ANSWERS TO FORUM QUESTIONS:

List the six business functions in the value chain. Give examples of costs that your company or organization might incur in each function.

Interlinked value-adding activities that convert inputs into outputs which, in turn, add to the bottom line and help create competitive advantage. A value chain typically consists of (1) inbound distribution or logistics, (2)manufacturing operations, (3) outbound distribution or logistics, (4) marketing and selling, and (5) after-sales service. These activities are supported by (6) purchasing or procurement, (7) research and development, (8) human resource development, (9) and corporate infrastructure.

The major business functions that add value to a company's products and services. These functions consist of research and development, product design, manufacturing, marketing, distribution, and customer service.

Cost examples: Inbound/Outbound distribution or logistics Freight Manufacturing operations Manufacturing supplies Marketing and Selling Advertising After-sales service Commissions Purchasing or procurement Spoilage Research & Development Research Human Resource development Training/Seminars Corporate Infrastructure Repairs and Maintenance

How do we decide whether a long-term investment is worthwhile?

Deciding to invest on a long-term investment is worthwhile if a management were able to see the advantages and disadvantages of its decision. Management should give priority on the liquidity of the firm/s to invest by looking at its financial statement.

Illustrate an example of how to compute for the following:

o

Break-even point

Break even point is the level of sales at which profit is zero. According to this definition, atbreak even point sales are equal to fixed cost plus variable cost. This concept is further explained by the the following equation: [Break even sales = fixed cost + variable cost] The break even point can be calculated using either the equation method or contribution margin method. These two methods are equivalent.

The equation method centers on the contribution approach to the income statement. The format of this statement can be expressed in equation form as follows: Profit = (Sales Variable expenses) Fixed expenses Rearranging this equation slightly yields the following equation, which is widely used in cost volume profit (CVP) analysis: Sales = Variable expenses + Fixed expenses + Profit According to the definition of break even point, break even point is the level of sales where profits are zero. Therefore the break even point can be computed by finding that point where sales just equal the total of the variable expenses plus fixed expenses and profit is zero.

Example:
For example we can use the following data to calculate break even point. Sales price per unit = $250 variable cost per unit = $150 Total fixed expenses = $35,000

Calculate break even point

Calculation:
Sales = Variable expenses + Fixed expenses + Profit $250Q* = $150Q* + $35,000 + $0** $100Q = $35000 Q = $35,000 /$100 Q = 350 Units
Q* = Number (Quantity) of units sold. **The break even point can be computed by finding that point where profit is zero

The break even point in sales dollars can be computed by multiplying the break even level of unit sales by the selling price per unit. 350 Units $250 Per unit = $87,500

Payback period

Payback Period is a financial metric that answer the question: How long does it take for an investment to pay for itself? Or, how long does it take for incoming returns to cover costs? Or, put still another way: How long does it take for the investment to break even?

As an example, consider a five year investment whose cash flow consequences are summarized in the table below. The primary data for payback calculation are the expected cash inflows and outflows from the investment:

Cash Inflows: The investment will bring $300 cash inflow each year, for years 1 - 5. Cash outflows: The initial cost of the investment is a cash outflow of $800 in year 1, followed by a cost (outflow) of $150 in year 2. There are no expected costs in years 3 - 5.

From these figures, the analyst creates two sets of cash flow numbers to use for the calculation (the bottom two rows of the table):

Net Cash Flow. The net of cash inflows and outflows for each year. Cumulative Cash Flow. The sum of all cash inflows and outflows for all preceding years and the current year.
Year 1 Year 2 Year 3 Year 4 Year 5 300 800 500 500 300 150 150 350 300 0 300 50 300 0 300 250 300 0 300 550

Investment Cash Flow Cash Inflows Cash Outflows Net Cash Flow Cumulative Cash Flow

When does payback occur? Look first to the cumulative cash flow line at the table bottom, and it is clear that payback occurs sometime in Year 4. We know that payback occurs in Year 4 because cumulative cash flow is negative at the en Payback Period = Y + ( A / B ) where Y = The number of years before final payback year. In the example, Y = 3.0 years. A = Total remaining to be paid back at the start of the payback year, to bring cumulative cash flow to 0. In the example, A = $50. B = Total (net) paid back in the entire payback year. In the example, B = 300. For the example, Payback Period = 3+ (50) / (300) Payback Period = 3 + 1/6 = 3.17 Years d of Year 3 and positive at the end of Year 4. But where, precisely, is the payback event in Year

ANSWERS TO FINAL EXAMINATION QUESTIONS:

1. What information should management accountants provide? What is the primary focus of management accounting?

Management accountant should provide accurate and timely financial and statistical internal information to the management in establishing plans and making decisions toward organizational goals.

