholders Equity
$ 40,000
Critical Thinking: Clarity and Precision
Communication with CFO: In the complexity of preparing the financial statements, the CFO tells you that he prefers the single step income statement
because the multiple step format seems to overstate the income. Express in a short declarative manner, how would you respond to this question?
While easy to establish, the single step provides a high-level and straightforward approach for presenting income and expenditure. However, this model is
disadvantageous because it may fail to integrate detailed descriptions and computations of various aspects and entries. In this context, it is possible to
integrate additional insights that may be used to enhance awareness and visibility into the various activities influencing the financial performance of the firm.
Therefore, this model is vital for increasing visibility into the revenue generation patterns and sources, which is critical for decision-making and planning.
Communication: Language Usage
Explain how financial accounting information is communicated through financial statements to internal and external users. Construct widely varied sentence
types and advance grammatical concepts to explain insight.
The company`s financial statements are vital in providing a high-level overview of its performance. Different statements provide diverse insights according
to the underlying organizational needs and stakeholder expectations. For example, the income statement provides a detailed analysis of the revenue and
expenses incurred within a firm. It is essential to mention that it offers stakeholders like the senior management and external shareholders. On the same
note, the balance sheet provides a foundation for understanding the financial status and positioning of a company. It achieves this goal by listing the assets,
liabilities, and equity. This statement targets different users, including internal managers and shareholders. The former are interested in understanding the
implications of internal decisions made by the management to shape the corporate financial strength. The latter are focused on understanding the financial
strength of the firm. The cash flow statement offers a comprehensive overview of the inflows and outflows of money in a firm throughout a financial duration.
Revenue from different sources, such as investing and financing activities, is provided. Similarly, income from continuing activities is provided. These
categories offer a reference framework for understanding the effects of a firm`s decisions on investing, continuing, and financing activities.
Critical Thinking: Creativity and Innovation
Describe the role that financial accounting plays in the decision making process. In your response, use human and/or professional in field knowledge
through the creation of the response.
Financial accounting offers a foundation for informed decisions within the business setting. It helps different stakeholders to make their decisions by
analysing the presentation of financial information. Likewise, this concept is vital because it helps the senior teams to optimize their operations. For
example, investment decisions within a business must be informed by analysing the current financial performance and status of a company. Investors rely
on financial statements to determine the financial performance of a firm. For example, details about profitability, equity, and growth rates may provide
insights about the best firms to invest in.
Module 01: Financial Accounting
Cash Flow Statement
The below information are transactions which analyze the cash effects on GolfPro Center.
Use the information provided to complete the Statement of Cash Flow.
External Transactions of GolfPro Center
Type of
Activity
Is Cash
Involved?
Inflow or
Outflow?
Financing
Yes
Inflow
Financing
Yes
Inflow
Investing
Yes
Outflow
Operating
Yes
Outflow
Operating
No
—
Operating
Yes
Inflow
Operating
No
—
8
Receive cash in advance for 12 golf training
Operating
sessions to be given in the future $600
Yes
Inflow
9
Pay salaries to employees $2800
Operating
Yes
Outflow
10
Pay cash dividends of $200 to
shareholders.
Financing
Yes
Outflow
Transaction
1
2
3
4
5
6
7
1
External Transactions in December
Sell shares of common stock for $25,000 to
obtain funds necessary to start the
business.
Borrow $10,000 from the local bank and
sign a note promising to repay the full
amount of the debt in three years.
Purchase equipment necessary for giving
golf training, $24,000 cash
Pay one year of rent in advance, $6000
($500 per month).
Purchase supplies on account, $2,300.
Provide golf training to customers for cash,
$4300
Provide golf training to customers on
account $2000
GolfPro Center
Statement of Cash Flow
For the period ended December 31, 2016
Cash Flows from Operating Activities
Cash inflows:
From customers
$
4,300
Cash outflows:
For salaries
For rent
Net cash flows from operating activities
(2,800)
(6,000)
Cash Flows from investing Activities
Purchase equipment
Net Cash Flows from Investing Activities
Cash Flows from Financing Activities
Issue common stock
Borrow from bank
Pay dividends
Net cash flows from financing activities
Net increase in cash
Cash at the beginning of the period
Cash at the end of the period
(24,000)
(24,000)
25,000
10,000
(200)
34,800
6,300
0
$
6,300
Communication: Audience and Delivery
2
In the space provided below, explain to the CEO and CFO the main purpose of the statement of cash flow. In your
response, utilize effective persuasive techniques to influence and engage the CFO and CEO.
The purpose of the cash flow statement is to provide internal users like the CFO and CEO with an insight into the changes
in money exchanges across various activities. It details the net changes in cash across a given duration by considering
the inflows and outflows. For example, this report shows the money received and spent through various areas like
investing, financing and daily business operations. In the case above, it is observed that the firm invested in the purchase
of an equipment valued at $24000 which is recorded as an outflow. Similarly, income from customers is considered a
revenue because it involved an increase in the available cash. Therefore, the net changes in cash reveal the capacity of a
business to maintain a healthy working capital to support its operations.
Communication: Organization, Focus, and Supporting Examples
3
In the space provided below, explain to the CFO some of the activities reported on the statement of cash flows. In your
response, coordinate your thoughts to synthesize and provide context regarding the concept of the statement of cash
flows. Provide carefully integrated thoughts and examples to clarify the topic to the CFO.
The statement above is segmented into three primary sections. The first part defines the cash obtained from operating
activities. In this case, the core goal is to understand the money generated by the internal operations of a business. The
firm had total sales amounting to $4300 which is recorded as an increase in available cash. However, operations like
salaries and rent are expenses which reduce cash and are therefore, treated as outflows. The second category is net
cash from investments which can be negative when a firm has used money to support certain ventures or positive in case
revenue is generated from existing opportunities. The last section is cash from financing operations. Inflows like loans and
stock issue are considered because they bring cash into the firm. Outflows like dividends are classified as expenses
because the firm reduced its cash as indicated in the statement above.
Communication: Organization, Focus, and Supporting Examples
4
In the space provided below, describe some of the investing activities on the GolfPro Center statement of cash flows. Use
a variety of thoughts integrated to present the meaning of your evidence.
Cash from investing activities is an essential part of the statement. It defines the income earned from existing investments.
On the same note, it may define cash used to support new investments. In this case, revenue and expenses used in
supporting investments is captured in the category. The firm invested $24000 which is considered an outflow because no
income was gained.
Communication: Content and Voice
5
Explain to the CEO and CFO the why the net income differs from the amount of cash flow from operating activities. In
your response, explain the relationship between the net income and cash flows such as the investing and financing
activities. Develop a response which incorporates a focus on uniting multi faceted mutually supportive arguments to create
a distinct connection with the content and the audience.
The net income is different from the cash from operating activities because the firm has recorded various activities
influencing the available money. The operating activities consider additional tasks and areas which may increase or
decrease the cash. For example, the net income considers the money received from the sale of products and services
less the costs of goods sold. However, the net cash from operating activities must account for expenses and incomes from
different tasks. In the case above, expenditure like rent and salaries reduce the cash available for the firm. This money is
dedicated from the net income.
Module 01: Financial Accounting
Closing Entry
In the space provided below, prepare the Closing Entry for GofPro Center.
Closing Entry for December 31, 2016
1
Journal Entry
Account
a Service Revenue
Retained Earnings
Comment: Close revenues to retained earnings.
Debit
6,300
b Retained Earnings
Rent Expense
Supplies Expense
Depreciation Expense
Salaries Expense
Utilities Expense
Interest Expense
Comment: Close expense to retained earnings.
c
Retained Earnings
Dividends
Comment: Close dividends to retained earnings
Credit
6300
-6,000
2,800
200
200
Critical Thinking: Definitions, Terms, Concepts and Ideas
2
Communication with CEO and CFO: In the space provided below, in a clear and concise manner, explain to the CEO and
CFO the main purpose of these closing entries.
The goal of this statement is to prepare accounts that will be used in the following accounting duration. The revenues and
expenses are closed as retained earnings. The rationale for this decision is to ensure that the new accounting period does not
have expense carry overs. Similarly, dividends are considered to account for distributions paid to the shareholders at the end
of the financial year.
