Edinburgh Napier University Business School
School of Accounting, Economics & Statistics
代写留学生论文Accounting Principles
ACC11101
Module Guide
2010/2011
Lecturers: Mira Steven Jane Zhang
Room 2/34 Room 2/37
Ext 4429 Ext 4448
[email protected] [email protected]
Pat Wilson
Room 2/36
Ext 4373
[email protected]
Accounting Principles ACC11101
2010/11
Semester 1
Scheme of work
Week No. Dates
w/c Topic McLaney & Atrill Led
By Tute No
1 06/09/10 Programme specific events
2 13/09/10 Objectives of Accounting Chapter 2 JZ 1
3 20/09/10 Accounting Statements
Income Statements and Balance Sheets Chapters 3-5 JZ 2
4 27/09/10 Accounting Statements
Income Statements and Balance Sheets Chapters 3-5 JZ 3
5 04/10/10 Accounting Statements
Interpretation using ratios Chapter 7 PW 4
6 11/10/10 Accounting Statements
Interpretation using ratios Chapter 7 PW 5
7 18/10/10 Financial Accounting v Management Accounting, Cost Objects, Cost Classification, Product Costing Chapter 10 MS 6
8 25/10/10 Short-term Decision Making
Cost behaviour, Cost-Volume-Profit Analysis
HAND IN COURSEWORK 1 Chapter 9 MS 7
9 01/11/10 Short-term Decision Making
Limiting Factors, Make or buy decisions
Special selling price decisions Chapters 8 & 9 MS 8
10 08/11/10 Profit v cash
Cash Budgets Chapter 12 PW 9
11 15/11/10 Budgetary Systems
Measuring Managerial Performance Chapter 12 MS 10
12 22/11/10 Revision Lecture JZ
13 29/11/10 Class Test
Recommended Textbook: McLaney and Atrill – Accounting an Introduction: Fifth Edition (A web based edition of this book is available in the library)
EDINBURGH NAPIER UNIVERSITY
SCHOOL OF ACCOUNTING, ECONOMICS & STATISTICS
ACCOUNTING PRINCIPLES ACC11101
Assessment Details
The assessment will take the form of two pieces of coursework. These will each account for 50% of the final grade. Failure to complete the coursework constitutes a fail. To pass the module an additional piece of work will have to be completed.
Coursework 1 (50%) is an individual report based on the analysis of a company’s accounts.
The coursework should be word-processed on single sides of A4 (font size 12 point). The length should be around 1500 - 1800 words (state number of words). Each piece of coursework must use the front sheet below which shows the matriculation number, tutor and tutorial time. Your name should not appear anywhere on the piece of coursework. Also note the information on plagiarism. It should be submitted to the Business School Coursework Office (Room 1/53) by Friday 29th October at 1300hrs.
Coursework 2 (50%) is a class test of 1½ hours duration held in Week 13. The class test will consist of three compulsory questions, two of which will be on Management Accounting and one on Financial Accounting.
Note: non submission of either coursework 1 or coursework 2 will constitute a fail in this element of assessment. Late work, without a prior extension being granted, will be capped at P1.
In order to pass the module it is necessary to submit both pieces of coursework and obtain an overall mark of P1 with a minimum of F1 in any component. There will be one resit opportunity but the easiest way to pass the module is at the first time.
Referencing and bibliographies should use the Harvard System (name and date system) (see Learning Information Services (i.e. the Library’s) web page www.intranet.napier.ac.uk or Napier’s web pages on plagiarism http://www.napier.ac.uk/ed/plagiarism/infostudents.htm
EDINBURGH NAPIER UNIVERSITY
School of Accounting, Economics & Statistics
STUDENT INFORMATION TO BE READ AND UNDERSTOOD
Plagiarism is the publication, as one’s own, of the ideas, or the expression of the ideas, of another (Oxford English Dictionary). Some dictionaries use the term stealing.
Plagiarism is not permitted in assessments at Edinburgh Napier University. Student Disciplinary Regulations (SDR) 11.2.
Major examples of plagiarism include the following
copying from another student
copying large sections, from an academic or other source (e.g. book, internet article) without acknowledging that source
Minor examples of plagiarism include
Paraphrasing without acknowledgment
Quoting original reference obtained from a textbook but not reading “original” material
OK NOT OK
/Quoting a relevant passage from a book, if the reference is given e.g. Drury C, 2004, Management and Cost Accounting, 6e Thomson. The reference must be clearly linked to the body of your work by putting the Author’s name and date in brackets. Copying from textbooks or articles and failing to acknowledge the source – even if the words/sentences are rearranged.
Comparing different authors’ ideas, with acknowledgement of source, and making your own comments. Copying from other students – even if the words and/or sentences are rearranged.
Doing research with others in the library but writing your essay alone. Allowing another student to copy your work.
When citing from the WWW give the entire URL and author if possible, not just the URL of the home page e.g.
http://nulis.napier.ac.uk/studyskills/#Plagiarism URL of home page alone eg
www.napier.ac.uk
Procedure if Plagiarism is Identified
If a major case of plagiarism is confirmed (SDR 14.2):
Copying from another student with collusion
both marked at zero – resubmission required (capped at pass mark for module) without collusion – the plagiarist will score zero and be invited to resubmit – capped. In either case, a new piece of work may be required.