Management accounting primarily focus on preparation of monthly or weekly reports for an organization's internal audiences such as department managers and the chief executive officer. These reports typically show the amount of available cash, sales revenue generated, amount of orders in hand, state of accounts payable and accounts receivable, outstanding debts, raw material and inventory, and may also include trend charts, variance analysis, and other statistics. 2. How do you distinguish among service, merchandising, and manufacturing companies? How do their balance sheets differ?

manufacturing
The process of converting raw materials, components, orparts into finished goods that meet a customer's expectations or specifications. Manufacturing commonly employs a man-machine setup with division of labor in a large scale production.

merchandising
Definition
The activity of promoting the sale of goods at retail. Merchandising activities may include display techniques, free samples, on-thespot demonstration, pricing, shelf talkers, special offers, and other point-ofsale methods. According to American Marketing Association, merchandising

encompasses "planning involved in marketing the right merchandise or service at the right place, at the right time, in the right quantities, and at the right price." Manufacturing and Merchandising balance sheet accounts differ on the following accounts: Manufacturing: Inventories for Materials, Work in progress and Finished Goods. Merchandising: Inventories on merchandise available for sale.

3. Explain the basic difference between job costing and process costing.

Job costing - An order-specific costing technique, used in situations where each job is different and is performed to the customer's specifications. Job costing involves keeping an account of direct and indirect costs. Process costing - Method for determining the total unit cost of the output of a continuous production run (such as in food processing, petroleum, and textile industries) in which a product passes through several processes (or cost centers).

4. Why should a company develop a budget?

A company must develop a budget because it is a tool that help managers plan and control operation. Budget help ensure that the functional areas of a business work in harmony to achieve goals. Budget provides a comprehensive financial overview of planned companys operation. 5. How do we evaluate managers? Managers can be evaluated through its efficiency in utilizing companys resources and maximizing profit.

6. What is the nature of fixed costs? Provide some examples for such

Fixed Cost - A periodic cost that remains more or less unchanged irrespective of
the output level or sales revenue. Such as depreciation, insurance, interest, rent, salaries, and wages.

7. What are the current major trends in the business environment? Im not really sure of this but I hope it will make. Current trends in the business environment are as follows:

1. Multinational Companies 2. 2. Three Emerging Trading Blocs: NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA), EUROPEAN UNION (EU) MERCOSUR GROUP, 3. General Agreement on Tarriffs and Trade (GATT) 4. Taxes 5. Euro Market 6. Exchange Rates 7. Direct Quotation 8. Indirect Quotation 9. Cross Rates 10. The International Monetary System 11. Trading in Foreign Exchange 12. Multinational Working Capital Management

8. Select a company (local, national or international) and obtain its latest financial statements and company profile. Give your analysis of its business organization, type/s

of products, financial position (balance sheet) and income statement based on our classroom discussion in managerial accounting.

PAL HOLDINGS INC (PAL:Philippines)

Financial Statements for PAL HOLDINGS INC (PAL)

PAL Holdings, Inc. may have more financial risk than other companies in the Airlines industry. It remains one of the most highly leveraged, despite its Debt to Total Capital ratio shrinking to 86.21% over the last fiscal year. However, an examination of near-term assets and liabilities shows that, even though there are not enough liquid assets to satisfy current obligations, Operating Profits are more than adequate to service the debt. Accounts Receivable are among the industry's worst with 1.44 days worth of sales outstanding. This implies that revenues are not being collected in an efficient manner. Last, inventory levels, relative to its Cost of Goods Sold, are typical for the industry and have shown a consistent decrease during the last 4 years. This implies that management is becoming more efficient. View Balance Sheet In U.S. Dollar Currency in Millions of Philippines Pesos
Annual

As of: Mar 31 2008 Restated PHP

Mar 31 2009 Restated PHP

Mar 31 Mar 31 2010 2011 Reclassified PHP PHP 3,397.0 495.2 193.2 4,085.4 485.5 5,354.2 5,839.7 1,234.5 1,087.0 -12,246.6 113,731.5 4,540.6 269.9 148.5 4,959.0 57.1 5,313.8 5,370.9 1,771.9 1,301.4 -13,403.2 107,472.2 -61,565.1

4Year Trend

Assets Cash and Equivalents Short-Term Investments Trading Asset Securities TOTAL CASH AND SHORT TERM INVESTMENTS Accounts Receivable Other Receivables TOTAL RECEIVABLES Inventory Prepaid Expenses Other Current Assets TOTAL CURRENT ASSETS Gross Property Plant and Equipment Accumulated Depreciation

14,783.7 5,837.0 92.4 3,543.0 --14,876.1 9,380.0 5,573.7 -5,573.7 1,486.0 -5,397.1 27,332.9 90,287.4 45,128.7 4,222.9 808.0 5,030.9 938.8 2,297.4 3,087.0 20,734.1 119,736.0

-57,245.5 -59,983.0

NET PROPERTY PLANT AND EQUIPMENT Long-Term Investments Deferred Tax Assets, Long Term Other Long-Term Assets TOTAL ASSETS