3
Critical Thinking: Definitions, Terms, Concepts and Ideas
Communication with CEO and CFO: Comment on why adjusting entries are needed and what happens if certain adjusting
entries are neglected.
This practice is vital since it helps in ensuring the accuracy of the financial accounts and records. Accuracy reduces the risks
of incorrect presentation of financial statements. Likewise, this approach aligns with the matching principle which ensures that
revenue earned is recognised for the underlying duration and the expenses made are adjusted accordingly. Failure to adjust
entries is likely to lead to inaccurate records. Further, it may mislead users by providing the wrong information about the
financial performance of a firm.
Digital Fluency: Internet Technology Usage
4
Go to the FASB website, http://www.fasb.org, to access the FASB Concepts Statements. After you have read the documents,
use the search tool in your Internet browser to respond to the following items.
a) What is the objective of financial reporting?
b) What other means are there of communicating information besides financial statements?
c) Indicate the users and the information FASB is most directly concerned with in economic decision making.
The objective of financial reporting is to deliver accurate and useful details and insights about a company to different users
like investors. Other than financial statements, such information is communicated through various means. These strategies
may include annual reports, presentations, and management discussions, which may include analysis sessions and press
statements. These avenues are considered due to their effectiveness and flexibility in providing timely information. Information
from financial statements benefits different users. They include investors, lenders, the government, and creditors. The FASB
is interested in ensuring that the users access valuable details about a company focusing on areas like the total amount of
money involved and risks.
Module 02: Financial Statement Analysis
Interpret financial data by computing ratios.
Using the GolfPro Center financial information prepared in Module 01, calculate the following ratios:
Liquidity, Leverage and Profitability Ratios
1 Liquidity & Efficiency Analysis
1 Current Ratio
2 Total Asset Turnover
3 Accounts Receivable Turnover Ratio
Formula
Current Assets/Current Liability
Net Sales/Average Total Assets
Sales/Average Accounts Receivable
December 2016 Ratio
4.10
0.18
2.67
2 Leverage Analysis
4 Debt to Equity Ratio
5 Debt Ratio
5 Times Interest Earned Ratio
Formula
Total Liabilities/Total Stockholders’ Equity
Total Liabilities/Total Assets
Income before Interest/Interest Expense
December 2016 Ratio
54%
35%
7200%
3 Profitability Analysis
Formula
6 Gross Profit Margin Ratio
Gross Profit/Net Revenue
7 Profit Margin Ratio
Net Income/Net Revenue
8 Return on Total Assets
Income/Average Assets
9 Return on Common Stockholders’ EquityIncome/Average Equity
December 2016 Ratio
600%
17%
0.18
0.28
Critical Thinking: Definitions, Terms, Concepts and Ideas
In the space provided below, prepare a professional business report to the CFO by describing the analytical use of
each of the nine ratios. Discuss what the financial ratios present and identify two ratios that would be most valuable as
4
a basis in a management decision for expanding sales. In your report, explain the relationship of the asset turnover to
the return on assets.
In the efficiency category, the three ratios are current, asset and accounts receivables turnover. They present insights
about the liquidity and efficiency of the firm`s operations. The firm has a positive current ratio which shows the ability to
meet short term obligations. The turnover ratios indicate that the company can generate revenue from the available
assets and resources. The second category shows the leverage analysis comprising debt to equity, debt and times
interest earned ratios. The first two ratios indicate that the firm has a moderate reliance on external financing to
support its operations. The third ratio shows that the interest expense is significantly lower than the earned income.
The profitability ratios indicate that the firm has the ability to earn positive returns concerning revenue generation. With
a positive value in the three ratios, the company is profitable and therefore, can meet its set goals. The firm should
consider the return on common stakeholders equity and current ratios for decision making because they show liquidity
and profitability.
Critical Thinking: Definitions, Terms, Concepts and Ideas
5 Explain the limitations of ratio analysis:
Ratio analysis is limited in that it may not necessarily provide a detailed overview of the factors influencing the
performance of a firm. They show high level overview of the short term outcomes recorded in a company.
Critical Thinking: Definitions, Terms, Concepts and Ideas
6 Discuss what type of users will benefit from ratio analysis within the company and explain how they will benefit.
Different users will benefit from the information provided above. The investors may consider outcomes like the
profitability and leverage to understand the financial strength of the company. Likewise, the management may use
information from the three categories to understand the factors influencing performance and growth opportunities.
Governmental agencies and regulators may consider the profitability and financial health to determine capacity to meet
the set standards in reporting and satisfying the respective users.
Module 02: Financial Statement Analysis
Capital expenditure decision using NPV and IRR.
The CFO of GolfPro Center is considering purchasing an automated fairway weed control machine, but is uncertain as to whether it is a favorable expenditure
decision. The CFO has asked you, the accounting manager, to evaluate the capital expenditure item and report the results. Since the cash flows don’t occur in
the same periods and because a dollar today is worth more than a dollar tomorrow, you will need to take into account the time value of money by using the net
present value (NPV) approach and/or the internal rate of return (IRR) approach. The company estimated the equipment will last 5 years. Each year it will save
the company $2000 in wasted spraying conditions. It will also reduce labor costs by $20,000 a year. It is estimated that the equipment will require $1,000
maintenance costs per year. The equipment costs $70,000 and it is expected to have a residual or salvage value of $5000 at the end of 5 years. Top
management has determined the required rate of return is 12%. Should the company invest in the new equipment? Report results and decision determination to
owner.
1
Net Present Value Approach
Time Period
0
Cash Flow
Purchase Price
$
(70,000)
Labor Savings
Paint Savings
Maintenance
Residual Value
Total Cash Flow
$
(70,000) $
PV Factor
1.0000
Total Cash Flow
$
(70,000) $
Required Rate of
Return
NPV
IRR
2
1
2
3
4
5
20,000
2,000
(1,000)
20,000
2,000
(1,000)
20,000
2,000
(1,000)
20,000
2,000
(1,000)
21,000 $
0.8900
18,690 $
21,000 $
0.7900
16,590 $
21,000 $
0.7118
14,948 $
21,000 $
0.6355
13,346 $
20,000
2,000
(1,000)
5,000
26,000
0.5674
14,752
0.04
($11,246)
4%
NPV Using Excel (show formula):
IRR Using Excel (show formula):
$
8,326
4%
Critical Thinking: Problem Solving
Problem Solving: What is the result consider the NPV? Should the project be undertaken?
The analysis above shows that the project will have an NPV of $8326 which is positive. It follows that the project is economically viable and therefore, should be undertaken.
Critical Thinking: Problem Solving
3
Problem Solving: What is the result considering both NPV and IRR? Should the project move forward? Creatively solve the problem by determining the best method for the
situation.
The NPV and IRR provide the potential overview of the viability of the project. A positive value shows that the task will generate reliable returns and therefore, economically
viable. In this context, the analysis found an IRR of 4% and NPV of $8326. These values are positive. They show that the project will generate positive returns to the
company. Therefore, the entity should move forward with the investment. However, it is essential to consider the most accurate approach. While both show the viability of
the task, the IRR model reveals a low value. It is lower than the required rate of return initially defined. The NPV method is accurate because it shows the exact valuation of
a project.
Critical Thinking: Clarity and Precision
4
Summarize the comparison of net present value and internal rate of return methods. In your response, be sure to use a complex idea expressed in a short, declarative
response.
The net present value shows the variation between the expected outflows and the current valuation of a given project. The IRR on the other hand, defines the discount that is
likely to translate into a zero value of the project over a predefined duration. These metrics are vital in project and investment valuation. The former provides an accurate
metric that indicates the exact valuation. The latter estimates the rate that is needed to break even the project in the context.
Critical Thinking: Definitions, Terms, Concepts and Ideas
5
The CFO asks, how do the net present value and internal rate of return methods differ in their approach to evaluating this investment decision? How do you respond to this
question?
The IRR uses a discounted approach that considers the rate when the project breaks even. The NPV measures the changes in the value of a project across a predefined
timeline by considering the cash flows expected throughout the selected duration.
Critical Thinking: Definitions, Terms, Concepts and Ideas
6
The CFO asks, why is it important to take into account the time value of money when making capital budgeting decisions?