Wholesale copying of significant sections for essay/coursework
The student will be invited to resubmit by a date set by Module Leader. The mark obtained at resubmission will be capped at the pass mark for the module.
If a minor case of plagiarism is confirmed SDR 14.1):
The member of staff marking the work will reduce the mark accordingly with a minimum adjustment of 10 percentage points (e.g. from 50% to 40%)
Persistent and/or serious offenders may ultimately face a disciplinary committee and rustication.
Accounting Principles (ACC11101)
Coursework 1
2010/11
This assessment is worth 50% of your overall module mark
At the tutorial in week 2, you will be asked to select a company from a choice of four possibilities. You can obtain a copy of the latest annual report and accounts of the company, which you can apply for (FREE of charge) from
https://www.orderannualreports.com/060/UI/GP/home.aspx?cp_code=P241
Alternative you can access the annual report on the company’s web site.
Required:
You are part of the pension team responsible for a small public sector pension scheme which has a £5m investment in your chosen company .The fund’s shareholding in your company represent more than 5% by value of the pension fund’s total portfolio. In view of its significance within the portfolio, the trustees of the fund have asked you to prepare a report reviewing the prospects for the company and its shares for their next Board meeting on 1st November 2010. The meeting will conclude with a decision as to whether the shareholding will be maintained.
Your report should include the following:
1. Introduce your company. It is expected that this will include some company history, the principal activity of the company, products, markets and key financial results. (10%.......approx 300 words)
2. Include the following table of key financial data using information from the annual report and accounts:
Current Year Previous Year % Movement
Revenue
Operating profit / loss
Capital employed*
Total assets
Net cash generated / used in operating activities
Number of employees
Earnings per share
Final proposed dividend per share
Year end share price
Year end market capitalisation
*give definition used
(10%)
3. Indicate what the current (October 2010) P/E ratio is for your company and how does this compare to your company’s sector average. What would your company’s share price be if the sector average P/E was applied? Briefly comment on this result. (8%)
4. Use the Stock Exchange web site www.londonstockexchange.com to graph your company’s share price over the last year compared to the graph of the relevant share index (probably the 100). Comment on any divergences from the path of the index and use a press story about your company to try and explain the movement. More details of the impact of news items on the company’s share price can be obtained at
http://www.londonstockexchange.com/exchange/prices-and-news/stocks/indices/constituents-indices.html Click on your company name then on the following page click on the news analysis tab.
(12%.....approx 200 words)
5. Calculate, for BOTH the current and the previous year, FIVE key financial ratios that help to highlight your company’s performance for the trading period. (Clearly state definitions used and cross reference source of information) (10%)
6. Analyse the performance of your company over the last trading period. You will be expected to comment on all relevant percentage movements and financial ratios, NOT just the ones you may have calculated above. Marks will be awarded for both the relevancy and accuracy of information presented and the analysis and interpretation of the information
(45%......approx 1,000 words)
7. The report should be neatly typed (Arial font size 12) and presented in an appropriate style. Referencing and bibliographies should use the Harvard System (name and date) (see Learning Information Services (i.e. the Library’s) web page or Napier web pages on plagiarism. (http://www2.napier.ac.uk/ed/plagiarism/ ).
(5%)
(100%)
Submission Details
The assessment is due to be submitted to the Business School Coursework Office (Room 1/53) by 1pm on Friday October 29th 2010.
Please remember to attach a copy of the Assessment Front Cover to your submission.
SCHOOL OF ACCOUNTING, ECONOMICS AND STATISTICS
COURSEWORK FEEDBACK ACCOUNTING PRINCIPLES ACC11101
PROGRAMME M Sc Accounting and Finance
M Sc Corporate Strategy and Finance
M Sc International Finance
Matriculation No.:
CRITERIA F5/F2 F1 P1 P2/P3 P4/P5 D1/D2 D3/D5 VALUE GRADE
FAIL
Company Introduction 10% PASS
DISTINC
Calculation of increases current year on previous year FAIL
10% PASS
DISTINC
P/E ratio calculation and comparison to sector average FAIL
8% PASS
DISTINC
Share price and index graph and news story of divergence FAIL
(attach story and graph) 12% PASS
DISTINC
Calculation of ratios FAIL
10% PASS
DISTINC
Report to trustees FAIL
45% PASS
DISTINC
FAIL
Presentation of work 5% PASS
DISTINC
COMMENTS:
FINAL GRADE
Marker - DATE
2nd Marker - DATE
Edinburgh Napier University
Assessment Brief
Module Number
ACC11101
Module Title
Accounting Principles
Module Leader
Mira Steven
Tutor with responsibility for this Assessment
Student's first point of contact
Mira Steven
Assessment Report
Weighting 50% of module assessment
Size and/or time limits for assessment
Where assignment length limits are imposed, the target length and maximum length should be included here. Target Length 1500 – 1800 words
Deadline of submission
Your attention is drawn to the penalties for late submissions
Friday 29th October 1pm
Arrangements for submission See coursework details
Assessment Regulations
All assessments are subject to the University Regulations
University's regulations apply
The requirements for the assessment See coursework details
Special instructions None
Return of work Coursework will be returned in the lecture on Monday 22nd November.
