# ACC514 Financial Accounting Editing and Proof Reading Services

### ACC514 Financial Accounting Editing and Proof Reading Services

In this ACC514 Financial Accounting Assignment calculation the profit and loss Ishtar Ltd using the costing method.

## 1. Decision making and relevant information

Calculate the operating profit / (loss) for one month for Ishtar Ltd using variable costing method for the two scenarios: (a) business as usual and (b) import the coffee beans from Kenya.

 SCENARIO (A) (B) Particular Amount Amount Sales Revenue Coffee flavour 360,000 975,000 Chocolate flavour 900,000 - Vanilla flavour 450,000 1,710,000 - 975,000 Variable manufacturing costs per month Coffee flavour 240,000 487,500 Chocolate flavour 60,000 - Vanilla flavour 255,000 555,000 - 487,500 Variable costs per set up per month Coffee flavour 12,000 1,000 Chocolate flavour 18,000 - Vanilla flavour 9,000 39,000 - 1,000 Variable marketing costs Coffee flavour 12,000 32,500 Chocolate flavour 21,000 - Vanilla flavour 9,750 42,750 - 32,500 Total variable cost 636,750 521,000 CONTRIBUTION MARGIN 1,073,250 454,000 Fixed Cost Fixed manufacturing costs per month 50,000 50,000 Fixed marketing costs per month 25,000 25,000 Total Fixed Cost 75,000 75,000 OPERATING INCOME 998,250 379,000

### Working note 1: Revenue (Scenario A)

 Particulars Calculations Amount Coffee flavour 60,000 litres / 6 litres = 10,000 cartons * 36 360,000 Chocolate flavour 90,000 litres / 6 litres = 15,000 cartons * 60 900,000 Vanilla flavour 45,000 litres / 6 litres =7500 cartons * 50 450,000 Total 1,710,000

Since one bottle contains 500 ml of flavoured energy drink that is sold by Ishtar Ltd in its business therefore one carton has 6 litres of flavoured energy drink i.e. 12 boltless multiplied by 0.50 litres = 6 litres in one carton.

#### Working note 2: Variable manufacturing costs per month (Scenario A)

 Particulars Calculations Amount Coffee flavour 60,000 litres / 6 litres = 10,000 cartons * 24 240,000 Chocolate flavour 90,000 litres / 6 litres = 15,000 cartons * 40 600,000 Vanilla flavour 45,000 litres / 6 litres =7500 cartons * 34 255,000 Total 1,095,000

### Working note 3: Variable costs per set up per month for making different flavor energy drinks (Scenario A)

 Particulars Calculations Amount Coffee flavour 60,000 litres / 5000 litres = 12 set ups * 1000 12,000 Chocolate flavour 90,000 litres / 5000 litres = 18 set ups * 1000 18,000 Vanilla flavour 45,000 litres / 5000 litres = 9 set ups * 1000 9,000 Total 39,000

### Working note 4: Variable marketing costs per month sold per flavour (Scenario A)

 Particulars Calculations Amount Coffee flavour 60,000 litres / 6 litres = 10,000 cartons * 1.20 12,000 Chocolate flavour 90,000 litres / 6 litres = 15,000 cartons * 1.40 21,000 Vanilla flavour 45,000 litres / 6 litres =7500 cartons * 1.30 9,750 Total 42,750

### Working note 1: Revenue (Scenario B)

 Particulars Calculations Amount Coffee flavour 195,000 litres / 6 litres = 32,500 cartons * 30 975,000

### Working note 2: Variable manufacturing costs per month (Scenario B)

 Particulars Calculations Amount Coffee flavour 195,000 litres / 6 litres = 32,500 cartons  * 15 487,500

### Working note 3: Variable marketing costs per month sold per flavour (Scenario B)

 Particulars Calculations Amount Coffee flavour 195,000 litres / 6 litres = 32,500 cartons  * 1 32,500

### Working note 4: Variable costs per set up will be 1000 since only set is required (Scenario B)

2: Discuss the following issues that Ishtar Ltd will have to consider in making the decision whether to accept or reject Julius’ proposal to import the coffee beans from Kenya and to use the full capacity to make and sell Coffee flavour energy drinks only:

#### (a): Relevant and irrelevant costs and revenue

Relevant cost can be defined as the cost which will be undertaken for the purpose of decision making and on these costs decisions are taken by the management or project management accountants of the company. Relevant cost changes when there is change in the level of activity in the organisation (Averkamp, 2015). On the other hand irrelevant cost can be defined as the cost which does not change with the change in the activity. Irrelevant cost can be further defined as the cost which will only incur if new project or change in level of production will be done otherwise this cost is not incurred.