This concept shows that money today is worth more than later in the future. Considering such a principle provides the ideal overview of an investment since the primary goal
would be to maximise the overall value generated over a given duration. It helps in the planning processes concerning investments. For example, a firm can determine the
best ventures to implement based on the opportunity costs valuation. Likewise, it is possible to compare different projects based on their net present values to determine the
alternatives likely to earn maximum returns to a business.
Information Literacy: Evaluating Information
7
Research an Accounting Issue: Decide which would be a better option for the company: should the company acquire a lease option as opposed to purchase option?
Research lease options versus purchase options for the company. In your response discuss how the lease option would be accounted for financially. Analyze and select
which is a better decision for the company, the lease option or purchase option?
This case presents two core options which are a lease or a purchase. In determining the best option, it is essential to consider the costs associated with each alternative.
For example, a lease provides a long term engagement which may require the firm to deposit payments either monthly or annually according to the underlying terms. For
example, a firm may intend to lease a plant at a cost of $100000 annually for 20 years or purchase the plant at $10000000. In this case, the initial acquisition cost is high and
may affect the current financials of the firm. On the other hand, the lease option provides a conducive approach through which the entity is likely to save on different aspects
like maintenance since they will be covered by the owner. Additionally, it requires the firm to make a small proportion of its revenue as lease for the predefined duration. By
the end of the 20 years, the firm will have incurred at least $2 million. However, purchasing the plant will provide the company a lifetime benefit where the facility can be
repurposed or sold. The lease option can be accounted using the NPV and IRR models. While the purchase is initially expensive, it may provide lifetime advantages like
repurposing and reselling options. The firm should consider the lease option if its core purpose is based on short term operations. In the case of long term usage, the
company should buy the facility.
Module 02: Financial Statement Analysis
Communication: Purpose and Meaning and Digital Fluency: Creation of Digital Files
Prepare an analysis report for the capital expenditure decision.
Once completed, publish the created file online for a board audience using open source repositories with sharing and viewing capabilities.
Capital Expenditure Report
Subject: Analysing the Capital Expenditure Decision for the Company
Date:
By:
Introduction
This analysis is based on the company’s decision to purchase a weed controller. The management is interested in ensuring the optimization of its
internal operations by reducing costs of labor, painting, and maintenance. The two core options informing this decision are purchasing the machine
or leasing. This analysis will evaluate the project based on the NPV and IRR models to determine the best recommendation.
The project analysis
The machine is estimated to cost an initial purchase price of $70000 with a useful life of 5 years. The disposal value is $5000. The company
expects to save on various areas, including employment and spraying, at $20000 and $2000, respectively. It is reported that the project has a
required rate of return of 12%, and the firm will incur at least $1000 annually for maintenance. This information is summarized in the table below,
which shows the PV and cash flows.
Cash flow and project valuation
The analysis above shows that the firm will have variable cash inflows—the total cash flows amount to $8326, which represents the NPV for the
project. The project’s IRR is computed to be 4%, as shown in tab 1.5. These values indicate that the project is viable from an economic
perspective. However, it is essential to consider the idea that the IRR is lower than the required rate of return by a significant margin, which may
mean that the project should not be undertaken. Regardless, the positive NPV shows that the purchase will critically influence the company.
Lease or purchase decision
In this context, the core goal is to determine whether purchasing the machine is better than leasing it for five years. The equipment has a lifespan of
5 years. The initial purchase price is $70000, which may not significantly impact the company`s financials. On the other hand, leasing the machine
will minimize the initial acquisition amount and help the firm achieve strategic tax savings. Similarly, this option is associated with increased savings
since the firm will not incur additional maintenance costs since the owner will manage such requirements. The purchase decision shows that the
firm will acquire the machine for long-term usage and benefits. It is linked with high acquisition costs. However, the firm may use the machine
throughout its operational duration, translating into increased strategic savings. It is essential to use the NPV and IRR approaches, which reference
the concepts of the time value of money, to establish the influence of these options. The management must understand the implications of these
decisions to select the best option that will generate maximum benefits.
Conclusion and recommendation
Overall, the capital expenditure project in this analysis requires the firm to analyze the potential value earned by the machine based on short- and
long-term savings. This analysis recommends that the company should lease the machine if it intends to use it for a short time, which is below its
useful life of 5 years. On the other hand, the company should buy the machine if it intends to continue using it for five years. The rationale behind
this conclusion is that leasing will incur minimal costs compared to buying. Buying the machine will be associated with lifelong benefits and high
initial acquisition costs.
Module 03: Full Disclosure in Financial Reporting and Management Responsibility
Financial Disclosure: Notes and MD&A
Financial Notes
Financial statements are included in the annual report which is presented to its shareholders. In this section,
prepare the financial statement notes as indicated.
Critical Thinking: Creativity and Innovation
1 Prepare the Financial Statements Notes: Note 1. The Company
Note 1 the company
Overview
GolfPro Centre is a start-up entity that was established in 2016. It was started to provide golfing solutions to the
local populations. It specializes in providing merchandise and support equipment that are used in golf courses.
As a retailer, the company has enjoyed a strategic consumer engagement due to its capacity to sell directly to
the target markets. The firm is headed by Steve Smith as the CEO. The firm as started as a corporation which
makes it easy to deal with liabilities that may arise. The company operates in a competitive golf industry
comprising multiple sellers and buyers. As a new entity, the centre faces increased competition from the already
established companies.
Business and operations
The company deals with the sale of different components used for golfing activities. As a sporting firm, GolfPro
Centre has specialized in general merchandise and resources that help professionals and other players. The
company intends to expand its operations by selling online to reach more customers. This approach will make it
easy to earn maximum returns from its operations. The strategy will supplement the existing physical outlets
which ensure direct selling of its commodities.
Presentation of financial statements
The company presents its financial statements according to the US GAAP standards. This strategy ensures that
the firm`s statements align with the existing requirements and that they best respond to the presenting demands.
Its financial year ends in December 31. The outcomes of its operations were presented in December 31st 2016.
Critical Thinking: Creativity and Innovation
2 Prepare the Financial Statements Notes: Note 1. Revenue Recognition
The company recognises its revenue based on the prevailing standards according to the US GAAP regulations.
Income is recorded when the goods and services are transferred to the respective customers. Its operations are
based on various revenue streams. These avenues are the sale of equipment and merchandise, renting golf
resources, premium membership and training offered to its clients. It is essential to mention that the company
allows the clients to return their previously purchased equipment and request for a refund. However, refunds are
based on the examination of damages and authenticity of the claims presented. Returns are accepted which are
subject to authentication and examination by a quality control team. The firm accepts returns based on accurate
and valid issues on the products. The firm presented its financial reports based on the existing standards with no
observable variations.
Critical Thinking: Creativity and Innovation
3 Prepare the Financial Statements Notes: Note 2. Inventories
Inventory is valued by considering the acquisition and preparation costs. In most cases, the FIFO model is used
to sell the available stock. At the end of the financial year, the company had stock worth $1300 comprising
equipment and merchandise like caps, shirts and gold balls. The company will write down inventories based on
their valuation against the costs. The firm recognises the potential changes in price due to unforeseen market
trends like inflation. The inventories management is informed by the existing accounting policies which makes it
easy to ensure compliance and consistency.
Critical Thinking: Creativity and Innovation
4
Prepare the Financial Statements Notes: In this section create a financial statement of your choice. You may
create and assess any category of the financial statements accordingly.
The statement on the right presents information about the shareholders equity. It lists information including the
beginning balance and changes in the total equity by considering increase and deductions made throughout the
year. It is observed that the equity increased from $25000 to $26000 after including the shares issued at $1200
and deductions based on the dividends distributed to shareholders worth $200.
Management’s Discussion and Analysis
In addition to the financial statements and disclosure notes, each annual report of a public company requires a
lengthy discussion and analysis provided by the company’s management. In this section review the views on
significant events, trends, and uncertainties which pertain to GolfPro Center’s operations, liquidity and capital
resources.
5 Prepare the Management Discussion & Analysis: Accounting Policy and Internal Control
Since its establishment, the company has relied on internal policies and controls to ensure alignment with the
prevailing standards when presenting its financial statements. The core policies governing the firm are classified
according to their application areas. The first policy relates to revenue recognition as defined in the previous
section. The second policy is depreciation and amortization. The firm`s depreciation guideline shows that items
are considered through the straight-line model. On the same note, leases are addressed and accounted
according to the ASC 842 guidelines. Inventory management is coordinated by referencing the FIFO strategy.