Assessment criteria See coursework details
Tutorial Material
Week 2 – Tutorial 1: Objectives of Accounting
Question 1
Identify the main users of accounting information for a university. Do these users differ very much from the users of accounting information for private- sector businesses? Is there a major difference in the ways in which accounting information for a university would be used compared with that of a private-sector business?
Question 2
Explain why the going concern concept/assumption is of importance to a user of an annual report.
Question 3
Discuss major accounting concepts/assumptions.
Question 4
Discuss the characteristics of quality accounting information and the relationships between these characteristics
Week 3 – Tutorial 2: Financial Statements
Question 1
Discuss different types of liabilities which a company may have.
Question 2
Discuss the types of resources for investment capital which are available to a company.
Question 3
Going Concern plc has a loan of £30m which is due for repayment in 6 months’ time. The company can afford to pay the loan off in full by selling some short-term investments. However, the Treasury Manager wants to consider keeping the investments and taking out a new loan.
What information does the company need in order to make a decision on
(a)Which is the best of a range of new borrowing options on offer?
(b) Whether or not to take out a new loan at all?
Question 4
Text book: P74 Exercise 2.5
Week 4 – Tutorial 3: Financial Statements
Question 1 - LONDON PRIDE
You formed a company at the beginning of June to buy bottled real ale from brewers in the South of England and sell it on to small off-licences all over Scotland. In the period since then, the business has been doing well, with lots of orders flooding in as the tastes of people mature from lagers to real ales. However, to carry on meeting the demand for you product you need some additional finance and this morning you went to see your local bank manager with a view to obtaining an overdraft facility. He was surprisingly helpful and positive but said, that before he could authorise further advances, he would like a summary of your financial position.
You do not want to spend you hard earned money on some slick accountant but have no experience of preparing accounts. Nevertheless, you decide to have a go at summarising the financial information you have.
The relevant information from your first three months of trading is as follows:
Investment
You started up the business by investing your life savings of £10,000 in it. You also took a small business start-up loan of £10,000 from your bank.
Purchases
You have added up the invoices relating to the purchases of the bottled real ale and found that they totalled £24,000. However, your suppliers have been allowing you one month’s credit so you know that one third of this total has not been paid yet, although you have received the goods.
You also bought a delivery van in June for £12,000 (paid when the van was delivered in June). You expect the van to last five years after which you hope to be able to sell it for £2,000.
Sales
The orders have been flooding in and the total value of sales invoices comes to £60,000. You give your customers one month to pay, so again one third of this money is yet to be received although the goods have been delivered to the customers.
You also have approximately £15,000 of provisional orders on the books awaiting confirmation.
Expenses
The premises you operate from are rented. The rent is £10,000 per annum, payable twice a year in advance, so you have paid the £5,000 up to the end of November.
You employ six workers whose wage costs in total for the three months were £18,000.
You also sent two of your staff on a training cost which cost a total of £500.
You have paid £400 interest on the bank loan for the three month period. The whole of the capital is still outstanding.
You are still waiting for the council to tell you how much your business rates will be but expect them to be around £6,000 for the year.
Petrol and other sundry expenses, amounting to £3,000 have been paid for during the quarter.
Cash
Your bank statement at 31 August showed that you had £5,090 in your current account. There were not outstanding cheques or deposits at that date. In the petty cash tin there was £10.
Inventories
At 31 August you did a stock take which showed that you had 8,000 bottles in inventory. These cost you 50p each and you expect to be able to sell them for £1.50 each.
Required:
Based on the above information, prepare the income statement for the three month period.
Question 2
Text book: P162 Exercise 4.7
Week 5 – Tutorial 4: Interpretation using ratios
Question 1
The following relates to two companies operating in different business areas during 2010:
Company A Company B
Sales Revenue £1,000,000 Sales Revenue £4,000,000
Capital employed £1,000,000 Capital employed £1,000,000
Operating profit £200,000 Operating profit £200,000
Required:
Calculate the return on capital, the operating profit % and the asset turnover ratio for company A and company B.
Some businesses operate on a low operating profit margin. Does this mean that they also have a low return on capital employed?
The following relates to Long Limited
2010 2009
Sales Revenue £3,095,000 Sales Revenue £1,909,000
Capital employed £989,000 Capital employed £752,000
Operating profit £359,000 Operating profit £244,000
Calculate the return on capital, the operating profit % and the asset turnover ratio for each of the two years given
Explain the movement in the ROCE between 2009 and 2010.
