Acc501 Week 3
HELP MASTER OF BUSINESS ADMINISTRATION
NOVEMBER 2012 INTAKE 8, HANOI
ACC501 Business ACCOUNTING & FINANCE
ASSIGNMENT 1
Due date :
Word limit : N/A
Weighting : 30% of total marks for the subject
Facilitator : Dr. Yap Kim Len
Question 1 (22 marks)
The condensed income statement for the Terri and Jerri partnership for 2010 is as follows.
TERRIF AND JERRI COMPANYIncome StatementFor the Year Ended December 31, 2010 | | | | | | Sales (200,000 units) | | | | $1,200,000 | Cost of goods sold | | | | 800,000 | Gross profit | | | | 400,000 | Operating expenses | | | | | Selling | | $280,000 | | | Administrative | | 160,000 | | 440,000 | Net loss | | | | ($40,000) |
A …show more content…
cost behavior analysis indicates that 75% of the cost of goods sold are variable, 50% of the selling expenses are variable, and 25% of the administrative expenses are variable.
Instructions
(Round to nearest unit, dollar, and percentage, where necessary. Use the CVP income statement format in computing profits.)
(a) Compute the break-even point in total sales dollars and in units for 2010.
(5 marks)
(b) Terri has proposed a plan to get the partnership “out of the red” and improve its profitability. She feels that the quality of the product could be substantially improved by spending $0.25 more per unit on better raw materials. The selling price per unit could be increased to only $6.25 because of competitive pressures. Terri estimates that sales volume will increase by 30%. What effect would Terri’s plan have on the profits and the break-even point in dollars of the partnership? (Round the contribution margin ratio to two decimal places.) (6 marks)
(c) Jerri was a marketing major in college. She believes that sales volume can be increased only by intensive advertising and promotional campaigns. She therefore proposed the following plan as an alternative to Terri’s (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling price per unit by $0.30, and (3) increase fixed selling expenses by $35,000. Jerri quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What effect would Jerri’s plan have on the profits and the break-even point in dollars of the partnership? (6 marks)
(d) Which plan should be accepted? Explain your answer.
(5 marks)
Question 2 (20 marks) (26-2A)
The management of Martinez Manufacturing Company has asked for your assistance in deciding whether to continue manufacturing a part or to buy it from an outside supplier. The part, called Tropica, is a component of Martinez’s finished product.
An analysis of the accounting records and the production data revealed the following information for the year ending December 31, 2010.
1. The Machinery Department produced 36,000 units of Tropica.
2. Each Tropica unit requires 10 minutes to produce. Three people in the Machinery Department work full time (2,000 hours per year) producing Tropica. Each person is paid $11.00 per hour.
3. The cost of materials per Tropica unit is $2.00.
4. Manufacturing overhead costs directly applicable to the production of Tropica are: indirect labor, $5,500; utilities, $1,300; depreciation, $1,600; property taxes and insurance, $1,000. All of the costs will be eliminated if Tropica is purchased.
5. The lowest price for a Tropica from an outside supplier is $3.90 per unit. Freight charges will be $0.30 per unit, and a part-time receiving clerk at $8,500 per year will be required.
6.
If Tropica is purchased, the excess space will be used to store Martinez’s finished product. Currently, Martinez rents storage space at approximately $0.60 per unit stored per year. Approximately 6,000 units per year are stored in the rented space.
Instructions
(a) Prepare an incremental analysis for the make-or-buy decision. Should Martinez make or buy the part? Why? (8 marks)
(b) Prepare an incremental analysis assuming the released facilities can be used to produce $10,000 of net income in addition to the savings on the rental of storage space. What decision should now be made? (5 marks)
(c) What nonfinancial factors should be considered in the decision? (7 marks)
Question 3 (8 marks) (26-5B)
Betty Dillman is an accounting major at a Midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Betty, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. She believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Betty has gathered the following investment …show more content…
information.
1. Six used vans would cost a total $96,000 to purchase and would have a 3-year useful life with negligible salvage value. Betty plans to use straight-line depreciation.
2. Ten drivers would have to be employed at a total payroll expense of $70,000.
3. Other annual out of pocket expenses associated with running the commuter service would include Gasoline $28,000, Maintenance $2,800, Repairs $3,500, Insurance $3,200, Advertising $1,500. (Exclude interest expense.)
4. Betty has visited several financial institutions to discuss funding for her new venture. The best interest rate she has been able to negotiate is 10%. Use this rate for cost of capital.
5. Betty expects each van to make ten round trips weekly and carry an average of five students each trip. The service is expected to operate 30 weeks each years. Each student will be charged $16.00 for a round-trip ticket.
