Lailas Teddy Bear Company
Love ? Warmth? JoyJ
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Accounting 294
Comprehensive Assignment Part 1
Spring 2012
Background
Welcome to the Spring 2012 version of the comprehensive assignment prepared specifically for Accounting 294.
Made up of 3 parts this assignment is meant to fulfill a number of objectives for you. These include:
1) Test and apply your knowledge of the concepts of managerial accounting.
2) Increase your experience and abilities with respect to report writing.
3) Illustrate scenarios and issues you will face in the real world.
4) Provide for an additional method of evaluation of your knowledge and skills rather than the traditional quizzes and tests.
Please take all parts of this assignment seriously. This is an opportunity to actually apply your knowledge rather than just memorize a textbook.
Please prepare the assignment using either Word or Excel rather than by hand. The finished product will look more professional as well as create some consistency between submissions.
All submissions must be on 8 1/2 by 11 inch paper using a size 12 font. Grammar and spelling are very important and marks will be deducted for poor grammar and spelling.
For the memos, please use a memo format. Examples of this can be found in Word. Write in a form that is understandable and answers the client’s question.
In order to make this assignment easier and your result more successful we suggest that you do not leave this assignment to the last day or even week. The assignment parts are constructed to coincide with the topics that have been or will be covered in class. If you begin working on the assignment immediately then as your lectures/seminars progress you will be immediately reinforcing the course content that you are being exposed to and it will make application of that content easier as well.
The 3 parts of the assignment are worth a total of 20% of your final grade and therefore each part will have a significant effect on your final letter grade. Making a submission on time even if incomplete, will be more to your benefit than giving up and not making any submission at all.
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Important Notes Regarding Student Conduct
Each part of this assignment is an individual assignment. All submissions are requiredto be your own words and calculations. While it is recognized that students may discuss concepts and ideas each student is required to construct their own response. In the event that the responses prepared by individual students appear to be the same or highly similar the instructor will consider referring the students to the Faculty of Management Academic Misconduct Committee for consideration.
Plagiarism
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Plagiarismrefers to the practice of presenting the words of another author (it maybe a text writer or another student) as your own. This is not permitted. At times you will be asked to learn about and discuss the views or theories of others. This should be done with appropriate acknowledgement of source materials. In other words, youmust reference your work. Acknowledge your sources both direct and indirect quotes within-text citations. Refer to theReferencing section contained below for further information.
Academic Conduct Violations
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Any violation of the rules of Academic Conduct as described above will result in the immediate confiscation of all related materials of all parties involved. In addition, all parties will be immediately reported to the Faculty of Management Academic Misconduct Committee for consideration of further actions including (but not limited to) receiving a zero for the submission, a failure in the course and the possibility of suspension or expulsion.
Referencing
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Faculty of Management requires the Harvard style of referencing for academic papers. Please seeQuote, Unquote Referencing, at:http://web.viu.ca/management/harvard_2004.pdf
For further information please discuss with your instructor and/or refer to the following Student Academic Code of Conduct
http://www.viu.ca/policies/policy.asp?rdPolicyNumber=99.01
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Lailas Teddy Bear Company
Your Role
While you believe you are a student currently taking Accounting 294, for the purposes of this assignment you are doing your internship with the CGA firm of Chon Wang and Wu Chow (C&W). C&W specializes in providing accounting and consulting advice and analysis for manufacturing businesses. For your first assignment Chon Wang wants you to work on the new client file, Lailas Teddy Bear Company (LTBC). He expects this engagement to include writing memos, performing quantitative and qualitative analysis as well as providing conclusions or recommendations for the management and the owner of LTBC. At all times, work submitted must be professional both in terms of content as well as presentation. This is not high school or university but rather the real world. Do the work as if your job depends on it, because it does!!
Lailas Teddy Bear Company (LTBC)
LTBCis a private company founded in Nanaimo by Dev Patel in 1991 todesign, develop, and manufacture stuffed teddy bears. The companys idea started as a family project to raise funds to help the homeless. Dev named the company after his eldest daughter who, one day, gave her teddy bear to a homeless man sleeping out in the cold; thinking it would keep him warm. LTBC contributes annually half of its operating income to support feeding and housing the homeless worldwide. The company receives significant endorsements from celebrities such as Angelina Jolie, Lady Gaga, and Bono.