Question 2
You are part of the management team of a business considering the acquisition of Superstyle Ltd., a wholesale clothes supplier. The summarised accounting statements are shown below:
Income Statement for the year ended 30 April 2010
£000
Revenue 530
Cost of sales 415
Gross profit 115
Selling and distribution expenses 52
Administration expenses 23
Operating profit 40
Debenture interest 12
Profit on ordinary activities before taxation 28
Taxation 8
Profit on ordinary activities after taxation 20
Dividends 8
Retained profit for the year 12
Balance Sheet at 30 April 2010
£000
Non Current Assets 410
Current assets:
Stock 220
Trade debtors 105
Bank 117
442
Total assets 852
Capital and reserves
Share capital (ordinary shares of £1.00) 260
Retained profits 359
619
Creditors: due after more than one year
Debentures 2015 150
Creditors: due within one year
Trade creditors 63
Accrued Expenses 12
Taxation 8
83
Total liabilities 852
The trade association to which Superstyle Limited belongs has recently produced the following, based on averages calculated from the data submitted by the members:-
1. Gross profit margin 15%
2. Operating profit 12%
3. Net profit before tax 10%
4. Return on shareholders’ funds 12%
5. Current assets to current liabilities 3.6:1
6. Stock weeks 9 weeks
7. Debtors weeks 8 weeks
8. Creditors weeks 7 weeks
Required:
(a) Calculate the same data in respect of Superstyle Limited, numbered 1 - 8 as in the question.
(b) Comment on the profitability, liquidity and efficiency of Superstyle Limited in relation to the data provided by the trade association.
(c) Suggest ways in which these areas could be improved following acquisition.
Question 3
The following relates to two firms operating in the same type of business during 2010:
Midas Miras
Mark – up 30% 24%
Stock turnover 2.8 6.08
Net profit/turnover 10% 8%
Average stockholding £37,500 £37,500
Required:
Discuss the mean of each of the ratios given above.
Calculate turnover, gross profit and net profit for each of the firms.
Week 6 – Tutorial 5: Interpretation using ratios
Question 1 - THREADS LIMITED
INCOME STATEMENT
For the year ended 30 September 2010 2009
£000 £000
Revenue 1,200 1,180
Cost of Sales 750 680
Gross Profit 450 500
Distribution Costs 175 160
Administration Expenses 108 106
Interest 8 -
Profit before tax 159 234
Taxation 48 80
Profit after tax 111 154
Equity Dividends paid 72 70
Retained earnings for year 39 84
Retained earnings brought forward 256 172
Retained earnings carried forward 295 256
BALANCE SHEET as at 30 September
2010 2009
£000 £000 £000 £000
Non Current Assets 603 614
Current Assets
Inventories 236 148
Trade Receivables 156 102
Bank - 32
392 282
Total Assets 995 896
Equity
Ordinary share capital of £1 each 500 500
Retained Profit 295 256
Non Current Liabilities
Bank Loan 50 -
Current Liabilities
Trade Payables 76 60
Taxation 48 80
Bank Overdraft 26 -
150 140
Total Liabilities 995 896
Required:
Calculate the following ratios for both 2010 and 2009.
Return on capital employed
Gross Profit %
Operating Profit %
Current Ratio
Inventory turnover
Receivables collection days
Payables settlement days
Gearing Ratio
Comment on the performance of Threads Ltd from the viewpoint of a company considering supplying a substantial amount of goods to Threads Ltd on usual credit terms.
Question 2
You are aware that there are advantages and disadvantages to financing a business using debt finance. You have been given extracts from the financial statements of two companies and have been asked to comment on their exposure to financial risk:
Extract from
Income statement for the year ended 31 October
Geared Ungeared
£000 £000
Profit before interest 250 250
Interest ___-_ ___10
Profit before tax 250 240
Taxation 75 72
Profit after tax 175 168
Preference Dividends ___- 8
Retained earnings for year 175 160
Balance sheet as at 31 October
Capital and reserves
Ordinary share capital of £1 each 1500 1300
Cumulative 8% preference shares - 100
Retained Profit 175 160
Non Current Liabilities
10% Debenture __-_ _100
1675 1660
Required:
Calculate the following ratios:
Capital gearing
Interest cover
Return on total capital employed
Return on shareholders’ funds
Prepare the income statement for each company reflecting its capital structure and calculate the ratios above if profit before interest (operating profit ) was:
£ 150,000
£ 350,000
Question 3
You obtained the following information relating to MAC plc, a small manufacturing company, which you are considering investing a recent inheritance in:
The company has an issued and fully paid share capital of £500,000 ordinary shares of £0.50 each. There are no preference shares.
The market price of the share at 31 July 2010 was £2.10.
The net profit after taxation for the year ended 31 July 2010 was £350,000
The proposed dividend for the year was 7p
Required:
Calculate the following ratios:
Dividend yield
Dividend cover
Earnings per share
Price/earnings ratio
Explain what each of these ratios tell you about the company and why they would be useful to an investor.
Week 7 – Tutorial 6: Cost classification / product costing
Question 1
Slap Dash Ltd
The Chief Accountant of Slap Dash Ltd, a company which manufactures three different types of product, has provided the following information for the 12 months to 31 August 2009:
A B C Total
£ £ £ £
Administrative Overheads 700 800 500 2,000
Materials consumed 4,800 3,700 6,500 15,000
Production Overheads 500 600 900 2,000
Sales 10,240 10,800 8,960 30,000
Selling & Dist Overheads 300 400 300 1,000
Wages 1,500 2,500 3,000 7,000
YOU ARE REQUIRED TO:
Provide a statement which reveals the following information for each product:
Prime Cost
Total Cost
Profit
State what use such an analysis may be for management.