Instructions
(a) Determine the annual (1) net income, and (2) net cash flow for the commuter service.
(2 marks)
(b) Compute (1) the annual rate of return, and (2) the cash back payback period. (Round to two decimals)
(2 marks)
(c) Compute the net present value of the commuter service. (Round to the nearest dollar.) (2 marks)
(d) (d) What should Betty conclude from these computations? (2 marks)
…………….. END ……………..
HELP MASTER OF BUSINESS ADMINISTRATION
NOVEMBER 2012 INTAKE 8, HANOI
ACC501 Business ACCOUNTING & FINANCE
ASSIGNMENT 2
Due date :
Word limit : N/A
Weighting : 50% of total marks for the subject
Facilitator : Dr. Yap Kim Len
Question 1 (25 marks)
Lanier Corporation operates on a calendar-year basis. It begins the annual budgeting process in late August when the president establishes targets for the total dollar sales and net income before taxes for the next year. The sales target is given first to the marketing department. The marketing manager formulates a sales budget by product line in both units and dollars. From this budget, sales quotas by product line in units and dollars are established for each of the corporation’s sales districts. The marketing manager also estimates the cost of the marketing activities required to support the target sales volume and prepares a tentative marketing expense budget. The executive vice president uses the sales and profit targets, the sales budget by product line, and the tentative marketing expense budget to determine the dollar amounts that can be devoted to manufacturing and corporate office expense. The executive vice president prepares the budget for corporate expenses. She then forwards to the production department the product-line sales budget in units and the total dollar amount that can be devoted to manufacturing. The production manager meets with the factory managers to develop a manufacturing plan that will produce the required units when needed within the cost constraints set by the executive vice president. The budgeting process usually comes to a halt at this point because the production department does not consider the financial resources allocated to be adequate. When this standstill occurs, the vice president of finance, the executive vice president, the marketing manager, and the production manager meet together to determine the final budgets for each of the areas.
This normally results in a modest increase in the total amount available for manufacturing costs and cuts in the marketing expense and corporate office expense budgets. The total sales and net income figures proposed by the president are seldom changed. Although the participants are seldom pleased with the compromise, these budgets are final. Each executive then develops a new detailed budget for the operations in his or her
area. None of the areas has achieved its budget in recent years. Sales often run below the target. When budgeted sales are not achieved, each area is expected to cut costs so that the president’s profit target can be met. However, the profit target is seldom met because costs are not cut enough. In fact, costs often run above the original budget in all functional areas (marketing, production, and corporate office).
The president is disturbed that Lanier has not been able to meet the sales and profit targets. He hired a consultant with considerable experience with companies in Lanier’s industry. The consultant reviewed the budgets for the past 4 years. He concluded that the product line sales budgets were reasonable and that the cost and expense budgets were adequate for the budgeted sales and production levels.
Required:
(a) Discuss how the budgeting process employed by Lanier Corporation contributes to the failure to achieve the president’s sales and profit targets. (10 marks)
(b) Suggest how Lanier Corporation’s budgeting process could be revised to correct the problems. (8 marks)
(c) Should the functional areas be expected to cut their cost when sales volume falls below budget? Explain your answer. (7 marks)
Question 2 (25 marks)
The following financial statement were prepared for the management of Kim Lee Ltd. The statements contain some information that will be disclosed in note form in the general purpose financial statements to be issued.
