Calculate the contribution margin per gig

Assignment Help Accounting Basics
Reference no: EM131044585

QUESTION ONE-

PART A:

David Jones is planning a new business venture business called "Stardust Singers". Jones is lead singer of a music group that intends to sing at weddings, birthdays, and other social functions as requested. The constant member of the group is Jones as the lead singer but he usually sings with regular backup instrumentalists/singers drawn from his circle of musician friends. The most regular backing guitarist is his close friend Zoe Zig.

Prior to opening the business he is doing some analysis of his expected costs for a 'gig'.

The average gig is expected to have a two hour duration. Sessional backing singers/vocalists are paid $30 per hour and, including David Jones, the band size is usually four people, and each bring their own instruments as necessary. As these sessional musicians are self- employed contractors there are no additional employment costs. David Jones would have to lease some better quality sound equipment at a cost of $720 per month. David Jones would organise travel to the gig via minibus at an expected cost for the band of $40 per gig. Additionally refreshments for the band per gig amount to $15 for each band member (including Jones). There is also a budget for costumes for Jones of $30 per gig. Insurance costs are $480 per annum. Jones expects to charge $500 per gig and current demand is 10 gigs per month.

Jones will need to give up his current part time job in order to start this business, and he requires the monthly profit to be at least equal to his previous salary of $1,500 per month.

Note: All of these costs are excluding GST and you do not need to consider GST in your calculations for this section.

Required:

1. David Jones is considering two possible business ownership types - a sole trader or a partnership with Zoe Zig. Advise Jones of the comparative advantages and disadvantages of the two ownership structures being considered.

2. Calculate the contribution margin per gig.

3. Calculate the monthly fixed costs.

4. Calculate the number of gigs per month needed to break even (round up to nearest gig if required).

5. Calculate the number of gigs required per month to attain a target profit equal to Jones' previous monthly salary. Will the expected number of gigs be sufficient to achieve this?

6. Alternatively Jones could charge $600 per gig, but he expects that demand will drop to eight gigs per month. Advise him whether this is worth doing or not.

PART B:

Identify aspects of David Jones' proposed business (see Part A) which will require him to use these skills. Identify at least one potential situation for each skill, relevant to Jones' business, where that skill would be useful, and for each one, explain its usefulness in a few sentences.

QUESTION TWO-

Blissful Bubbles imports and sells bottles of flavoured mineral water. Blissful Bubbles has forecast the following sales of bottled mineral water for January - March 2016.

Jan 50,000; Feb 40,000; Mar 30,000 (and it is assumed sales will remain at this level until September 2016).

Actual sales for November and December 2015 were 50,000 and 60,000 bottles respectively.

The average selling price for a bottle of mineral water is $4 and the cost to buy and import them is $1.50. Purchases are paid for in the month following purchase. Sales are 70% cash (to retail customers) and 30% credit (to supermarkets). Credit customers pay 50% in the month following the sales and 50% in the month following that.

Blissful Bubbles has a policy of maintaining a closing stock of bottled water equal to 20% of the following month's sales (in units).

Required:

1. Prepare the sales budget for the quarter January - March 2016 (showing each month and the total for the quarter) and include a schedule of expected cash collections.

2. Prepare the purchases budget for Blissful Bubbles.

3. Why do you think a business plans for an ending inventory level? (1 mark)

QUESTION THREE-

The following are the transactions for June 2016 of Paulina Willcox, a specialist watch repairer working from a workshop at her home.

2 June

Repaired a watch and was paid cash

$120

4 June

Paulina won $2,000 in a lottery and after spending $500 on presents decided to invest the remaining amount in the business and paid the cash into the business bank account

$1,500

6 June

Completed a job for a regular client and sent him an invoice for the work done

$350

14 June

Purchases supplies (parts etc.) on credit

$1,200

15 June

Received $50 from a customer for work previously invoiced in May

$50

16 June

The owner, Paulina Willcox, withdrew cash from the business bank account to buy a birthday present for her husband

$500

23 June

Did repair jobs and received cash

$1,400

23 June

Received a phone bill for the business phone line. Payment is due on 5th  July and the business pays invoices on the day that they are due.

$80

29 June

Completed repairs to a valuable antique watch for a client and sent an invoice

$900

30 June

Received full payment from the customer invoiced on 6th June

 

30 June Adjusting entries needed

Did a stock count of supplies in the store and found that $800 of supplies is remaining, the rest having been used up.