Question 2
Elementary Cost Statements
(i) Categorise the following costs of Bravo Limited into:
(a) Direct materials
(b) Direct labour
(c) Direct expenses
(d) Variable factory overhead
(e) Fixed factory overhead
(f) Administration overhead
(g) Variable selling overhead
(h) Fixed selling overhead
The company manufactures and sells furniture, and is also
involved in home extension joinery work
Costs:
Commission payable to sales persons
Joe Smith's wages for assembling job 624 5 hours @ £8 per hour
Rates in respect of Glasgow District sales office
Consultancy fee of independent architect for inspecting and reporting to company on outside job 638
Chief Accountant's salary
Salary of foreman of Manufacturing Department C who acts in a general supervisory capacity
4 litres of paint for job 624
Fire insurance of the factory
Works Canteen Manager's salary
Routine monthly television advertising costs to promote the company's range of products
Electrical power costs for factory machinery
Telephone switchboard operator's wages
Lubricating oil for use by Department C
Depreciation of machine of Production Department D
(ii) Explain your choice of category in each case.
Question 3
Barking Mad Ltd makes two components for speakers using the same equipment and similar processes. They recently conducted a review of costing procedures, based on the last month’s accounts, but have found that the information they were given was flawed and revised figures have been submitted as follows. An extract for last month’s production is shown below.
Product Woofer Product Growler
Direct Material cost per unit £30 £40
Labour hours per unit 2.0 1.0
Labour cost per Hour £10.00 £10.00
Machine hours per unit 1.0 2.0
Production batch size (units) 100 200
Total production and sales of units 5,000 8,000
Number of production set-ups 25 40
Orders handled during period 20 25
Profit as percentage of sales price 30% 30%
Cost item Cost driver rate Cost £
Power and Machine Cost Machine Hours 204,000
Batch Set-up Costs Number of Set-ups 29,500
Production Scheduling Number of Batches 4,500
Packaging Number of Units 19,500
Finishing and Despatching Number of Orders 2,700
Total Overhead Costs 260,200
Required:
Calculate the total sales and production costs for each product and the unit product costs and selling prices for the two products, using the traditional absorption costing system, where the existing production overheads of £260,200 are absorbed based on labour hours. Unit cost per individual expense item is not required.
Calculate the total sales and production costs for each product and the unit product costs and selling prices for the two products where an activity-based approach is used. Unit cost per individual expense item is not required.
Week 8 – Tutorial 7: Cost Volume Profit Analysis
Question 1
Mr H, is considering the possibility of exporting his home brew to mainland UK from the Isle of Barra. To determine the viability of the project he has gathered the following budgeted annual information:-
Selling price per bottle £6.30
Distributors costs per 1,000 bottles £600
Advertising & publicity £22,500
Ingredients to make 1,000 bottles £1,600
Annual salary of shipping manager £21,000
Duty due on each bottle £0.15
UK sales rep: annual salary £25,000
plus commission per bottle £0.25
Required:-
Calculate the profit that would be earned if 30,000 bottles were produced and sold.
On the basis of the above information, how many must be sold to breakeven?
Mr H was initially looking for a target profit of £25,000 in the first year. How many bottles of home brew would he therefore need to sell?
At a meeting to discuss the project, revised figures were considered.
Advertising & publicity £21,000
UK sales rep commission per bottle £0.30
On the basis of this revised information, how many bottles must be sold to achieve a revised profit target of £30,000?
Discuss why Mr H would bother going through the budgeting process before launching his business.
Question 2
James runs a beer club. He buys in four different types of beer from various suppliers and then takes one bottle of beer of each type to make a special case of four beers which he then sells onto the customer.
Purchase cost per case of twelve £
Azzurro 12.00
Perroni 15.00
Grolsch 18.00
Millers 9.00
Selling price per case of four 8.00
Variable selling & distribution costs
per case of four 1.00
Annual fixed costs
Storage 3,000
Wages 1,000
Required:-
Consider each question independently
What is the annual breakeven point in sales revenue and unit sales?
If 6,000 cases were sold in the year, what would James’ profit be?
James thinks that by spending £250 per month on advertising, he could boost his annual sales to 7,500 cases, What would his profit be under this scheme?
The wages are paid to an assistant, Andy, who sells the beer. Andy offers to forego the wages in exchange for a 20p commission for every case sold. If James accepts Andy's offer what would be the annual breakeven point in sales?
If James sets a target profit of £8,000, how many cases must be sold to achieve this figure if
Andy receives his £1,000 wages ?
Andy is paid his 20p commission ?
Question 3
Agasso Ltd manufactured and sold exactly 500 ‘Bomber’ tennis racquets during their last trading period. The full profit details were as follows:
£
Sales 60,000
Direct Materials 22,500
Direct Labour 12,500
Variable Overheads 2,500
Fixed Overheads 14,000 51,500
Profit 8,500
Required:-
How many racquets would Agasso Ltd have had to sell to breakeven?