KIM LEE LTDIncome StatementFor the year ended 30 June 2014 | | | | Revenues (Note 2) | | $1,701,000 | Expenses, excluding finance costs (Note 4) | | 1,373,400 | Finance costs | | 12,600 | Profit before income tax | | 315,000 | Income tax expense | | 126,000 | Profit | | $189,000 | | | |
KIM LEE LTDStatement of Financial Positionas at 30 June 2014 | Current assets | | | | | Cash and cash equivalents | | | | $75,600 | Trade receivables | | $598,500 | | | Less: Allowance for doubtful debts | | 37,800 | | 560,700 | Inventories | | | | 504,000 | Total current assets | | | | 1,140,300 | | | | | | Non-current assets | | | | | Land | | | | 126,000 | Building | | 378,000 | | | Less: Accumulated depreciation | | 75,600 | | 302,400 | Store equipment | | 94,500 | | | Less: Accumulated depreciation | | 44,100 | | 50,400 | Total non-current assets | | | | 478,800 | Total assets | | | | 1,619,100 | | | | | | Current liabilities | | | | | Trade payables | | | | 541,800 | Preference dividends payable | | | | 7,560 | Ordinary dividends payable | | | | 50,400 | Other current liabilities | | | | 25,200 | Total current liabilities | | | | 624,960 | | | | | | Non-current liabilities | | | | | Long-term borrowings (Note 5) | | | | 126,000 | Total non-current liabilities | | | | 126,000 | Total liabilities | | | | 750,960 | Net assets | | | | $868,140 | | | | | | Equity | | | | | Share capital | | | | $630,000 | Retained earnings | | | | 238,140 | Total equity | | | | $868,140 | | | | | |
KIM LEE LTDStatement of Changes in Equityfor the year ended 30 June 2014 | Share capital | | | Ordinary: | | | Balance at start of period | | $504,000 | Balance at end of period | | 504,000 | Preference (Note 6): | | | Balance at start of period | | 126,000 | Balance at end of period | | 126,000 | Total share capital | | $630,000 | | | | Retained earnings | | | Balance at start of period | | $107,100 | Total comprehensive income for the period | | 189,000 | Dividend paid - preference | | (7,560) | Dividend paid - ordinary | | (50,400) | Balance at end of period | | $238,140 | | | |
Notes to the financial statements | | | | | Note 2: Revenue | | | | | Sales revenue (net) | | $1,701,000 | | | Note 4: Expenses | | | | | Cost of sales | | 1,134,000 | | | Selling and distribution expenses | | 178,000 | | | Administration expenses | | 61,400 | | | Note 5: Long-term borrowings | | | | | 10% mortgage payable | | 126,000 | | | Note 6: Preference shares | | | | | 6% preference shares | | 126,000 | | |
Additional information
1. The balances of certain accounts at the beginning of the year are:
Trade receivables $630,000 Allowance for doubtful (52,700) Inventories 441,000 2. Total assets and total equity at the beginning of the year were $1,512,000 and $737,100 respectively.
Required
A. Name the ratios that a financial analyst might calculate to analyse the following:
1. a company’s earning power 2. the extent to which internal sources have been used to finance acquisitions of assets 3. rapidity with which trade accounts receivable are collected 4. the ability of a business to meet quickly unexpected demands for working capital 5. the ability of the entity’s earnings to cover its interest commitments 6. the length of time taken by the business to sell its inventories.
(10 marks)
B. Calculate and briefly discuss any limitations of the ratios mentioned for each of the above analyses. (15 marks)
…………….. END ……………..
NOVEMBER 2012 INTAKE 8, HANOI
ACC501 Business ACCOUNTING & FINANCE
ASSIGNMENT 1
Due date :
Word limit : N/A
Weighting : 30% of total marks for the subject
Facilitator : Dr. Yap Kim Len
Question 1 (22 marks)
The condensed income statement for the Terri and Jerri partnership for 2010 is as follows.
TERRIF AND JERRI COMPANYIncome StatementFor the Year Ended December 31, 2010 | | | | | | Sales (200,000 units) | | | | $1,200,000 | Cost of goods sold | | | | 800,000 | Gross profit | | | | 400,000 | Operating expenses | | | | | Selling | | $280,000 | | | Administrative | | 160,000 | | 440,000 | Net loss | | | | ($40,000) |
A …show more content…
cost behavior analysis indicates that 75% of the cost of goods sold are variable, 50% of the selling expenses are variable, and 25% of the administrative expenses are variable.
Instructions
(Round to nearest unit, dollar, and percentage, where necessary. Use the CVP income statement format in computing profits.)
(a) Compute the break-even point in total sales dollars and in units for 2010.
(5 marks)
(b) Terri has proposed a plan to get the partnership “out of the red” and improve its profitability. She feels that the quality of the product could be substantially improved by spending $0.25 more per unit on better raw materials. The selling price per unit could be increased to only $6.25 because of competitive pressures. Terri estimates that sales volume will increase by 30%. What effect would Terri’s plan have on the profits and the break-even point in dollars of the partnership? (Round the contribution margin ratio to two decimal places.) (6 marks)
(c) Jerri was a marketing major in college. She believes that sales volume can be increased only by intensive advertising and promotional campaigns. She therefore proposed the following plan as an alternative to Terri’s (1) Increase variable selling expenses to $0.79 per unit, (2) lower the selling price per unit by $0.30, and (3) increase fixed selling expenses by $35,000. Jerri quoted an old marketing research report that said that sales volume would increase by 60% if these changes were made. What effect would Jerri’s plan have on the profits and the break-even point in dollars of the partnership? (6 marks)
(d) Which plan should be accepted? Explain your answer.
(5 marks)
Question 2 (20 marks) (26-2A)
The management of Martinez Manufacturing Company has asked for your assistance in deciding whether to continue manufacturing a part or to buy it from an outside supplier. The part, called Tropica, is a component of Martinez’s finished product.