LTBC produces a fifteen-inch teddy bear enjoyed by children and adult toy collectors around the world. The bears are fully jointed, constructed of washable acrylic pile fabric, and stuffed with a polyester fibre filling. The toys are dressed in various accessories, such as bow ties, sports jerseys, or as characters. At the end of the construction process, a woven satin label that states Made in Nanaimo by Lailas Teddy Bear Company is attached to the back of each bear. Each bear is brushed by hand to give it a seamless look. Then the bear is packaged with a protective air bag and shipped in a designer box. The designer box contributes to the product image. The box is also important to toy collectors who expect to pay/receive a price premium in the secondary market for items that are in mint-in-box condition.
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LTBCs sales grew rapidly in the past few years because of the quality of its product and the effective use of the internet to promote and sell globally. LTBCs 240 employees are organized into three departments: purchasing, production, and marketing. The purchasing department consists of Cory Hall, the purchasing manager, and staff of ten. The department is responsible to acquiring the supply of production materials. Bill Milford manages 174 employees in the production department, where the manufacture and assembly of the product takes place. The marketing department is headed by Rita Smith. She is responsible for all aspects of marketing and she supervises the nine sales clerks and 42 sales representatives that make up LTBCs sales force. The remaining employees are Dev and his secretary.
Marketing of the product takes place at the retail level via catalogue sales and in the companys retail store in Nanaimo. Retail Internet sales are a new addition to overall marketing effort. LTBC also sells wholesale to department stores, toy boutiques, and other specialty retailers. Commissions of 3 percent are paid on retail store and sales to wholesale buyers. No commissions are paid on catalogue sales.
Transcript of Meeting of Dev, Cory, Bill, and Rita from LTBC and Chon and Student from C&W(CGA) on January 13, 2012
Dev: Thank you Chon for agreeing to take us on as a new client. I am afraid that we need your help as our operations did not achieve their target profits.
Chon: I am glad to be here to help advising you, Dev. Ive also brought along with me an instrumental intern from VIU. So, what is the problem?
Dev: I am not sure, but disappointingly early reports indicate that despite the increase in sales units, LTBC did not achieve a profit for the year just ended December 31st, 2011. That means the non-profit organizations that rely on our donations would not be receiving any monies from us this year.
Chon: It is very disappointing. How much do you contribute every year?
Dev: We usually contribute half of our operating income annually. We donate equal amounts to seven different organizations by writing the checks on February 14th based on the operating income of the most recent year.
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Chon: That is very generous of you. I think I need to buy a couple of those lovely teddy bears for my grandchildren. What kind of reports did you prepare for 2011, Dev?
Dev: I received a couple of reports from production and marketing. They are summarized in Exhibits 1 and 2. We did not have time to prepare formal financial statements yet.
Chon: Dev, I believe the first thing that the Student has to do is to prepare a memo to you explaining how you would go about classifying the various resources consumed in manufacturing and selling the teddy bears.
Student, could you please provide very clear reasons for classifying the resources consumed by LTBC in a way that should be helpful in financial reporting and also in predicting cost behavior in the future?
Student: I can definitely do that.
Chon: How come you have different selling prices in Exhibit 2? Do you have different products? Did inventory change much?
Rita: To attract internet customers worldwide, I proposed a discounted price of $42, which is still higher than the price that we are charging our wholesales customers. The 15-inch bears produced by us are very identical except for their colours and their accessories. Although bears may be purchased with different accessories, the unit cost of the accessories per bear has been relatively stable overtime. The average historical cost of accessories has been a very small part of the total cost of the bear.
Cory: Inventory is pretty negligible. Our peak selling times are around Valentines Day, Mothers Day, and Christmas, so we dont have much on hand at the December 31st year-end. We started last year with almost nothing and it was all we could do to keep up with demand, so we ended up with almost nothing as well.
Chon: Student, please jot down a note to ignore changes in raw materials and finished goods inventories and to assume that production volume equals sales volume. Also, please take the information provided by LTBC and prepare a Cost of Goods Manufactured Statement and a separate Income Statement for the year ended December 31st, 2011.
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Student: I will definitely do that. I made the note and I will consider it throughout my analysis of this assignment unless you tell me otherwise.
Dev: One more thing Chon before you leave, a few days ago we received an urgent special order from Costco to purchase 5,000 teddy bears. I would like your opinion on it. Rita, could you kindly provide us with some details?
Rita: I already accepted the special order for Valentines Day by Costco. They needed 5,000 teddy bears at $25 per unit. They are going to pick them up from our factory on January 31st. I think it is a great opportunity for us.
Bill: If you ask me this is a bad timing since our normal capacity is tied up in producing for our regular customers. I think we might need to pay some over time premiums of one and half times of the regular pay to get this special order ready for pick up on Tuesday, January 31st.
Rita: Bill, there will be no commissions paid on this sale. I made some computations of the expected costs for this special order in Exhibit 3.