If the company had wanted a profit of £30,000, how many racquets would they have needed to sell?
The forecast for the next trading period suggests that the direct material costs will increase by 10% but all other costs will remain the same. Agasso Ltd intend to add £2.50 onto the selling price of each racquet to cover the material cost increase.
How many racquets will Agasso Ltd have to sell to breakeven?
The Marketing director has predicted sales of 600 racquets for the next trading period. What will the profit be if the company reach this level of sales?
Discuss the role of cost behaviour in a 'make or buy' decision.
Question 4
You have been asked to organise this year's company dinner dance. Being a good accountant you gather the following information from the local hotel.
Hire of the room £300
Hire of a disco unit £100
Food per person £12
Wine per person £3
Hire of a compere £200
Party poppers per person £1
Reporting back to the Board of Directors, you are asked the following questions before finalising the details.
Required:-
If the ticket prices are set at £20, how many people would we need to make a profit of £300?.
If we fixed the capacity at 250 people, what would the selling price need to be if we wanted to make a profit of £500?
If the ticket prices were £30, the fixed costs increased by 10% andeveryone wanted a steak at £5 extra, how many people would weneed at the dance to breakeven?
If the capacity was 200 people, the selling price £30 and the company wanted a profit of £200, how much could you afford to spend on wine per person?
How does knowledge of cost behaviour help management decide whether or not to discontinue a product line?
Week 9 – Tutorial 8: Short-term decision making
Question 1
In response to unseasonably cold weather the GRAMPIAN HEATSEAL COMPANY has been increasing the output of its main product - insulating material. The resulting material can be marketed in small rolls primarily for domestic use, trade rolls for building trade, and in wallboard "flatpacks".
The cost structures of the three products based on budgeted production equalling budgeted demand are as follows.
Unit Price Costs Domestic Trade Flatpacks
£ £ £
Selling price 6.75 20.00 13.00
Direct materials (cost £1 per kg) 2.00 10.00 3.00
Direct Labour (£4.00 per hour) 1.00 2.00 2.00
Variable overhead 2.00 3.00 2.00
Fixed overhead 2.00 3.00 2.00
Demand for the three products is expected as follows :
Domestic Trade Flatpacks
Units 11,000 6,000 5,000
Direct labour hours available = 7,500
Quarry output raw rock = 1,300,000 Kg
(10 Kg rock produces 1 kg material)
i. If profit maximisation is the main company goal indicate how this can be achieved.
ii. Mining difficulties reduce the availability of raw rock by 28% while an extra 1,200 labour hours becomes available due to lay-offs at a nearby factory - how does this affect production and profit.
Question 2
B Limited makes three products and is reviewing the profitability of its product line. You are given the following budgeted data about the company for the following year.
Product A B C
Sales (units) 100,000 120,000 80,000
£ £ £
Revenue 1,500,000 1,440,000 880,000
Costs:
Material 500,000 480,000 240,000
Labour 400,000 320,000 160,000
Overhead 650,000 600,000 360,000
1,550,000 1,400,000 760,000
Profit / (Loss) (50,000) 40,000 120,000
The company is concerned about the loss on product A. It is considering ceasing production of it and switching the spare capacity of 100,000 units to Product C.
You are told:
All production is sold.
25% of the labour cost for each product is fixed in nature.
Fixed administration overheads of £900,000 in total have been apportioned to each product on the basis of units sold and are included in the overhead costs above. All other overhead costs are variable in nature.
Ceasing production on product A would eliminate the fixed labour charge associated with it and one-sixth of the fixed administration overhead apportioned to product A.
Increasing the production of product C by 100,000 units would mean that the fixed labour cost associated with product C would double, the variable labour cost would rise by 20% and its selling price would have to be decreased by £1.50 in order to achieve the increased sales.
Required:
Prepare a marginal cost statement for a unit of each product on the basis of:
the original budget
if product A is deleted
b) Prepare a statement showing the total contribution and profit for each product group on the basis of:
(i) the original budget
(ii) if product A is deleted
c) Using your results from a) and b) advise whether product A should be deleted from the product range giving reasons for your decision.
Question 3
Scott Ceramics Ltd makes ceramic mouldings for heat exchangers in a highly specialised process. They are at present suffering from a shortage of skilled staff. The budget for the forthcoming year shows the following situation.
MOULDING
Product G2 H7 P11 Z3
PER UNIT (£)
Sales 150 160 210 230
Direct materials 15 13 18 20
Direct labour 5 15 20 40
Factory overhead 30 50 70 80
Selling overhead 30 40 40 30
Administration 18 23 23 18
Profit/(loss) 52 19 39 42
Market demand 1,000 2,000 2,000 1,800
The following information is available:
a. The cost of direct labour is £10 per hour.
b. 80% of the factory overhead charge per unit represents apportioned fixed cost, as does 70% of the selling overhead and 100% of the administration overhead.
c. Since budget was prepared the financial controller has indicated that, due to the skill shortage, the total available direct labour pool for the coming year will cost £100,000 and not as budgeted.
