Chapter 22: Serial Problem

SP 22: Cash Conversion Cycle for Business Solutions Santana Rey needs to calculate the cash conversion cycle for the Computer Workstation Furniture Manufacturing department for two quarters. The cash conversion cycle (CCC) is an important metric that measures the efficiency of managing inventory, accounts receivable, and accounts payable. Key Formula for Cash Conversion Cycle (CCC): CCC=Days Inventory Outstanding (DIO)+Days Sales Outstanding (DSO)−Days P ayable Outstanding (DPO) 1. Compute CCC for the First Quarter: o Calculate DIO: Average time to sell inventory. o Calculate DSO: Average time to collect receivables. o Calculate DPO: Average time to pay suppliers. o Apply the formula to find the CCC for the first quarter. 2. Compute CCC for the Second Quarter: Repeat the steps using the data for the second quarter. 3. Analysis of CCC Change: Determine whether the CCC improved (shorter cycle) or worsened (longer cycle) between the quarters. An improvement means quicker cash flow management. Tableau Dashboard Activities (for P2 and P3) These activities involve using Tableau to visualize and analyze accounting data for indirect expense allocation, departmental income, and contribution to overhead. The exercises simulate real-world accounting scenarios using data analytics tools. • • • DA 22-1: Focuses on allocating indirect expenses, similar to exercises where indirect costs are distributed among departments based on factors like floor space, sales, or number of employees. DA 22-2: Combines allocation of indirect expenses with preparation of departmental income statements, providing a holistic view of departmental performance. DA 22-3: Involves preparing a departmental contribution to overhead report and analyzing strategic decisions, focusing on the profitability and sustainability of different departments. AA 22-1: Company Analysis for Google (A4) This problem involves analyzing Google’s cash management through the cash conversion cycle for two years. Steps to Solve: 1. Compute CCC for Both Years: o Use the DIO, DSO, and DPO values provided for each year to calculate the CCC. 2. Analyze Cash Management Efficiency: o Compare CCC between the current and prior years to determine if Google’s cash management has become more effective. AA 22-2: Comparative Analysis of Apple and Google (A2) This analysis compares financial performance between Apple and Google. Required Calculations: 1. Compute Profit Margin: Profit Margin=Net IncomeSales Reflects how much of each dollar in sales is converted into profit. 2. Compute Investment Turnover: o Investment Turnover=SalesAverage Assets Measures how efficiently a company uses its assets to generate sales. 3. Compare Performance: o Determine which company has better investment turnover, which indicates more efficient use of assets. o AA 22-3: Extended Analysis for Samsung and Google (A4) This analysis focuses on computing and comparing the cash conversion cycle for Samsung and Google. Required Calculations: 1. Compute CCC for Each Company: o Use the provided DIO, DSO, and DPO data to find the CCC for each company. 2. Compare Cash Management Efficiency: o Identify which company manages its cash flow more efficiently based on a shorter CCC. Discussion Questions (General Concepts) These questions explore fundamental concepts in responsibility accounting and organizational structure: 1. Why Companies Are Divided into Departments: For specialization, better management control, and performance evaluation. 2. Operating vs. Service Departments: Operating departments focus on core activities like sales or production, while service departments support these operations (e.g., HR). 3. Controllable Costs: Costs that a manager can influence directly, like labor or materials. 4. Evaluation of Cost Center Managers: Performance is evaluated based on their ability to manage controllable costs effectively. 5. Detail in Responsibility Accounting Reports: Higher-level managers receive summarized reports for a broader overview, while lower-level managers get detailed reports for hands-on control. 6. Decentralized Organizations: Decisions are made closer to the point of impact, allowing flexibility and faster response times. 7. Direct vs. Indirect Expenses: Direct expenses can be traced directly to a department (e.g., raw materials), while indirect expenses benefit multiple departments (e.g., utilities). 8. Reasonable Bases for Allocating Indirect Expenses: E.g., rent based on square footage, advertising based on sales percentage, and property taxes based on asset values. Problem 22-1B Analysis Component: The analysis component asks which manager—plant manager or department managers—had better cost control. To assess this, compare the variance in the controllable costs for each manager and determine who managed to keep costs closer to budget. Problem 22-2B: Allocation of Indirect Expenses (P2) Previous Method: Allocate expenses using $23 per square foot based on occupancy. New Method: Allocate based on specific bases (e.g., rent by square feet, advertising by sales, insurance by insured asset value). Problem 22-3B: Departmental Income Statements (P3) This requires creating a contribution to overhead report for Bonanza's departments (Movies and Video Games) and evaluating whether the Video Games department should be discontinued based on its financial contribution. Problem 22-4B: Departmental Income (P3) Allocate indirect expenses (rent, utilities, etc.) between Guitar and Piano departments, then prepare income statements to evaluate the performance of each department. Problem 22-5BA: Allocation of Joint Costs (C2) Use Value Basis: Allocate joint costs to each grade of tomatoes proportionally based on their sales value, and calculate the gross profit for each grade by subtracting the allocated costs from their sales revenue. By following these steps and using the appropriate formulas, each problem can be systematically addressed, providing insights into performance measurement, cost allocation, and financial analysis.