An analysis of the accounting records and the production data revealed the following information for the year ending December 31, 2010.
1. The Machinery Department produced 36,000 units of Tropica.
2. Each Tropica unit requires 10 minutes to produce. Three people in the Machinery Department work full time (2,000 hours per year) producing Tropica. Each person is paid $11.00 per hour.
3. The cost of materials per Tropica unit is $2.00.
4. Manufacturing overhead costs directly applicable to the production of Tropica are: indirect labor, $5,500; utilities, $1,300; depreciation, $1,600; property taxes and insurance, $1,000. All of the costs will be eliminated if Tropica is purchased.
5. The lowest price for a Tropica from an outside supplier is $3.90 per unit. Freight charges will be $0.30 per unit, and a part-time receiving clerk at $8,500 per year will be required.
6.
If Tropica is purchased, the excess space will be used to store Martinez’s finished product. Currently, Martinez rents storage space at approximately $0.60 per unit stored per year. Approximately 6,000 units per year are stored in the rented space.
Instructions
(a) Prepare an incremental analysis for the make-or-buy decision. Should Martinez make or buy the part? Why? (8 marks)
(b) Prepare an incremental analysis assuming the released facilities can be used to produce $10,000 of net income in addition to the savings on the rental of storage space. What decision should now be made? (5 marks)
(c) What nonfinancial factors should be considered in the decision? (7 marks)
Question 3 (8 marks) (26-5B)
Betty Dillman is an accounting major at a Midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Betty, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. She believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Betty has gathered the following investment …show more content…
information.
1. Six used vans would cost a total $96,000 to purchase and would have a 3-year useful life with negligible salvage value. Betty plans to use straight-line depreciation.
2. Ten drivers would have to be employed at a total payroll expense of $70,000.
3. Other annual out of pocket expenses associated with running the commuter service would include Gasoline $28,000, Maintenance $2,800, Repairs $3,500, Insurance $3,200, Advertising $1,500. (Exclude interest expense.)
4. Betty has visited several financial institutions to discuss funding for her new venture. The best interest rate she has been able to negotiate is 10%. Use this rate for cost of capital.
5. Betty expects each van to make ten round trips weekly and carry an average of five students each trip. The service is expected to operate 30 weeks each years. Each student will be charged $16.00 for a round-trip ticket.
Instructions
(a) Determine the annual (1) net income, and (2) net cash flow for the commuter service.
(2 marks)
(b) Compute (1) the annual rate of return, and (2) the cash back payback period. (Round to two decimals)
(2 marks)
(c) Compute the net present value of the commuter service. (Round to the nearest dollar.) (2 marks)
(d) (d) What should Betty conclude from these computations? (2 marks)
…………….. END ……………..
HELP MASTER OF BUSINESS ADMINISTRATION
NOVEMBER 2012 INTAKE 8, HANOI
ACC501 Business ACCOUNTING & FINANCE
ASSIGNMENT 2
Due date :
Word limit : N/A
Weighting : 50% of total marks for the subject
Facilitator : Dr. Yap Kim Len
Question 1 (25 marks)
Lanier Corporation operates on a calendar-year basis. It begins the annual budgeting process in late August when the president establishes targets for the total dollar sales and net income before taxes for the next year. The sales target is given first to the marketing department. The marketing manager formulates a sales budget by product line in both units and dollars. From this budget, sales quotas by product line in units and dollars are established for each of the corporation’s sales districts. The marketing manager also estimates the cost of the marketing activities required to support the target sales volume and prepares a tentative marketing expense budget. The executive vice president uses the sales and profit targets, the sales budget by product line, and the tentative marketing expense budget to determine the dollar amounts that can be devoted to manufacturing and corporate office expense. The executive vice president prepares the budget for corporate expenses. She then forwards to the production department the product-line sales budget in units and the total dollar amount that can be devoted to manufacturing. The production manager meets with the factory managers to develop a manufacturing plan that will produce the required units when needed within the cost constraints set by the executive vice president. The budgeting process usually comes to a halt at this point because the production department does not consider the financial resources allocated to be adequate. When this standstill occurs, the vice president of finance, the executive vice president, the marketing manager, and the production manager meet together to determine the final budgets for each of the areas.
This normally results in a modest increase in the total amount available for manufacturing costs and cuts in the marketing expense and corporate office expense budgets. The total sales and net income figures proposed by the president are seldom changed. Although the participants are seldom pleased with the compromise, these budgets are final. Each executive then develops a new detailed budget for the operations in his or her
area. None of the areas has achieved its budget in recent years. Sales often run below the target. When budgeted sales are not achieved, each area is expected to cut costs so that the president’s profit target can be met. However, the profit target is seldom met because costs are not cut enough. In fact, costs often run above the original budget in all functional areas (marketing, production, and corporate office).