From another dimension, the firm`s internal controls relate to areas like financial reporting and risk coordination.
In the reporting practices, financial statements are prepared according to GAAP principles. Risks are identified
throughout the year where adjustments including mitigations are implemented. GolfPro Centre has prioritised
compliance with GAAP standards in coordinating its operations.
Critical Thinking: Creativity and Innovation
6 Prepare the Management Discussion & Analysis: Management’s Responsibility
The management is responsible for coordinating the operations executed throughout the firm. The senior teams
comprising the CEO and CFO help in developing and deploying policies that affect the business. The
management is committed to uphold the necessary measures and policies according to the prevailing standards
according to the presenting needs. The accounting department assists in developing financial statements and
records according to GAAP standards, internal policies and controls. The team is responsible for developing
ethical standards. These guidelines are implemented as a foundation for ensuring social responsibility. Other
roles defining the management relate to corporate governance, internal controls and policies development and
maintenance and legal compliance.
Critical Thinking: Creativity and Innovation
7 Prepare the Management Discussion & Analysis: Internal Control
The management is responsible for developing the necessary internal controls and policies. They are designed
to ensure compliance with the existing standards and ensure alignment with the generally accepted practices in
accounting. The teams headed by the CFO and CEO are involved in identifying the exiting weaknesses that
require new policies, designing controls and maintaining such guidelines. This team continually evaluates the
adopted measures to ensure that they comply with the set regulatory standards.
Critical Thinking: Creativity and Innovation
8
Prepare the Management Discussion and Analysis: In this section create a component of the MD&A of your
choice. You may create and assess any category of the financial statements accordingly.
Ethical compliance remains a critical value in the company. GolfPro Centre’s management participates in
progressive evaluation of the existing environmental and policy regulations to ensure ethical compliance. The
management develops and improves ethical standards to ensure corporate governance. This team evaluates
the prevailing areas that need improvements to ensure alignment with moral obligations of the community.
Critical Thinking: Creativity and Innovation
9
The CFO has asked you to explain the major advantages of notes to the financial statements and to identify the
items are typically reported in the notes. Also explain what the full disclosure principle means in accounting.
Notes to the financial statements present several benefits. The first advantage is that they offer an enhanced
understanding. They comprise additional details that provide more clarity to the financial statements. This aspect
further demonstrates their credibility by being transparent on information concerning the financial situation of the
company. Secondly, they expound on the accounting procedures applied during the preparation of the
statements. They thus assist in making sure there is consistency and increase the capability to compare them
with those of competitors. Likewise, the notes show any possible occurrence that may affect the financial
standing of the company.
Items reported in the notes include a breakdown of the plant, property, and equipment and accounting policies
followed by the business. Other elements included are likely liabilities that may arise due to the outcomes of
prospective events. Examples of such occurrences are pending lawsuits. The future obligations that it has
engaged in, such as lease agreements, are similarly indicated in the notes. The full disclosure principle is a core
concept used in the accounting practice. It mandates a firm to reveal all information needed to enable users of
financial statements to make knowledgeable choices. Based on this principle, a business is required to provide
details on any element that may hinder the understanding of the accounting reports.
Critical Thinking: Definition, Terms, Concepts and Ideas
10 Explain what the MD&A section provides and the viewpoint it contains.
Management Discussion and Analysis (MD&A) is one of the components of an organization’s annual reports.
This section offers an explanation based on the perspectives of the management. It provides an overview of the
firm’s financial performance in terms of the applicable period. This position includes explaining events, changes,
and uncertainties that could have impacted the outcomes. In the MD&A, there is a discussion about the
practices applied by the organization to manage its capital investments, financing operations, and cash flows.
The management indicates any estimates that could have significant consequences on the financial statements.
This position shows that the viewpoint in this segment is subjective. This perspective is based on the
interpretations, understanding, and anticipations of the management.
Critical Thinking: Definition, Terms, Concepts and Ideas
11 Explain what the note disclosures offers to users.
The note disclosures offers additional information either to explain the information presented in the financial
statements or to provide information note included in the financial statements.
Communication: Audience and Delivery
Explain to the CEO and CFO the responsibility of company management and the independent auditors in the
12 accounting communication process. Use audience specific and influential tones to engage others on points
made.
The management of our company is responsible for preparing and presenting accurate financial reports with no
material misstatements. This process involves ensuring that the documents are prepared using acceptable
accounting standards. The management must ensure that the data represents the true financial situation.
Similarly, it should ensure that all applicable information is provided. It further has a role in making decisions
regarding the accounting policies used by the business and guaranteeing that proper internal controls are
maintained. On the other hand, one of the responsibilities of our independent auditors is to provide feedback on
the prepared financial reports. These professionals are thus tasked with carrying out an assessment using
established auditing guidelines. The objective of these activities is to evaluate whether the reports are free from
substantial misstatements—the opinions they give assist in improving the correctness and credibility of the
information in financial statements.
Module 03: Full Disclosure in Financial Reporting and Management Responsibility
Management Responsibility
Demonstrate leadership characteristics of the managerial accounting profession.
The IMA’s Statement of Ethical Professional Practice was designed to help finance professionals “to link ethical perspectives directly to
their ongoing workplace responsibilities.” Unfortunately, some individuals may choose to act unethically and perhaps cause great harm
to other individuals and organizations. Review the Institute of Management Accountants (IMA) website and read the IMA’s Statement
of Ethical Professional Practice. In each of the following examples, determine which of the four standards of ethical conduct has been
violated. Some examples may violate more than one standard.
You are the accounting manager for GolfPro Center. Betty Jones is a new accountant you have hired and reports directly to you. The
company is now selling third party golf carts at cost plus 25% and charges a fee of $250 per delivery and time spent on each
engagement. Recently the CFO asked Betty directly to charge the delivery fee to the Peachtree Golf Course account when instead it
was actually delivered to the Pelican Hills Golf Course account. The rationale: “Look, Pelican Hills Golf Course is a struggling start-up
course and they can barely afford to buy our golf carts. We made a mistake at delivery and did not deliver the right amount at the
estimate due to some unforeseen problems, and they’ll balk if we charge them for all of our time. Peachtree Golf Course, on the other
hand, is a highly profitable course, and we’re providing services that are going to make them even more profitable. They’ll have no
problem with their bill.”
Digital Fluency: Evaluation of Digital Resources & Information Literacy: Evaluating Information, Ethical Use of Information,
and Creation of New Information/Participation in Field
According to the IMA’s ethical standards, what do you suggest that would help Betty resolve this issue? In your answer, cite specific
1 language in the IMA code. Which IMA principle(s) was/were violated? Assess the reliability/credibility of the material and cite your
sources in APA-style, including in-text citations and a reference list at the bottom of this box.
The IMA ethical standards recommends that one could consult their immediate supervisor concerning the issue. In case they are
involved, they can present the matter to the next level of management (Shawver & Miller, 2023). Since the CFO is involved, Betty
could take it to the next senior leader. If this resolution process does not work, she has the option of utilizing the anonymous helpline
offered by IMA. The request made by the CFO goes against the honesty principle. It mandates financial professionals to uphold
transparent and truthful actions (Shawver & Miller, 2023). This research is reliable since it is peer- reviewed. It was performed within
the past five years thus offers current information regarding.
References
Shawver, T. J., & Miller, W. F. (2023). Volkswagen: Balancing Values vs Profits. In Research on Professional Responsibility and Ethics
in Accounting (Vol. 25, pp. 181-199). Emerald Publishing Limited.
Information Literacy: Inquiry Development
Let’s say you found out that in a the CFO’s prior workplace he had lied to federal investigators saying that there was a standing order
to sell the stock if the share price fell below a certain average. In return for lying the CFO reportedly received money, airplane ticked
2
and extra vacation money. Which IMA standard(s) was violated? In your response, analyze the topic based on the scope, depth and
the assignment.
