# MA2 Fall assignment

8 August 2016

This assignment is based on Modules 1 through 5 and is due at the end of Module 5. It is worth 5% of your final course grade. The time to complete this assignment is an estimated 5-6 hours if you have read and mastered the material in the module notes and required readings. General instructions If this is your first time using the Online Learning Environment, check out the Quick Tutorials in the Support Centre. You will find general assignment FAQs in your MA2Assignment/Quiz Submission area. Prepare the answers to these assignment questions in Word and save them as one Word document on your hard drive.

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For the recommended format and filename, see “Assignment submission” in the MA2 Assignment/Quiz Submission area. If this assignment requires you to paste Excel. xls sections, or other files, refer to How To/Use Software/Excel or Word (or both) to ensure you successfully submit your completed assignment. When your file is complete and you are ready to submit it for marking, select your MA2 Assignment/Quiz Submission area. If needed, refer to the quick tutorial “Assignment submission & retrieval” at the Support Centre. Follow these steps to ensure your marker receives your assignment: • Select the Grade Centre link.

Select the exclamation mark (! ). • In the section “Your work,” select the file. If you can view the unmarked assignment, it is okay. If you are unable to view the assignment, contact your CGA affiliate office for help. For questions involving mathematical calculations, you must show your calculations to receive maximum marks. For questions with computer components, follow the given procedure. Adopt a consistent approach to rounding in your calculations. If the question does not specifically state the rounding method, follow these general guidelines:

Round the final answer of all currency numbers to two decimals. For \$ millions, you may omit decimals. For example, \$18,824. 68 ? 542 = \$10,202,976. 56. You may round this to \$10,202,977. • Avoid rounding intermediate calculations. For example, the standard mix % for ingredient A is 25,000 kg ? 45,000 kg = 0. 555…%. Therefore, if the total kg are 500,000, the standard quantity using the standard mix for ingredient A should be 500,000 ? 0. 555…% = 277,778 kg. When in doubt, err on the side of greater accuracy. http://www. mycgaonline. org/bbcswebdav/courses/MA2-2013/13.

Use the following points as a guideline for responding to questions that require analysis or recommendations: • Provide more than just a factual report of numerical findings. What are the potential causes and consequences of the results? • When providing a recommendation, consider both internal and external qualitative factors that may affect the recommendation. These factors may not necessarily be discussed in the original case or scenario. However, you are expected to be able to provide this information from the knowledge you have gained through experience and other areas of your program of learning.

Reading 1. 3-1, “What is Critical Thinking? ” is designed to help you develop your critical thinking skills. As a final point, when formulating a response that includes numerical analysis, remember to include pertinent numbers from the analysis. The reader should not be expected to review your calculations. Provide further numerical analysis if it will help the reader understand your response. Question 1 (10 marks) Vaughan Speed Clean — budgeting The Vaughan Speed Clean company is a young company that operates three car wash locations in the Greater Toronto Area.

The owner relies on the abilities of three managers to run the car wash locations. At the end of each month, the owner evaluates the performance of each car wash location. His evaluations determine the size of the location manager’s bonus. If the location achieves an annual ROA1 of 10%, the location manager gets \$1,000. The bonus is also augmented by \$1 for every \$10 the location exceeds its profit target. However, the bonus contract gives the owner the right to make subjective adjustments for the effects of factors he deems outside the control of the location managers.

In the past few months, he has made such adjustments for the adverse effects on revenue of having city workers repaving the street just in front of one car wash location. By far the largest uncontrollable factor that is regularly considered is the weather. In particular, sales volume decreases sharply when it rains or snows. The budget, which is updated at the beginning of the month, is prepared on an assumption of hours of good weather. Inevitably, those assumptions are not accurate. The month of November 2013 was an atypical month.

It snowed and rained many more hours than were assumed in the budget, and actual profits for the three locations were below the budgeted profit http://www. mycgaonline. org/bbcswebdav/courses/MA2-2013/13. 14. MA2/m05. assignme… 15/08/2013 Page 3 of 6 level. The results for the Jane-HW7 location are shown in Exhibit 1. Exhibit 2 shows some operating assumptions and statistics for the month. The Jane-HW7 location has an average of \$600,000 of total assets and is open every day, 10 hours per day, when it is not raining. When it is raining, the car wash is closed.

The car wash employees are paid the legally required minimum wage plus a fixed amount for each car wash completed, so labour costs are highly variable with revenues. Exhibit 1: Profit compared to budget for Jane-HW7 — November 2013 Budget1 Revenue Variable expenses, including wages (50% of revenues) Fixed expenses Total expenses Profit 1 Actual Variance \$184,000 \$120,555 \$63,445 U 92,000 53,820 145,820 \$ 38,180 60,277 31,723 F 55,000 1,180 U 115,277 30,543 F \$ 5,278 \$32,902 U Based on 800 hours of good weather Exhibit 2: Operating statistics for Jane-HW7 — November 2013 Budgeted Actual

Average number of vehicles washed in a good weather hour Average revenue per vehicle Total hours in month (averaged) Hours of bad weather Hours of good weather 23 27 \$10 \$9. 50 920 920 120 450 800 470 Required a. How large will the bonus be for the Jane-HW7 manager in November 2013? (4 marks) b. Was the Jane-HW7 location properly managed in the November 2013 quarter? Your answer should consist of variance calculations (based on information provided in Exhibit 2) and an assessment of which variances are controllable. (6 marks)

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