Required:-
i. Prepare a schedule to derive preferential ranking of the above four products and evaluate the maximum contribution for each product given the skill shortage.
ii. Calculate the total profit which would be available to the company in the coming year should the shortage in skilled labour not be overcome.
Question 4
The Balaclava Helmet Company manufactures and sells four types of headgear to the fashion trade. Budgeted sales demand and cost information for the four designs for Period 5 is as follows.
DESIGN
Sebastapol Odessa Scutarl Bosporus
£ £ £ £
Sales price per unit 2.00 7.80 3.40 8.50
Variable costs per unit
Materials 0.50 2.40 1.20 3.60
Labour 0.40 0.60 0.60 1.80
Machine cost 0.40 1.00 0.60 0.80
Selling cost 0.20 1.80 0.60 0.80
Specific fixed costs 4,000 2,000 1,000 3,000
(total £)
Market demand 150,000 120,000 25,000 120,000
The capacity available for production comprises of 4,000 knitting machine hours. Variable machine cost is charged to production at £60 per hour. Fixed costs, in addition to the £10,000 of specific fixed costs above, are as follows.
General establishment costs £200,000
Selling costs £170,000
A Taiwanese subcontractor has offered to manufacture each of these products quoting the following prices for each design delivered on site :
Design
Sebastapol Odessa Scutarl Bosporus
£ £ £ £
1.70 6.00 2.00 6.80
The Balaclava Helmet Company would maintain its own sales operation if the subcontractor was utilised. If inhouse manufacture of any of the products were to cease, specific fixed costs would not be avoided.
Required :
i. Prepare a working schedule to indicate which designs should be manufactured by the company within its capacity limitation.
ii. Calculate the maximum profit which can be achieved by the company during Period 5.
Question 5
The management of Top of the House plc have identified 42,000 machine hours of production capacity during budgeting meetings held to set targets for the year to 31st December 1995. The company manufactures and sells four products, numbers 001, 002, 003, and 004.
Sales forecasts in units for these four products are 5,000, 7,000, 6,000 and 4,000 respectively. No opening or closing stock quantities are envisaged.
Information on product costs has been provided by the management accountant, as follows:
Product per unit 001 002 003 004
£ £ £ £
Direct material 38 44 30 54
Time cost (to cover direct labour cost
and variable factory overhead) 30 45 15 60
Apportioned fixed factory overhead 54 81 27 108
Total factory cost 122 170 72 222
Time cost is charged to products at £10 per machine hour consumed.
The charging rate for fixed factory overhead is intended to recover the 1995 total of such costs in full, but was set, again at a rate per machine hour, on the basis that there would be no lack of internal production capacity.
Plus Electronics Ltd are willing to act as subcontractors to the company, and are quoting the following prices per unit:
001, £89; 002, £107; 003, £69; 004, £129.
Required:
Prepare a work schedule to indicate the most economic course of action available to Top of the House plc as regard utilisation of its own capacity and that of the subcontractor, and show the total costs resulting from your production recommendations.
Week 10 –Tutorial 9: Cash Budgets
Question 1 - MEDAL
You have just recently graduated and are thinking of setting up your first business venture –– selling sweat shirts for the London Olympics. You will buy in the sweat shirts and will purchased machinery to embroider on the Olympic logo .You think that you will get six months of sales from this venture and are confident that there will be a market for a similar product thereafter .However, before rushing into the venture, you decide to prepare a cash budget for the three months, April to June.
Sales
You plan to sell the sweat shirts for £25 each and predicted sales are as follows:
April 900 sweat shirts
May 2,400 sweat shirts
June 6,000 sweat shirts
One third of your sales each month will be for cash. The other two-thirds will be on credit with the customer paying the month after the month of sale.
Purchases
The sweat shirts will be purchased in the month of sale. They will cost you £10 each but your supplier has offered you two month credit terms.
Equipment
To embroider the sweat shirts a £10,000 piece of equipment will be bought and paid for in April. The machine will have a five-year useful life but no expected residual value.
Expenses (£)
April May June
Selling licence 8,000 - -
Delivery costs 200 250 300
Wages 600 800 550
Advertising 300 300 300
General 350 400 500
All expenses will be paid in the month incurred, except for advertising, which will be paid one month in arrears.
Investment
In April, you will invest £20,000 of capital into the venture but reckon you will need to borrow £10,000 from the bank in May to assist with the funding. Interest on the bank loan is to be charged at 12% p.a. and the capital is to be repaid at the end of year 5. Interest is paid in 12 equal instalments at the end of each month.
Any surplus funds can be invested at 3% p.a. calculated on the closing balance of the previous month.
Required:
a) Prepare a cash budget for Medal for EACH of the three months, April – June
b) Discuss why it is important for businesses to monitor their cash
Question 2 – PLAYHOUSE NURSERY
Two of your friends have recently been made redundant and are considering using their redundancy payment to invest in a business running a pre-school nursery. They have asked you to advise them on their plans and have provided you with the following information:
Income
There will be no children for the first three months, then fees of £800 per month will be charged for a half day place and £1500 per month for a full time place. Your friends expect to have 15 full time and 8 part time places occupied in the second quarter with numbers rising to 17 full time and 10 part time in quarter 3 and reaching full capacity of 20 full time and 12 part time by quarter 4. Fees will be paid in advance on the 1st of the month.