In this scenario, the CFO violated the integrity standard. Based on the IMA, this standard mandates professionals to avoid incidents
that could lead to a conflict of interest. It further requires them to desist from participation in actions that may compromise their ability
to perform their responsibilities in an ethical manner. Hence, the action lying to the federal investigators and receiving bribes goes
against this standard. These behaviors demonstrates an engagement in unethical conduct prohibited by IMA. Likewise, they have the
likelihood of making the profession become discredited and cause a damage to the reputation of the organization. The CFO further
violates the credibility standard. It necessitates accountants and financial professionals to provide information in a fair and objective
manner. The false statements provided to the investors entails intentionally communicating misleading data. Such lack of credibility
may lead to financial implications to the individual and their organization.
Information Literacy: Inquiry Development
Let’s say you found out that a golf shop competitor’s CFO was just charged with recording operating expense as capital assets.
3 Depreciating these assets over time inflated the company’s profits and hid the expenses from the company’s auditors. Which IMA
standard(s) was violated? In your response, analyze the topic based on the scope, depth and the assignment.
The CFO’s actions violated the integrity standard according to the Institute of Management Accountants. The IMA provides that
accounting professionals have to uphold honesty and transparency in all their professional operations. In the presented case, the CFO
misclassified the expenses as assets, an action that violated the ethical principle of integrity as it further misled the organizational
auditors and other stakeholders about the corporation’s factual financial position.
Critical Thinking: Self Reflection and Logical Thought
4
Discuss the importance of ethical behavior in managerial accounting. In your response, demonstrate self awareness with an ability to
question your own ideas and belief systems.
In managerial accounting ethical behavior is the foundation for sustaining the most important values in financial accounting, integrity,
transparency and accountability. Management of financial data is crucial for effective decision-making on matters such as performance
appraisals, forecasting and budget allocations. Therefore, compliance with ethical practices helps to ensure reporting of accurate,
reliable, and honest data for informed decisions. Ethical conduct in managerial accounting improves credibility and professionalism in
the department and industry, by protecting the reputation of the professionals as honest and reliable. Additionally, ethical practices in
the accounting field prevent fraudulent activities and mismanagement of finances. Adherence to ethical guidelines and standards in
accounting helps to prevent severe consequences such as legal liabilities among professionals and organizations for unethical
conduct. Therefore as a professional in the managerial accounting field one has to utilize skills such as analytical thinking, critical
thinking, and decision-making skills to first evaluate their situations, reflect on personal values and beliefs, and ensure their alignment
with ethical codes of conduct before acting on the situation to prevent occurrence of unethical practices.
Module 04: Management Decision
Access cost-volume-profit techniques to determine optimal managerial decision.
Examine the effects of changes in sales price, cost and volume.
The company has developed a target budget for selling 50,000 units in the upcoming year. The estimated budget is to sell 40,000 golf shirts and 10,000 pairs of shoes.
Therefore the sales mix is 4 golf shirts for every pair of golf shoes sold. No fixed expenses are assigned to either golf shirts or golf shoes. As long as the company keeps
selling golf shirts and shoes, the fixed expenses will not change therefore they are deducted in total rather than allocated to the individual product lines. The forecasted
income statement is listed below.
GolfPro Center
Forecasted Income Statement
For the year ended 2017
Sales
Cost of goods sold
Sales commission
Variable expenses
Contribution margin
Selling and marketing
Administrative expense
Fixed expense
Operating income
Sales Price
Cost of goods sold
Sales Commission
Total Variable expenses
Contribution Margin
Total
$800,000
592,000
48,000
640,000
160,000
Golf Shirts
Per Unit
$20.00
14.80
1.20
16.00
4.00
Golf Shirts
$20.00
14.80
1.20
16.00
$4.00
Golf Shoes
$45.00
36.00
2.70
38.70
$6.30
Percentage
100%
74%
6%
80%
20%
Golf Shoes
Total
Per Unit Percentage
$450,000
$45.00
100%
360,000
36.00
80%
27,000
2.70
6%
387,000
38.70
86%
63,000
6.30
14%
Total Company
Total
Percentage
$1,250,000
100%
952,000
76.16%
75,000
6%
1,027,000
82.16%
223,000
17.84%
125,000
53,400
178,400
446,000
Use the data tables above to solve Case Study problems:
The CFO is in the process of making a business decision based on revenue generating concepts to increase sales for next year. He has asked for your assistance in
examining the effects of financial changes in the sales mix. He needs assistance using cost-volume-profit techniques.
1
2
His first question to you: what is the company’s CM ratio and variable expense ratio for golf shirts and golf shoes?
CM ratio = unit CM/unit selling price
Golf Shirts
Golf Shoes
20.00
45.00
Variable Expense Ratio = variable expense/selling price
Golf Shirts
Golf Shoes
0.80
0.86
His second question, is what is the current break even point? (use the equation method)
Breakeven point= Total fixed costs/ Weighted Average Contribution Margin per unit
total fixed costs = Selling and Markerting Costs + Administrative Expenses+ Fixed Expense= 401,400
Weighted Average Contribution Margin= ($4.00x 0.80)
6.30x 20%) = 4.46
401,400/ 4.46= 90,000
Hence:Golf Shirts= 4/5 x 90,000= 72,000
Golf Shoes = 1/5 x 90,000= 18,000
3
His third question, what would happen if we increase sales by $400,000 next year. Let’s assume the cost behavior pattern remains unchanged, by how much will the
company’s net income increase? (use the CM ratio to compute answer)
Increase in Sales
CM ratio
Expected increase in CM
4
$400,000
34%
$136,000
His fifth question is how many golf shirts and pairs of shoes are needed to be sold to earn $66,900 in operating income?
Required Contributon Margin= Fixed Costs + Desired Operating Income)
Fixed Costs= 401, 400
Desired Operating Income = 66,900
Hence the required contribution margin = 468,300
The Weighted Average Contribution Margin per Unit = (4/5 x $4)= (1/5x 6.30)= 3.2+ 1.26 = 4.46)
Total Units needed= 468300/ 4.46 = 105,000
These Units translates to: Golf Shirts 4/5x 105,000= 84,000 and Golf Shoes 1/5 x 105,000= 21,000
Based on the information provided to the CFO, he has now developed a new proposal to increase sales for next year. The CFO is determined to increase sales therefore
he has set up a commission of 6% to the sales staff team. Consider the golf shop’s original sales mix of 40,000 golf shirts and 10,000 shoes. In an effort to stimulate
sales, the golf shop sales incentive will be use the target market of youth golf teams. This move has increased the sales commission paid on each golf shirt to 12.3%.
The CFO believes that this move will generate additional sales of 10,000 golf shirts, with no effect on shoes sales.
5
How will this move alter the golf shops sales mix?
Sales price
Cost of goods sold
Sales commission
Total Variable expenses
Contribution margin
6
$1,450,000.00
1,100,000.00
150,000.00
1,250,000.00
$200,000.00
Calculate and explain how will it affect the breakeven point?
The new contribution margin for the Golf shirt is $2.74 and $3.60 for the Golf shoe
The new sales mix is 50,000 golf shirts and 10,000 golf shoes
The total weighted average contribution is (50,000/ 60,000 x 2.74)+ (10,000/ 60,000 x 6.30)= 2.28+1.05= 3.33
The new break even point= 401,400/ 3.33= 120,541 ( Golf shirts= 100, 450 and golf shoes 20,091)
Hence, there is a increase in the contribution margin from 90,000 to 120,451
This position indicates that the company will be required to sell more units in order to cover the fixed costs.
Information Literacy: Creation of New Information/Participation in Field
7
Select and organize expert information and weigh the information against your own emerging research. Do you
think the company should accept the CFO’s proposal to increase sales commission? By lowering the
contribution margin per unit of golf shirts and shifting a greater percentage of sales to those golf shirts, more golf
shirts and more shoes will have to be sold in order to break even. Is this change a good move? Include in your
analysis, what happens to the breakeven point if the sales mix changes.
An increase in the sales commission is set to reduce the contribution margin per the units of the golf shirts
hence the need to sell more units for a break even. As such the breakeven point increases with an increase in
the sales of the golf shirts after a decrease in the contribution margin.
Original contribution margin:
Golf shirts
New contribution margin:
Golf shirts
Reduction in contribution margin
8
$4
$3
$1
If the sales proposal should be accepted and if sales remain at current level, what will the income or loss from operations be for the budgeted year.
