Reference no: EM133064784

Financial And Managerial Accounting

Assignment:

Question 1. On March 1, 2002, Tahir Muktar, a famous businessman in Addis, opened a business named "Universal Garage" which is organized as a sole proprietorship. The business is established to render car repair, maintenance and related services for fees. Below are chart of accounts for and selected transactions completed by Universal Garage in March 2002.

a) Chart of accounts

Universal Garage Chart of Accounts

100 ASSETS   110 CURRENT ASSETS     111 Cash     112 Accounts Receivable     114 Supplies     116 Prepaid Rent     117 Prepaid Insurance  120 PLANT ASSETS    121 Land    123 Machinery    123.1 Accumulated Depreciation-Machinery    125 Office Equipment 125.1 Accumulated Depreciation-Office Equipment   200 LIABILITIES   210 CURRENT LIABILITIES     211 Account Payable     213 Salaries Payable     216 Interest Payable  220 NON-CURRENT LIABILITIES    221 Long-term Bank Loan

300 OWNER'S EQUITY        301 Tahir, Capital        302 Tahir, Drawings        303 Incomes Summary   400 REVENUES         401 Fees Earned         410 Other Income   500 EXPENSES         501 Salary Expenses         502 Supplies Expenses         503 Rent Expenses         504 Insurance Expenses         505 Depreciation Expenses         506 Interest Expenses         510 Miscellaneous Expenses

b) Transactions
Mar 1 Received the following assets from its owner, Tahir:
Cash....................................... Br, 8,300
Supplies ................................. 2,000
Office Equipment................... 10,000
2 Borrowed Br 5,000 from Dashen Bank
3 Paid Br 1,800 for rent on a building leased for business purposes
3 Purchased welding and other repair machinery for Br 3,600 cash
4 Paid Br 200 for a radio advertisement
8 Sold for Br 200 cash an old office equipment with a recorded cost of Br 200
13 Paid weekly salary Br 1,200
16 Received Br 4,400 from services rendered on cash
20 Paid weekly salary Br 1,200 include transactions for other income
20 Delivered service on credit, Br 6,000
21 Purchased additional repair machinery on account for Br 2,000 from Sámi-Engineers
23 Received Br 5,000 additional cash investment from its owner
24 Repaid Br 1,000 bank loan and paid Br 100 interest on bank loan
26 Purchased supplies for Br 800 cash
27 Paid Br 100 for customer entertainment and other items
27 Paid weekly salary Br 1,200
31 Paid Br 500 for electricity and other utilities consumed during the month
31 Received Br 4,200 cash from credit customers
31 Paid Tahir Br 1,800 for personal uses

Required:
a) Journalize the above transactions in a two-column journal

b) Post the journal entries to "T" accounts

c) Prepare and complete a worksheet based on the following additional information
i. Cost of supplies remained unconsumed on Mar 31 is Br 900
ii. The amount paid on Mar 3 is for a three-month rent
iii. The amounts of depreciation for machinery and office equipment are estimated to be Br 560 and Br 1,900 respectively
iv. Universal Garage usually pays Br 1,200 for employee's salary every saturday for a six-day work week ended on that day
v. Interest on bank loan accrued but not paid on March 31 total Br 100

d) Prepare financial statements for the month

e) Journalize and post adjusting entries

f) Journalize and post closing entries

g) Prepare post-closing trial balance

Question 2. Consider the following details of the income statement of Samson Company for the year just ended December 31, 20 x 3.

Sales (1,000,000 units)	Br. 20,000,000
Manufacturing cost of goods sold	15,000,000
Gross margin	Br. 5,000,000
Selling and administrative expenses	4,000,000
Operating income	Br. 1,000,000

Samson's fixed manufacturing costs were Br. 3 million and its fixed selling and administrative costs were Br. 2.9 million.

Near the end of the year, Ethio Company offered Samson Br. 13 per unit for 100,000 unit special order. The special order would not affect Samson's regular business in any way. Furthermore, the special sales order would not affect total fixed costs and would not require any additional variable selling and administrative expenses.

Instruction: Should Samson accept or reject the special order? By what percentage the operating income decreases or increases if the order had been accepted? Assume that the company would utilize its idle manufacturing capacity to accept the special order.

Question 3. Lucy Company has the capacity to produce 15,000 units per month. Current regular production and sales are 10,000 units per month at a selling price of Br. 15 each. Based on the current production level, the following costs are to be incurred per unit:

Direct materials	Br. 5.00
Direct labor	3.00
Variable factory overhead (FOH)	0.75
Fixed FOH	1.50
Variable selling expense	0.25
Fixed administrative expense	1.00

Lucy Company has received special order from a customer that wants to purchase 4,000 units at Br. 10 each. There would be no selling expense in connection with this special order.