The president is disturbed that Lanier has not been able to meet the sales and profit targets. He hired a consultant with considerable experience with companies in Lanier’s industry. The consultant reviewed the budgets for the past 4 years. He concluded that the product line sales budgets were reasonable and that the cost and expense budgets were adequate for the budgeted sales and production levels.
Required:
(a) Discuss how the budgeting process employed by Lanier Corporation contributes to the failure to achieve the president’s sales and profit targets. (10 marks)
(b) Suggest how Lanier Corporation’s budgeting process could be revised to correct the problems. (8 marks)
(c) Should the functional areas be expected to cut their cost when sales volume falls below budget? Explain your answer. (7 marks)
Question 2 (25 marks)
The following financial statement were prepared for the management of Kim Lee Ltd. The statements contain some information that will be disclosed in note form in the general purpose financial statements to be issued.
KIM LEE LTDIncome StatementFor the year ended 30 June 2014 | | | | Revenues (Note 2) | | $1,701,000 | Expenses, excluding finance costs (Note 4) | | 1,373,400 | Finance costs | | 12,600 | Profit before income tax | | 315,000 | Income tax expense | | 126,000 | Profit | | $189,000 | | | |
KIM LEE LTDStatement of Financial Positionas at 30 June 2014 | Current assets | | | | | Cash and cash equivalents | | | | $75,600 | Trade receivables | | $598,500 | | | Less: Allowance for doubtful debts | | 37,800 | | 560,700 | Inventories | | | | 504,000 | Total current assets | | | | 1,140,300 | | | | | | Non-current assets | | | | | Land | | | | 126,000 | Building | | 378,000 | | | Less: Accumulated depreciation | | 75,600 | | 302,400 | Store equipment | | 94,500 | | | Less: Accumulated depreciation | | 44,100 | | 50,400 | Total non-current assets | | | | 478,800 | Total assets | | | | 1,619,100 | | | | | | Current liabilities | | | | | Trade payables | | | | 541,800 | Preference dividends payable | | | | 7,560 | Ordinary dividends payable | | | | 50,400 | Other current liabilities | | | | 25,200 | Total current liabilities | | | | 624,960 | | | | | | Non-current liabilities | | | | | Long-term borrowings (Note 5) | | | | 126,000 | Total non-current liabilities | | | | 126,000 | Total liabilities | | | | 750,960 | Net assets | | | | $868,140 | | | | | | Equity | | | | | Share capital | | | | $630,000 | Retained earnings | | | | 238,140 | Total equity | | | | $868,140 | | | | | |
KIM LEE LTDStatement of Changes in Equityfor the year ended 30 June 2014 | Share capital | | | Ordinary: | | | Balance at start of period | | $504,000 | Balance at end of period | | 504,000 | Preference (Note 6): | | | Balance at start of period | | 126,000 | Balance at end of period | | 126,000 | Total share capital | | $630,000 | | | | Retained earnings | | | Balance at start of period | | $107,100 | Total comprehensive income for the period | | 189,000 | Dividend paid - preference | | (7,560) | Dividend paid - ordinary | | (50,400) | Balance at end of period | | $238,140 | | | |
Notes to the financial statements | | | | | Note 2: Revenue | | | | | Sales revenue (net) | | $1,701,000 | | | Note 4: Expenses | | | | | Cost of sales | | 1,134,000 | | | Selling and distribution expenses | | 178,000 | | | Administration expenses | | 61,400 | | | Note 5: Long-term borrowings | | | | | 10% mortgage payable | | 126,000 | | | Note 6: Preference shares | | | | | 6% preference shares | | 126,000 | | |
Additional information
1. The balances of certain accounts at the beginning of the year are:
Trade receivables $630,000 Allowance for doubtful (52,700) Inventories 441,000 2. Total assets and total equity at the beginning of the year were $1,512,000 and $737,100 respectively.
Required
A. Name the ratios that a financial analyst might calculate to analyse the following:
1. a company’s earning power 2. the extent to which internal sources have been used to finance acquisitions of assets 3. rapidity with which trade accounts receivable are collected 4. the ability of a business to meet quickly unexpected demands for working capital 5. the ability of the entity’s earnings to cover its interest commitments 6. the length of time taken by the business to sell its inventories.
(10 marks)
B. Calculate and briefly discuss any limitations of the ratios mentioned for each of the above analyses. (15 marks)
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