The business needs to record one month's depreciation of the motor vehicle ($60).

 

Note: Paulina is not registered for GST and you do not need to consider GST in your calculations for this section. So please ignore all GST implications.

The ledger accounts of Paulina Wilcox are given below with their balances as at 1st June 2016.

Required:

1. Enter the transactions above in a General journal (including the adjusting entries required on 30th June).

2. Post the journal entries to the General Ledger Accounts.

3. Balance the accounts and prepare a trial Balance as at 30th June.

4. Prepare a Profit and Loss/Income statement for the year ended 30th June 2016.

5. Prepare a Statement of Changes in Owner's Equity for the year to 30th June.

6. Prepare a Balance Sheet as at 30th June 2016.

Note: There is an excel spreadsheet on studydesk which may help you with this question.

Opening General Ledger Balances for Paulina Willcox (see also the spreadsheet on studydesk):

1697_Figure.png

QUESTION FOUR-

Rose Gamgee has just started small florist shop. She has kept basic accounting records for her first month, but so far has never prepared a bank reconciliation statement.

Details of the relevant records that she has kept are as follows:

Rose Gamgee: Cash payments Book

Date

Chq No.

Item

Payment $

June 2016

 

 

 

4

001

Bulky landscaping

$300.00

9

Cash

Drawings by owner

$250.00

13

002

Bouncy Tyres Ltd

$ 90.50

14

003

BP fuel

$ 65.50

18

004

Wages for cleaner

$100.00

26

005

Flower wholesalers

$400.00

28

006

KJ Rentals

$600.00

 

 

TOTAL PAYMENTS

$1,806.00

 

Rose Gamgee:  Cash receipts Book

Date

Rec No.

Item

Payment $

June 2016

 

 

 

1

 

Cash invested by owner

$6,000.00

9

1

Cash sales week 1

$380.00

16

2

Cash sales week 2

$420.50

14

3

Accounts rec. F. Baggins

$ 65.00

23

4

Cash sales week 3

$400.00

30

5

Cash sales week 4

$630.50

30

6

Accounts rec. A. Elf

$100.00

 

 

TOTAL RECEIPTS

$7,996.00

 

Rose Gamgee:  General Ledger

 

Cash at bank account

 

Date

Item

DEBIT

CREDIT

BALANCE

 

June 2016

Receipts

$7,996

 

 

 

 

Payments

 

$1,806

$6,190 Dr

Dr

 

 

 

 

 

 

 

Statement of Account

B. Wolf Bank - Easy Street, Brisbane

Account Number: 10065                                                                                       Page No. 1

Date

Particulars

Debit

Credit

Balance

 

1-Jun-16

Balance forward

 

 

$0

 

2-Jun-16

C/C

 

$6,000.00

$  6,000.00

CR

3-Jun-16

B. Wolf Bank establishment fee

$202.00

 

$  5,798.00

CR

 

Rapacious Insurance Co.

$1,200.00

 

$  4,598.00

CR

9-Jun-16

Cash withdrawal

$250.00

 

$  4,348.00

CR

13-Jun-16

001

$300.00

 

$  4,048.00

CR

 

C/C

 

$380.00

$  4,428.00

CR

17-Jun-16

C/C

 

$420.50

$  4,848.50

CR

20-Jun-16

C/C

 

$65.00

$  4,913.50

CR

21-Jun-16

002

$90.50

 

$  4,823.00

CR

23-Jun-16

004

$100.00

 

$  4,723.00

CR

24-Jun-16

C/C

 

$400.00

$  5,123.00

CR

30-Jun-16

005

$500.00

 

$  4,623.00

CR

 

Interest

 

$2.00

$  4,625.00

CR

 

Fees and charges

$5.00

 

$  4,620.00

CR

Notes:

The correct amount for cheque number 005 is $400.00.

C/C stands for 'cash or cheques'

Required:

1. Explain to Rose what a bank reconciliation statement is and why it is important for her business to prepare one each month. Illustrate your answer with reference to the work you have carried out for part 2 in drawing up her bank reconciliation statement for June.

2. From the following information prepare a bank reconciliation statement for June 2016. You are not required to do the necessary journal entries to adjust the Cash at Bank Account in the General Ledger, but your reconciliation statement should show the steps taken to adjust the cash balance in the business records.

Reference no: EM131044585

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