Instructions:
a. Should Lucy Company accepts or rejects the special order? Why or Why not? Assume that the special order should not disturb regular business.
b. Suppose that the special order was for 8,000 units instead of 4,000 units. Thus, regular business would be reduced by 3,000 units to accept the special order because production capacity cannot be expanded in the short run. What would be the overall profit of the firm if it accepts this order?
c. Refer the data given in requirement (b) above. At what selling price per unit from the customer would the Lucy Company be economically indifferent between accepting and rejecting the offer?

Question 4. ABC Company makes and sells 10,000 units of a certain product. The total manufacturing cost of goods made is Br400, 000. Suppose XYZ Company offered Br38 per unit for 1,000 units special order that:
• Would not affect the regular business in any way
• Would not affect fixed costs
• Would not require any additional variable selling and administrative expenses
• Would use some other wise idle manufacturing capacity
Required
Should ABC Company accept the special order?

The income statement of the company for the most recent period is given below:

Sales-------------------------------------------------------------500,000

Variable costs

Manufacturing----------------------------360,000

Selling and admin-------------------------30,000-----------390,000

Contribution margin-----------------------------------------110,000

Fixed costs

Manufacturing------------------------------40,000

Selling and admin--------------------------50,000-----------90,000

Operating income----------------------------------------------20,000

Question 5. Wajo Company has two products: a plain cellular phone and a fancier cellular phone with many special features. Unit data follow:

	Plain Phone	Fancy Phone
Selling price	Br.80	Br.120
Variable costs	64	84
Contribution margin	Br.16	Br.36
Contribution margin ratio	20%	30%

Instructions:
a. Which product is more profitable? On which should the firm spend its resources? Assume that sales are restricted by demand for only a limited number of phones.
b. Now suppose that annual demand for phones of both types is more than the company can produce in the next year and the major constraint is the availability of time on a processing machine. Plain Phone requires one hour of processing on the machine, Fancy Phone requires three hours of processing. Which product is more profitable? Assume that only 10, 000 machine hours of capacity are available.

Question 6. Great Company manufactures 60, 000 units of part XL-40 each year for use on its production line. The following are the costs of making part XL-40:

                                                             Total Costs                             Cost per

                                            60, 000 units                            unit

Direct material                                    Br.  480, 000                                Br.8

Direct labor                                            360, 000                                     6

Variable factory overhead (FOH)         180, 000                                       3

Fixed FOH                                             360, 000                                      6

Total manufacturing costs                   Br. 1, 380, 000                                    Br.23

Another manufacturer has offered to sell the same part to Great for Br.21 each. The fixed overhead consists of depreciation, property taxes, insurance, and supervisory salaries. The entire fixed overhead would continue if the Great Company bought the component except that the cost of Br. 120, 000 pertaining to some supervisory and custodial personnel could be avoided.

Instructions:
a) Should the parts be made or bought? Assume that the capacity now used to make parts internally will become idle if the pats are purchased?
b) Assume that the capacity now used to make parts will be either (i) be rented to near by manufacturer for Br. 60, 000 for the year or (ii) be used to make another product that will yield a profit contribution of Br. 250,000 per year. Should the company purchase them from the outside supplier?

Question 7. Assume that a division of Leranso Company makes an electric component for its speakers. The management is trying to decide whether the division of the company should manufacture this component part or purchase it from another manufacturer.

The following are production costs for 100,000 units of the component for the forth-coming year.

Direct material                                                                                   Br.500, 000

Direct labor                                                                                200,000

Factory overhead

Indirect labor                   Br. 32,000

Supplies                                             90,000

Allocated occupancy costs            50,000                                172,000                          

Total cost                                                                                        Br.872, 000

A small local company has offered to supply the components at a price of Br.7.80 each. If the division discontinued the production of its components it would save two thirds of the supplies cost and Br.22, 000 of indirect labor cost. All other overhead costs would continue regardless of the decision made.
Instruction: Should the parts be made or bought? Assume that the capacity now used to make the parts will become idle if they are purchased from outside.

Question 8. Assume that the following data relate to Muna Company to make 10,000 units of product-X.
Total cost Unit costs
Direct material---------------------------------------40,000 4
Direct labor-------------------------------------------160,000 16
FOH-Variable----------------------------------------80,000 8
FOH-Fixed ----------------------------------------160,000 16
Total----------------------------------------------------440,000 44
• An other manufacturer offers to sell Muna Company the same part for Br40 per unit..
• Note that Br40, 000 of the fixed cost will be eliminated if the parts are bought instead of made and released facilities will be left idle.
Required: Should the company make or buy the part?
• Assume that the released facilities can be used for other purposes say:
• In some activity to generate a contribution to profit of Br110, 000
• Renting out for Br70,000
Required: Which alternative is the best alternative?

Attachment:- Financial And Managerial Accounting.rar