Sales volume golf shirts = 40,000 units
Golf shoes = 10,000 units
Contribution Margin shirts = $2.74 per unit
Shoes = $6.30 per unit
Multiply sales volume of both items by their contribution margin = total contribution margin
9
Identify basic cost behavior patterns and explain how changes in activity level affect the total cost and unit cost.
Cost behavior
Variable
Fixed
Mixed
As Activity Increases
Total Cost
Increases
Constant
Increases
Cost per Unit
Constant
Decreases
Varies
As Activity Decreases
Total Cost
Cost per Unit
Decreases
Constant
Constant
Increases
Decreases
Varies
Module 04: Management Decision
Digital Fluency: Creation of Digital Files
The CFO is anxious to increase the company’s profit and has asked you to prepare an analysis and summary of your
findings. Prepare an analysis report to support the business decision. You may use graphs and other statistical data to
present findings. Apply advanced formatting features to present and produce a professional document. Create the
information to present to users in a visually interesting and organized manner.
The table below
shows the changes in contribution margin
Original Contribution Margin
Proposed Contribution Margin
Golf Shirts
$4.00 Golf Shirts
$2.74
Golf Shoes
$6.30 Golf Shoes
$6.30
Original Operating Income
446,000
New Operating Income(Loss)
95,400
According to the analysis provided, a proposal to increase the sales commissions would result in a higher breakeven
point hence the need to sell more units to achieve a similar amount of profitability. However, the approach would require
more sales and increased customer engagement.
Module 05: Professional Business Ethics and Internal Control
Select an appropriate conclusion to an ethical dilemma.
You have now worked for GolfPro Center for a few years and along your journey have obtained your CPA license. Now that you have
become a CPA you have taken on extra work on the side by performing tax services to some small business clients. Desert Willow
Golf Course is one of your new small business accounts and you are obligated to compete their corporate tax return by April 15th.
Ironically, Desert Willow Golf Course, is also a customer of GolfPro Center as they purchase inventory to stock their pro-shop at the
golf course. Desert Willow Golf Course has recently fallen more than 90 days past due on paying their bills to GolfPro Center. In your
position at GolfPro Center you have been assigned to review and perform an internal audit of Desert Willow Golf Course’s customer
account. In addition, you are also responsible for preparing and estimating the Allowance for Doubtful Accounts for GolfPro Center.
When preparing the report, you have left Desert Willow Golf Course off of the aging report. The CFO has asked you for your
justification for not including Desert Willow Golf Course on the 90+ aging report. Your reply is, it seems there are some audit related
questions about the collectible amount for Desert Willow Golf Course; therefore you have come up with an explanation for not
including them in the estimated allowance report which satisfies the CFO.
GolfPro Center is now growing and has decided to expand by opening a new store in Southern California. Since you have now
obtained your CPA license the company has offered you a nice promotion and raise with GolfPro Center. You will have to transfer to a
new location to begin gathering a team to start the finance department at the new store in Southern California. You have accepted the
promotion and leave immediately. In the mean time you have decided to quit doing accounting on the side which includes your
business with Desert Willow Golf Course. In moving, you have not completed the corporate tax return Form 1120 for Desert Willow
Golf Course which should be filed with the IRS by a specific date. You also failed to inform Desert Willow Golf Course of your new
relocation. In trying to locate you, Desert Willow Golf Course contacts GolfPro Center and discloses your side work business.
Ethics and Professionalism: Ethical and Situational Awareness
1
Determine the best outcome for this situation: Do you think it is ethically appropriate to provide tax services to Desert Willow Golf
Course, a customer of GolfPro Center, while at the same time being employed by GolfPro Center? Evaluate the impact this decision
has on laws and on your own core of beliefs and personal ethics.
Providing tax services to Desert Willow Gold Course, a customer of GolfPro Center while working as an employee for the same entity
is ethically inappropriate for multiple reasons including the existence of a conflict of interest, lack of transparency, and non-compliance
with ethical principles. One of the issue arising from the scenario is conflict of interest since as a CPA at GolfPro Center, one is
expected to audit the customer’s accounts with the company. Therefore, providing them with tax services will ensue a conflict of
interest hence impairing one’s goals and independence. Failure to disclose one’s affiliation with the customer is a breach of
transparency with the company. As an employee one is expected to act professionally and avoid scenarios that allow personal desires
to affect professional conduct. The exclusion of the customer details from the company’s aging report and the fabrication of a
justification for the action compromised the employee’s integrity and goal. Legally, the described actions could result in penalties such
as termination of professional license and damage of professional reputation. Most financial regulators expect auditors to maintain
independent affiliations with their customers. Performance of the dual roles undermines values such as integrity, transparency,
accountability, and fairness
Information Literacy: Ethical Use of Information
2
According to the Case Study, have you violated any of your ethical responsibilities to GolfPro Center and to Desert Willow Golf
Course? In your response be specific and reference the AICPA Code of Professional Conduct in answering the question. Provide
attribution and integrate citations for all resource types. Provide APA style in-text citations and a reference entry for the AICPA Code.
According to the case study, as a CPA employee at GolfPro Center one has violated several ethical responsibilities to the client and
the company simultaneously. The performance of a dual role providing tax services to Desert Willow Golf Course while still an
employee of GolfPro Center resulted in a conflict of interest. AICPA rule 102 emphasizes on the need for an auditor to maintain
integrity and objectivity, values that one violated on duty by engaging in a situation that allowed personal interest to affect their ability
to maintain independence in the professional judgement. Additionally, one violated the integrity and transparency ethical
responsibilities to the client and the company by excluding the client from aging report and providing a fake justification for their
omission. AICPA rule 102 expects financial auditors to uphold honest and transparent professional conduct to protect the integrity of
the financial statements. The employee’s failure to fill in Desert Willow Golf Course corporate tax violated professional competence
requirements for AICPA rule 201.
Ethics and Professionalism: Integrity
3
What if your new boss at your new job in Southern California just found out about your dual role as internal auditor and tax accountant
for the corporate office of GolfPro Center. What would you expect the new boss should do? Determine the level responsibility your
new boss has on the impact this decision will make for the overall department.
One would expect the new boss to conduct thorough and detailed investigations on the issue to ensure they understood the
reputational and integrity damages it implicated on the corporate and the department. The boss is then expected to address the issue
by guiding and enforcing ethical standards in my assigned role. This approach would help to prevent the occurrence of such a
situation in the future. The past event will impact the department through enforcement of adherence to the ethical standards and
maintenance of integrity, and in the financial auditing operations. The new management should ensure strict monitoring of the
employee’s operations to prevent breach of ethical conduct in accounting to protect reputation and integrity of the department.
Module 05: Professional Business Ethics and Internal Control
Internal Control
Ethics and Professionalism: Attitudes
1
Explain to the department what internal control is and why the company should establish an internal control system.
Internal controls are procedures that are implemented by the company’s leaders to provide reasonable assurance to enhance the reliability of its
financial reporting. This aspect assures that the accounting records prepared are complete, accurate and demonstrate compliance with the relevant
standards. These processes are further adopted to improve the efficiency of the operations to minimize waste and optimize the use of the
organization’s resources. Thirdly, internal controls aims to guarantee that the entity observes applicable regulations and laws. This element enables
it to avoid legal implications and maintain a positive reputation. Hence, the business should create an internal control system secure financial
accuracy by avoiding errors to increase the confidence of investors. Secondly, this system will assist in safeguarding the assets from misuse
through restrictions and regulations. Likewise, it will allow it to reduce the possibility of redundancies in its operations. An effective internal control
system will assist to make sure the entity complies with laws and policies, and increase transparency and accountability among the workforce.
Ethics and Professionalism: Attitudes
2
Currently John works as the accountant for GolfPro Center. He opens the mail for the company everyday and sets aside all of the incoming checks
for the company. He lists all incoming checks on a spreadsheet which includes the name of the customer and the check amount. He then records
all of the checks into the accounting system by applying the payment to the customers account. Next he prepares the checks for the bank deposit.
He completes the bank deposit slip and attaches all checks. He then gives the incoming check spreadsheet, checks and bank deposit to you the
review and sign off on. After your approval, he then hand carries the checks to the bank each day to deposit. Define cash receipts and discuss the
basic controls for cash receipts. Also, explain directly how the company could improve its internal control procedure for handling cash receipts.