Expenditure
Wages
There are strict rules governing staff numbers in this sector and six nursery nurses will eventually be employed at a cost of £16,000 each per annum:
Quarter Cumulative staff employed
1 2
2 5
3 6
4 6
Your friends will be involved in the running of the nursery and intend to withdraw £1500 each per month.
All staff will be paid at the end of the month.
Overheads
Energy costs will amount to £4000 per annum and will be paid evenly at the end of each quarter.
Other general expenditure amounts to £200 per month and will be paid in the month incurred.
Property
The property is to be leased from one of your friends’ parents at a cost of £1500 per month for the first quarter rising to £2000 per month thereafter. The parents have agreed to defer the rental for quarter 1 until quarter 2 to coincide with the receipt of fee income.
Alterations must be made to the premises before it can be used as a nursery. The cost of this is to be met by your friends and it is estimated to be approximately £30,000. This is payable in quarter 1.
Finance
Your friends have £40,000 to put into the business and have also arranged a bank overdraft. The interest on the overdraft is 6% pa payable at the end of each quarter. Interest should be calculated using the closing cash balance at the end of each quarter.
Required:
You have been asked to prepare a quarterly cash flow projection for the year ended 31 December 2011
Week 11 –Tutorial 10: Budgeting
Question 1
You have overheard the following statements regarding budgets and budgeting.
‘A budget is a forecast of what is expected to happen in a business during the next year’.
‘Monthly budgets must be prepared with a column for each month so that you can see the whole year at a glance, month by month’.
‘Budgets are okay but they stifle all initiative. No managers worth employing would work of a business that seeks to control through budgets’.
‘Activity-based budgeting is an approach that takes account of the planned volume of activity in order to deduce the figures to go into the budget’.
‘Any sensible person would start with the sales budget and build up the other budgets from there’.
Required
Critically discuss these statements, explaining any technical terms.
Question 2
You have been appointed as a manager in Bhuird Ltd, a company making one product. The annual profit statement presented to the Board of Directors before your arrival is given below. You decide the statement is misleading and propose to initiate flexible budgetary control.
Profit statement for year to 31 December 200X
Budget Actual Variance
£ £ £
Sales 600,000 630,000 30,000 Fav.
Less: Production cost of sales
Direct material 150,000 155,000 5,000 Adverse
Direct wages 120,000 125,000 5,000 Adverse
Production overhead 100,000 108,000 8,000 Adverse
370,000 388,000 18,000 Adverse
Factory profit 230,000 242,000 12,000 Fav.
Less:
Selling and distribution
overhead 80,000 81,000 1,000 Adverse
Administration overhead 90,000 92,000 2,000 Adverse
Profit 60,000 69,000 9,000 Fav.
Further data available:
Budgeted and actual sales were 200,000 units and 220,000 units respectively.
Opening and closing stocks were the same.
Direct material and direct wages are variable costs.
Production overheads are 25% fixed and 75% variable.
/Selling and distribution overheads are partly fixed and partly semi-variable. The fixed element in the budget is £60,000. The semi-variable costs were budgeted to have the following pattern.
Sales units £
Up to 194,999 18,000
195,000-204,999 20,000
205,000-214,999 23,000
代写留学生论文215,000-224,999 26,000
225,000-234,999 30,000
235,000-244,999 35,000
Administration overheads are fixed.
A standard selling price of £3 was set for the year.
Required
Restate the above profit statement showing a flexible budget column and recalculate the variances.
Write a report to the Managing Director interpreting your revised statement and giving the advantages of flexible budgeting over fixed budgeting for control purposes.
Solution Template
Original Revised Actual Revised
Fixed (Flexible)
Budget Budget Variances
200,000 Sales quantity
£ £ £
600,000 Sales
150,000 Direct Materials
120,000 Direct Labour
100,000 Production Overheads
370,000
230,000 Factory Profits
80,000 Selling Overheads
90,000 Admin Overheads
______
60,000 Operating Profit
Question 3
A company Seil Coach Plc has two operating divisions Bus Division and Train Division.
Each division has submitted plans to invest £8m in new vehicles as follows.
Bus Division Train Division
Amount to be invested £8m £8m
Expected sales per year £4m £4m
Expect net profit £1.44m £0.7m
ROCE of division 16% 4%
before investment
The cost of borrowing for Seil Coach Plc and their required return on capital employed is 10%.
Required:
For Bus division and Train division calculate the ROCE (return on capital employed) for the proposed investment of £8m.
(4 marks)
For Bus division and Train division calculate the residual income (RI).
(8 marks)
Explain what view the manager of each division may take regarding the investment depending on the method of performance evaluation applied. Comment on your answer.
(4 marks)
Explain in terms of the above example the essential objectives of a divisional performance evaluation system. Should Seil Coach plc use ROCE, RI or some other divisional performance indicator?
(9 marks)