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Question 1In April 2018, Abdullah Mas'ud, editor of The Arab Newspaper (AN), decides to reduce the price per newspaper from SR0.70 in April 2018 to SR0.50 starting 1 May 2018. Actual paid circulation
Question 1
In April 2018, Abdullah Mas'ud, editor of The Arab Newspaper (AN), decides to reduce the price per newspaper from SR0.70 in April 2018 to SR0.50 starting 1 May 2018. Actual paid circulation in April is 7.5 million (250,000 per day × 30 days). Abdullah estimates that the SR0.20 price reduction would increase paid circulation in May to 12.4 million (400,000 × 31 days). The actual May circulation turns out to be 13,640,000 (440,000 × 31 days). Assume that one goal of AN is to increase operating profit. The budgeted increase in circulation would enable AN to charge higher advertising rates in later months of 2018 if those budgeted gains actually occur. The actual price paid in May 2018 was the budgeted SR0.50 per newspaper.
Instruction
1. Distinguish between planning and control at AN, giving an example of each.
2. Prepare a newspaper revenue performance report for AN for May 2018 showing the actual results, budgeted amounts and the variance.
3. Give two types of action Abdullah might take based on feedback on the May 2018 circulation revenue.
Question 2
ArabNews.co.sa is an Internet company. It offers subscribers multiple online services ranging from an annotated TV guide to local-area information on restaurants. It has two main revenue sources:
1. Monthly fees from subscribers. Recent data are:
Actual number Actual monthly fee
Month/Year of subscribers per subscriber
June 2016 28642 SR14.95
December 2016 54813 SR19.95
June 2017 58178 SR19.95
December 2017 86437 SR19.95
June 2018 146581 SR19.95
2. Banner advertising fees from companies advertising on ArabNews.co.sa page sites. Recent data are:
Month/Year Advertising revenues
June 2016 SR400 988
December 2016 SR833 158
June 2017 SR861 034
December 2017 SR1,478,072
June 2018 SR2,916,962
The following decisions were made in the June to October 2018 period:
a) June 2018. Decision to raise the monthly subscription fee from SR19.95 per month in June 2018 to SR24.95 per month in July 2018. The SR19.95 fee first applied in December 2016.b) June 2018. Decision to inform existing subscribers that the July 2018 subscription fee would be SR24.95.c) July 2018. Decision to upgrade the content of its online services and to offer better Internet mail services.d) October 2018. Demotion of manager of marketing after significant slowing of subscriber growth in accounts and revenues. Results include:
Actual number Actual monthly fee
Month/Year of subscribers per subscriber
July 2018 128933 SR24.95
August 2018 139419 SR24.95
September 2018 143131 SR24.95
Budgeted amounts (set in June 2018) for the number of subscribers were 140,000 for July 2018, 150,000 for August 2018, and 160,000 for September 2018.
e) October 2018. Decision to reduce themonthly subscription fee from SR24.95 per month in September 2018 to SR21.95 in October 2018.
Instructions
a) Distinguish between planning decisions and control decisions at ArabNews.co.sa.
b) Classify each of the decisions (a) to (e) as a planning or a control decision.
c) Management accountants at ArabNews.co.sa can play three key roles in each of the five decisions above: problem solving, scorekeeping and attention directing.
i. Distinguish between the problem-solving, scorekeeping and attention-directing roles of a management accountant at ArabNews.co.sa.ii. For each of the five decisions outlined above, describe a problem-solving, scorekeeping or attention-directing role. Where possible, provide your own example of an information item that a management accountant could provide for each decision.
Question 3
ABC is a recently formed law partnership. Jibrin Abbas, the managing partner of ABC, has just finished a tense telephone call with Mohammed AlSaadi, president of XYZ, Jubail. Mohammed complained about the price ABCcharged for some conveyancing legal work done for XYZ. He requested a breakdown of the charges. He also indicated to Jibrin that a competing law firm, Alhassan & Co, was seeking more business with XYZ and that he was going to ask them to bid for a conveyancing job next month. Mohammedended the telephone call by saying that if ABC bid a price similar to the one charged last month, ABC would not be hired for next month’s job.
Jibrin is dismayed by the telephone call. He is also puzzled because he believes that conveyancing is an area where ABC has much expertise and is highly efficient. The XYZ telephone call is the bad news of the week. The good news is that yesterday Jibrinreceived a call from its only other client (MHZ) saying it was very pleased with both the quality of the work (primarily litigation) and the price charged on its most recent case.
Jibrin decides to collect data on the XYZ and MHZ cases. ABC uses a cost-based approach to pricing (billing) each legal case. Currently it uses a single direct-cost category (for professional labour time) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labour-hours per case. The case files show the following:
XYZ MHZ
Professional labour time 104 hours 96 hours
Professional labour costs at ABC are SR70 an hour. Indirect costs are allocated to cases at SR105 an hour. Total indirect costs in the most recent period were SR21,000.
Instructions
a) Why is it important for ABC to understand the costs associated with individual cases?
b) Present an overview diagram of the existing job-costing system.
c) Calculate the costs of the XYZ and MHZcases