Include in your response the demonstration of the importance of understanding the segregation of duties and how additional proper documentation
could be used to improve the final approval process.
Cash receipts relates to the inflow of cash and equivalents into a company. In most cases, they result from the sale of products or services
provided to customer. The basis controls for cash receipts including having effective systems for recording and reconciling all collections with bank
deposits. Division of responsibilities concerning cash receipts among different workers is an important control. It can assist to minimize the risk of
errors or theft. The next basic control is to establish procedures for proper documentation for every receipt. This aspect can provide an audit trail
and an easier approach for verifying the accuracy of the transactions. Several strategies can help to improve the internal control protocols for
managing cash receipts. The first strategy involves implementing properly established roles. This aspect include having different persons for
opening the mail, recording the receipts in the accounting systems, preparing deposit slips and performing bank reconciliations and the last to
make the deposits. Segregation of duties can enable the company to prevent the likelihood by limiting the control of the entire process. The second
approach involve implementing more documentation procedures. They entail creating processes for handling receipts from the customers. A daily
reconciliation report can be introduced to assist in comparing the recorded receipts, deposit slip and bank statement. The existence of proper
documentation will guarantee that there is a clear record of the transactions. It can similarly lead to complete and accurate financial records. The
third strategy involves introducing dual authorization in the approval process. This protocol denotes that separate individuals should check and
approve the deposit slip and supporting documents to avoid inconsistencies.
Ethics and Professionalism: Attitudes
3
John approves all requests for payment out of the $200 fund, which is replenished at the end of each month. At the end of each month, John
submits a list of all accounts and amounts to be charged and a check is written to him for the total amount. John is the only person ever to tally the
fund. Explain the internal control weakness and describe how internal controls can be improved upon. What questions would you ask to find out
additional information regarding this internal control situation?
The internal weaknesses in this case is the absence of segregation of responsibilities. This occurrence is demonstrated by John being the only
individual to verify the management of the $200 fund. Based on the scenario, he is responsible for approving all the requests for payment, adding
up the items in the fund and creating the request for replenishment. This aspect is a weakness since it can result in errors due to the absence of an
independent individual to check the fund balances and verify the accuracy of the transactions. In this case, the internal controls can be improved by
introducing segregation of duties. For example, a supervisor can be assigned the task of reviewing and authorizing the payment requests. Likewise,
the duty of managing and tallying the fund can be separated from the approval process. Implementing a periodic reconciliation process can
additionally assist to improves these controls. It involves having an independent person comparing the fund balance and the records to confirm
accuracy. Likewise, regular internal audits on the management of the fund. The purpose of this approach is to make sure the transactions are
completed in compliance with stipulated policies. Proper records related to these transactions should be maintained. These documents include
payment requests, approvals and records that support the replenishment. They should be checked and signed off by an independent person.
Questions to ask to gather more information concerning this scenario are;
i) Are there any established procedures for handling and replenishing the fund?
ii) How is balance of the fund tracked and confirmed?
iii) What records are kept for every transaction?
iv) Is there a history of variances concerning the fund?
v) Who are the people with access to the fund?
4
Ethics and Professionalism: Attitudes
All of the company’s cash disbursements are made by check. Each check must be supported by an approved voucher, which is in turn supported
by the appropriate invoice and, for purchases, a receiving document. After reviewing the supporting documentation, you approve the voucher. John
prepares the checks for the CFO’s signature. John also maintains the company’s check register (the cash disbursements journal) and reconciles
the bank account at the end of each month.
The internal control practices in this case include the use of the voucher system. It guarantees that all disbursements are appropriately recorded
and authorized. The presence of the approval procedures provides an additional element of control to ascertain that payments are accurate and
authentic. However, several weaknesses exists. They include the lack of division of the responsibilities. This flaw is demonstrated by John being
responsible for preparing the checks and maintaining the register. Similarly, he is responsible for conducting the bank reconciliations. These
vulnerabilities can be improved by having a different person to maintain the check register. Likewise, a separate individual can be assigned the duty
of reconciling the bank account
Diversity and Teamwork: Skills
5
GolfPro Center has just completed the annual audit. The auditors presented a list of control deficiencies to the CFO. The CFO has asked you to
meet with your team to decide on a improvement plan. Using the above examples as control evidences, explain how you would gather your
department team to discuss how to improve on these items. Include the following details in your response: Discuss the team members and
resources you would gather to discuss this matter. Advocate respect, value and appreciation for individuals working within the finance department,
explain the communication skills needed to approach the team. Describe the professional skills needed to accomplish the task.
Several steps will be incorporated to gather the departmental team to deliberate on the ways to improve on the outlined weaknesses. They include
setting a time for the meeting identifying the team members and seeking the help of experts where necessary. This process further involves
creating an environment characterized by respect and collaboration among the team members. To encourage cooperation, the meeting will
commence by recognizing the work done and commitment of the group. An emphasis will be made on the role of each member and encourage
them to share their ideas freely. An action plan will be developed to outline each control weakness and strategies for addressing them. Similarly,
assessment procedures will be provided to assist in evaluating the progress of the proposed changes. The CFO and other senior leaders will be
regularly updated on the progress of the team.
The team members will comprise of personnel from the finance department, the internal auditors, compliance staff and IT specialists. The
resources to be used by the team include the audit report, existing policies and protocols and industry guidelines. The communication skills
necessary to approach the team include being able to clearly articulate the issues, practicing active listening and allowing open discussions. The
professional skills needed to successfully undertake the task include problem solving. This aspect will assist to offer an opportunity for the
members to brainstorm and evaluate the advantages and disadvantages of each proposed strategy. Secondly, leadership skills are necessary to
provide guidance, support and motivation.
Diversity and Teamwork: Skills
6
Continuing along the results of the annual audit, explain how an audit enhances the quality for financial statement reporting and managements
report on internal controls. Include in your repose if an audit actually guarantee a fair presentation of a company’s financial statements.
An audit enhances the quality of the financial statement reporting by providing an independent assessment of the accounting records. This process
aids in making sure that they accurately represent the entity’s financial position and performance. This aspect increases their reliability and
credibility. Likewise, the auditors helps to identify any material misstatements in the financial statements. These professionals further examines
whether the reports have been prepared in accordance with accounting standards. The verification of compliance increase consistency and ability
to compare the financial statements across various periods and competitors.
An audit equally enhances management report on internal controls by evaluating the effectiveness of the adopted procedures concerning the
financial reporting. The findings from this process provides the management with an independent evaluation of whether the controls are adequate
to prevent and detect inconsistencies. Similarly, the auditors offer recommendations for improving the internal controls. The audit report provides a
reasonable assurance that the accounting records are free from material misstatements. This position indicates that it does not guarantee total
accuracy. Similarly, auditors apply sampling techniques and professional judgment to conduct the exercise. This aspect demonstrates there is a
likelihood of undetected misstatements. The fact that audits are based on the data presented by the organization indicates that they are limited to
this extent. The time frames for these exercises hinders the ability to verify each transaction. Hence, some errors may be undetected.
Module 05: Professional Business Ethics and Internal Control
Diversity of Accounting Issues
Diversity and Teamwork: Knowledge
Research the FASB Website.
1
Go to the website of the Financial Accountant Standards Board (http://www.fasb.org). Identify the most recently issued financial
reporting standard and summarize briefly its principal provisions. Also search under Project Activities to identify the reporting issue
with the most recent update. Describe the issue and the nature of the action taken by the FASB. In your response, demonstrate a
profound appreciation of the meaning of diversity in accounting standards, explain the need for diverse perspectives.
The most recent financial reporting standard issued is ASU 2024-03 regarding the accounting modifications and exchanges of
financial instruments. The standard is applicable for all financial organizations dealing with debt and equity financial instruments. The
standard emphasizes on the modification or exchange of the instruments considered unsubstantial hence recommending for the most
appropriate time to treat them as either extinguished or continuation. The standard aims at the improvement of consistency and
comparability in the measurement and recognition of the modification or exchange needs. A recent update under project activities
involves the presentation of income taxes in financial statements. The issue addresses clarity and disclosure of the income benefits
and tax expenses. Under this issue, the FASB updated the measures aimed at ensuring transparent and consistent approaches in the
reporting of income taxes. For instance, the board ensured proper classification and disclosure of the income tax expenses as either
current, deferred taxes, or liabilities. Diversity in the accounting standards means the inclusion of different operational perspectives to
serve the different financial industries and activities with applicable standards. Diversity is crucial in accounting standards as it assists
in ensuring operational consistency around the world. The existence of different accounting standards according to the jurisdiction
provisions of the country helps organizations to comply with the financial reporting standards.