 RELEVANT COST IRRELEVANT COST Variable manufacturing costs Fixed manufacturing costs per month Variable marketing costs Fixed marketing costs per month Variable costs per set up

#### (b): Other non-financial issues.

Non financial issues in the present situation in the operations and in the decision making process of Ishtar Ltd can be define as the issues that does not requires cash or financial touch in it and other related matters can be related to economic condition of country, export and import conditions, etc. In case of present situation of Ishtar Ltd flowing are some non financial issues that can be faced by the Ishtar Ltd because of decision taken by Julius (management accountant) of Ishtar Ltd:

Fair Trade Transaction- Fair trade transactions leads to development of whole world’s business community or it is the situation of making business entity of third country involved in the business transitions so that overall profit in the transaction will be earned and received by respective countries involve (Khan, 2012). As per international trade practices and being responsible towards world community, Ishtar Ltd can make transaction with Kenya for their second option of buying coffee beans and produce and sell only coffee flavoured energy drinks.

Loss to Local Market- Another non financial issue that Ishtar Ltd shall undertake is of loss to local market in case when Ishtar Ltd imports all coffee beans from the Kenya and stop production of other flavoured drinks along with purchase of coffee beans from the local market. This decision of Ishtar Ltd or of Julius (management accountant) if undertaken this will cause loss to local coffee market. As in current situation, Ishtar Ltd buys coffee beans from the local Australian coffee farmer in the Atherton Tableland in Queensland. Therefore it will lead towards the situation of loss in the local market and ultimately it affects economy of the country and price inflation.

Import will Increase- Another important consideration that can be considered is of the import and export conditions of countries involved in the transactions. Therefore Ishtar Ltd and Julius (management accountant) shall take decisions related to their business operations in the organisation. They are considering importing coffee beans from the Kenya so that they are able to use this in their manufacturing process of flavoured energy drink. Import export relations, import expert procedure and foreign currency exchange rates is another non financial issues that Ishtar Ltd and Julius needs to undertake while making decisions related to importing of coffee beans from Kenya.

#### (c): Any ethical issues that Julius, as a member of CIMA and being bound to CIMA’s Code of Ethics for Professional Management Accountants, should consider in making this proposal.

Julius as management accountant is liable to provide information to the management of Ishtar Ltd so that they are able to take correct decisions on the basis this information. Information to be provided to management shall be free from any error and shall be fully disclosed (Ingram, 2012). Since Julius is management accountant of Ishtar Ltd therefore there is some Code of Ethics for Professional Management Accountants on him as a member of CIMA .Following are some ethical issue that has been breached by Julius as management accountant as required by CIMA:

Integrity- Julius has breached the ethical code or standard or principle of integrity under which Julius is required to disclose full, honest, straight and true information to the management of Ishtar Ltd so that they can take appropriate decision (glance, 2016). In this case, Julius has decided to not to disclose the relationship between Julius and his close friend in Kenya, and this leads to breach of code of ethical for health professional management accountant.

Objectivity- Another code of ethics for professional management accountants that has been breached is of objectivity. Under this code, Julius need to overcome biasness and conflict of interest in the business operations and in decision making process. But in this case Julius has failed to do so as he has provided management of Ishtar Ltd with biased decision making information (glance, 2016). As he has conflict of interest i.e. self interest of providing contract to his friend in Kenya for the coffee beans.

### Bibliography:

Averkamp, H. (2015). Cost behavior and Decision Making. Accounting Coach , 1.
glance, E. c. (2016, January 01). Ethics code at a glance. Retrieved April 04, 2016, from cimaglobal.com: http://www.cimaglobal.com/Professional-ethics/Ethics/CIMAs-code-at-a-glance/
Hedberg, B. (2010). Organisation and Cost Management. Sydney: City Press.
Ingram, D. (2012). How to Resolve Ethical Dilemmas in the Workplace. Demand Media , 1.
Khan, N. S. (2012). Types of tools and techniques used in cost management. Project Management , 1.