45,158.7 62,490.5 916.8 305.9 11,273.3 84,987.6 819.5 491.8 10,967.8 95,503.7

53,748.4 532.7 722.8 9,505.3 76,755.8

45,907.0 561.0 826.0 11,868.2 72,565.4

LIABILITIES & EQUITY Accounts Payable 5,583.5 Accrued Expenses 11,136.2 Short-Term Borrowings 3,440.2 Current Portion of Long-Term Debt/Capital 5,368.2 Lease Current Portion of Capital Lease -Obligations Current Income Taxes Payable 187.1 Other Current Liabilities, Total 481.1 Unearned Revenue, Current 5,944.0 TOTAL CURRENT LIABILITIES 32,140.3 Long-Term Debt 30,511.7 Capital Leases -Minority Interest 2,288.4 Pension & Other Post-Retirement Benefits 3,237.8 Other Non-Current Liabilities 4,458.1 TOTAL LIABILITIES 70,347.8 Common Stock 5,421.6 Additional Paid in Capital 17,517.3 Retained Earnings -8,192.6 Treasury Stock -0.1 Comprehensive Income and Other -2,394.8 TOTAL COMMON EQUITY 12,351.4 TOTAL EQUITY 14,639.8 TOTAL LIABILITIES AND EQUITY 84,987.6

3,278.8 11,985.7 6,888.2 10,296.5 6,490.7 -3,368.7 5,068.9 40,886.8 11,632.0 30,480.4 448.5 4,200.0 5,746.0 92,945.3 5,421.6 17,517.3 -18,941.0 -0.1 -1,887.9 2,109.9 2,558.4 95,503.7

4,057.7 10,745.8 6,432.6 8,378.4 6,175.0 -1,972.2 5,997.3 37,583.8 6,440.9 22,500.9 319.0 4,724.4 3,810.2 75,060.3 5,421.6 17,517.3 -18,595.1 -0.1 -2,967.2 1,376.5 1,695.5 76,755.8

5,296.6 12,036.0 5,591.4 7,013.4 5,023.2 -232.0 6,819.1 36,988.6 4,364.5 16,632.1 804.3 5,312.2 3,891.0 67,188.4 5,421.6 17,998.4 -14,613.5 -0.1 -4,233.6 4,572.7 5,377.0 72,565.4

Financial Statements for PAL HOLDINGS INC (PAL)

Year over year, PAL Holdings, Inc. has been able to grow revenues from $59.0B to $68.6B. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold, SGA expenses and income tax expenses. All of these improvements led to a bottom line growth from $157.7M to $2.5B. View Income Statement In U.S. Dollar Currency in Millions of Philippines Pesos As of:
Annual

Mar 31 2008

Mar 31 2009

Mar 31 2010

Mar 31 2011

4Year

Restated PHP Revenues 61,075.2 Other Revenues 3,242.8 TOTAL REVENUES 64,317.9 Cost of Goods Sold 52,108.4 GROSS PROFIT 12,209.5 Selling General & Admin Expenses, Total 7,814.8 Other Operating Expenses 1,878.0 OTHER OPERATING EXPENSES, TOTAL 9,692.8 OPERATING INCOME 2,516.7 Interest Expense -3,862.4 Interest and Investment Income 839.7 NET INTEREST EXPENSE -3,022.7 Currency Exchange Gains (Loss) -1,001.7

Restated PHP 69,325.7 4,002.0 73,327.7 73,349.7 -22.1 7,799.9 1,900.3 9,700.2 -9,722.3 -3,746.4 466.2 -3,280.2 752.7 EBT, EXCLUDING UNUSUAL ITEMS -1,507.8 12,249.8 Other Unusual Items, Total --Other Unusual Items --EBT, INCLUDING UNUSUAL ITEMS -1,507.8 12,249.8 Income Tax Expense -1,359.4 543.4 Minority Interest in Earnings 20.5 1,960.5 Earnings from Continuing Operations -148.4 12,793.1 NET INCOME -127.9 10,832.6 NET INCOME TO COMMON INCLUDING -127.9 EXTRA ITEMS 10,832.6 NET INCOME TO COMMON -127.9 EXCLUDING EXTRA ITEMS 10,832.6

Reclassified PHP 59,034.0 4,808.0 63,842.0 59,520.4 4,321.6 6,489.1 -3,456.4 3,032.7 1,288.9 -2,569.5 245.8 -2,323.8 -96.6 -1,131.5 1,530.0 1,530.0 398.5 211.3 -29.5 187.2 157.7 157.7 157.7

PHP 68,608.3 5,753.1 74,361.4 63,262.3 11,099.1 7,028.6 -1,083.7 5,944.9 5,154.2 -1,661.6 245.9 -1,415.7 -209.2 3,529.3 -489.8 -3,039.5 46.6 -459.5 2,992.9 2,533.4 2,533.4 2,533.4

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