2
Diversity and Teamwork: Knowledge
Research the IASB Website
Go to the website of the International Accounting Standards Board (http://www.isab.org). Search for the International Financial
Reporting Standards (IFRS) summaries. Identify the most recently issue international financial reporting standard and summarize
briefly its principle provisions. In your response, demonstrate a profound appreciation of the meaning of diversity in accounting
standards, explain the need for diverse perspectives.
IFRS 18 – Sustainability Reporting standard is the most recent update on IFRS. The standard expects financial companies to report
on their risks and opportunities as related to their sustainability plans and the impacts on their financial performance and position. The
organizations should disclose information about their structures of governance, risk management approaches and strategies to
resolve the issues affecting their sustainability objectives. The update ensured the disclosure metrics and targets are made
compulsory for effective management of risks affecting their sustainability and benchmarking the progress achieved against the set
sustainability goals. Additionally, the standard update aims at ensuring consistent reporting for efficiency comparisons among different
organizations and durations for accountable and transparent operations. Diversity in accounting standards is important as it helps to
address the different needs of the different financial institutions in different jurisdictions. Diversity improves the applicability of the
standards and ensures consistency in international accounting practices.
Diversity and Teamwork: Attitudes
3
Critique and criticize bias regarding accounting practice issues in diversity by explaining the reasons for differences in accounting
practice’s across countries.
Different countries have different accounting practices which are influenced by multiple reasons. The difference in the cultural and
historical perspectives and attitudes towards the development of accounting practices holds a significant influence. Economic stability
and legal regulations guide the accounting systems for instance the U.S. follows market-centered accounting practices while most
European countries are conservative. Additionally, countries that comply with legal and conservative regulations apply discreet and
traditional accounting standards. Other countries may decide on applying fair financial practices. The difference in the economic and
market conditions in different countries influences the type of accounting standards chosen to ensure integration with their unique
market and economic conditions. Additionally, different countries operate on different legal and regulatory systems and these affect
the accounting practices differently across countries. For instance, the U.S. and UK markets may use accounting standards founded
on principles while France and Germany practice accounting according to the set rules.
Diversity and Teamwork: Skills
4
International Financial Reporting Standards are gaining support around the globe. In 2007, the SEC eliminated the requirement for
foreign companies that issue stock in the United States to include in their financial statements a reconciliation of IFRS to U.S. GAAP.
There also is serious discussion of allowing U.S. companies to choose whether to prepare their financial statements according to U.S.
GAAP or IFRS. Do you think U.S. companies should be allowed the choice of reporting under either U.S. GAAP or IFRS? Provide
arguments both for and against this idea. Interpret intercultural experience from multiple perspectives and worldviews.
Allowing companies in the U.S. o choose between the utilization of US GAAP and IFRS provides them with flexibility to choose with the
best accounting standard that aligns with their operations, investor preferences and practices in the industry. Besides, it is an
opportunity for the companies to choose the most suitable framework that will improve their competitiveness in the international
markets. However, the companies should not be allowed to choose between the two accounting standards as it will make it difficult to
manage and enforce compliance within the two options. This may result in regulatory problems with the oversight boards resulting in
inconsistent financial reporting practices. Additionally, the availability of the two options may result in the lack of uniform accounting
and reporting practices internationally.
Based on a global perspective, the enforcement to use IFRS accounting standards is founded in the need for uniform and flexible
operations in financial reporting. This strategy is aimed at sustaining international trade and investments. On a local perspective,
different countries prefer specific accounting standard due to the specificity of their needs and priorities as a region different from other
countries around the world. For instance, the U.S. prefers the application of US GAAP as it prioritizes the regulatory principles in the
standard as they guide the entire reporting processes.
Module 04: Management Decision
Access cost-volume-profit techniques to determine optimal managerial decision.
Examine the effects of changes in sales price, cost and volume.
The company has developed a target budget for selling 50,000 units in the upcoming year. The estimated budget is to sell 40,000 golf shirts and 10,000 pairs of shoes.
Therefore the sales mix is 4 golf shirts for every pair of golf shoes sold. No fixed expenses are assigned to either golf shirts or golf shoes. As long as the company keeps
selling golf shirts and shoes, the fixed expenses will not change therefore they are deducted in total rather than allocated to the individual product lines. The forecasted
income statement is listed below.
GolfPro Center
Forecasted Income Statement
For the year ended 2017
Sales
Cost of goods sold
Sales commission
Variable expenses
Contribution margin
Selling and marketing
Administrative expense
Fixed expense
Operating income
Sales Price
Cost of goods sold
Sales Commission
Total Variable expenses
Contribution Margin
Total
$800,000
592,000
48,000
640,000
160,000
Golf Shirts
Per Unit
$20.00
14.80
1.20
16.00
4.00
Golf Shirts
$20.00
14.80
1.20
16.00
$4.00
Golf Shoes
$45.00
36.00
2.70
38.70
$6.30
Percentage
100%
74%
6%
80%
20%
Golf Shoes
Total
Per Unit Percentage
$450,000
$45.00
100%
360,000
36.00
80%
27,000
2.70
6%
387,000
38.70
86%
63,000
6.30
14%
Total Company
Total
Percentage
$1,250,000
100%
952,000
76.16%
75,000
6%
1,027,000
82.16%
223,000
17.84%
125,000
53,400
178,400
446,000
Use the data tables above to solve Case Study problems:
The CFO is in the process of making a business decision based on revenue generating concepts to increase sales for next year. He has asked for your assistance in
examining the effects of financial changes in the sales mix. He needs assistance using cost-volume-profit techniques.
1
2
His first question to you: what is the company’s CM ratio and variable expense ratio for golf shirts and golf shoes?
CM ratio = unit CM/unit selling price
Golf Shirts
Golf Shoes
20.00
45.00
Variable Expense Ratio = variable expense/selling price
Golf Shirts
Golf Shoes
0.80
0.86
His second question, is what is the current break even point? (use the equation method)
Breakeven point= Total fixed costs/ Weighted Average Contribution Margin per unit
total fixed costs = Selling and Markerting Costs + Administrative Expenses+ Fixed Expense= 401,400
Weighted Average Contribution Margin= ($4.00x 0. 6.30x 20%) = 4.46
401,400/ 4.46= 90,000
Hence:Golf Shirts= 4/5 x 90,000= 72,000
Golf Shoes = 1/5 x 90,000= 18,000
3
His third question, what would happen if we increase sales by $400,000 next year. Let’s assume the cost behavior pattern remains unchanged, by how much will the
company’s net income increase? (use the CM ratio to compute answer)
Increase in Sales
CM ratio
Expected increase in CM
4
$400,000
34%
$136,000
His fifth question is how many golf shirts and pairs of shoes are needed to be sold to earn $66,900 in operating income?
Required Contributon Margin= Fixed Costs + Desired Operating Income)
Fixed Costs= 401, 400
Desired Operating Income = 66,900
Hence the required contribution margin = 468,300
The Weighted Average Contribution Margin per Unit = (4/5 x $4)= (1/5x 6.30)= 3.2+ 1.26 = 4.46)
Total Units needed= 468300/ 4.46 = 105,000
These Units translates to: Golf Shirts 4/5x 105,000= 84,000 and Golf Shoes 1/5 x 105,000= 21,000
Based on the information provided to the CFO, he has now developed a new proposal to increase sales for next year. The CFO is determined to increase sales therefore
he has set up a commission of 6% to the sales staff team. Consider the golf shop’s original sales mix of 40,000 golf shirts and 10,000 shoes. In an effort to stimulate
sales, the golf shop sales incentive will be use the target market of youth golf teams. This move has increased the sales commission paid on each golf shirt to 12.3%.
The CFO believes that this mov…