Reference no: EM132369240
Accounting for Managers Assignment -
QUESTION 1 - The following financial statements were prepared for the management of Morgan Ltd. The statements contain some information that will be disclosed in note form in the general purpose external financial statements to be issued to the investors.
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Morgan Ltd Income Statement For the year ended 30 June 2018
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Revenues (Note 2)
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$850,500
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Expenses, excluding finance costs (Note 4)
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686,700
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Finance costs
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6,300
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Profit before income tax
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157,500
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Income tax expense
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63,000
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Profit
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$94,500
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Morgan Ltd Statement of Financial Position As at 30 June 2018
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Current assets
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Cash and cash equivalents
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$37,800
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Accounts receivables
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$299,250
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Less: Allowance for doubtful debts
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18,900
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280,350
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Inventories
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252,000
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Total current assets
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570,150
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Non-current assets
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Land
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63,000
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Building
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$189,000
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Less: Accumulated Depreciation
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37,800
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151,200
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Store equipment
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47,250
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Less: Accumulated Depreciation
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22,050
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25,200
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Total Non-current assets
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239,400
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Total assets
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809,550
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Current liabilities
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Accounts payables
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270,900
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Preference dividends payable
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3,780
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Ordinary dividends payable
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25,200
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Other current liabilities
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12,600
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Total current liabilities
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312,480
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Non-current liabilities
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Long-term borrowings (Note 5)
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63,000
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Total Non-current liabilities
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63,000
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Total liabilities
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375,480
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Net assets
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434,070
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Equity
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Share capital
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$315,000
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Retained earnings
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119,070
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Total equity
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434,070
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Morgan Ltd Statement of Changes in Equity For the year ended 30 June 2018
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Share capital
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Ordinary:
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Balance at start of period
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$252,000
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Balance at end of period
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252,000
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Preference (Note 6):
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Balance at start of period
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63,000
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Balance at end of period
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63,000
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Total share capital
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$315,000
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Retained earnings
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Balance at start of period
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$53,550
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Total profit for the period
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94,500
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Dividends - preferences
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(3,780)
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Dividends - ordinary
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(25,200)
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Balance at end of period
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$119,070
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Notes to the financial statements
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Note 2: Revenue
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Sales
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$850,500
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Note 4: Expenses
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Cost of sales
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567,000
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Selling and distribution expenses
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89,000
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Administration expenses
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30,700
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Note 5: Long-term borrowings
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10% mortgage payable
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63,000
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Note 6: Preference shares
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6% preference shares
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63,000
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Additional information:
1. The balance of certain accounts at the beginning of the year are:
Accounts receivables $315,000
Allowance for doubtful debts (26,350)
Inventories 220,500
2. Total assets and total equity at the beginning of the year were $756,000 and $368,550 respectfully.
REQUIRED:
A. Name the ratios that a financial analyst might calculate to give some indication of the following cases:
1. A company's earning power.
2. The extent to which internal resources have been used to finance acquisition of assets.
3. Rapidity with which accounts receivables are collected.
4. The ability of the entity's earnings to cover its interest commitments.
5. The length of time taken by the business to sell its inventories.
B. Calculate and briefly discuss the suitability of the ratios mentioned for each of the above cases.
C. Given the above financial statements, comment on the company's profitability and liquidity.
QUESTION 2 - Koala Bear Day-care provides day-care for children from Mondays through Fridays. Its monthly variable costs per child are:
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Lunch
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$100
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Educational supplies
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75
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Other supplies (paper products, toiletries, etc.)
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25
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Total
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$200
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Monthly fixed costs consist of:
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Rent
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$2,000
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Utilities (electricity, water, telephone expenses)
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300
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Insurance
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300
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Salaries
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2,500
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Miscellaneous
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500
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Total
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$5,600
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Koala Bear charges each parent $600 per child.
REQUIRED:
A. Calculate the break-even point.
B. Koala Bear's target profit is $10,400 per month, calculate the number of children who must be enrolled to achieve the target profit.
C. Koala Bear lost its lease and had to move to another building. Monthly rent for the new building is $3,000. At the suggestion of parents, Koala Bear plans to take children on field trips. Monthly costs of the field trips are $1,000. By how much should Koala Bear increase fees per child to meet the target profit of $10,400, assuming the same number of children as in requirement B?
D. How can a company with multiple products calculate its break-even point? Discuss and support your discussion by readings and research.
QUESTION 3 - Lennox Company uses a job costing system. The company uses predetermined overhead rates in applying manufacturing overhead costs to individual jobs. The predetermined overhead rate in Department A is based on machine-hours, and the rate in Department B is based on direct labour cost. At the beginning of 2018, the company's management has made the following estimates for the year:
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Department A
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Department B
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Direct labour-hours
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15,000
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30,000
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Machine-hours
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50,000
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12,000
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Direct labour cost
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$80,000
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$172,000
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Manufacturing overhead
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162,500
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215,000
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Job 145 was initiated into production on August 1 and completed on September 15. The company's cost records show the following information on the job:
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Department A
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Department B
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Direct labour-hours
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22
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40
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Machine-hours
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80
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20
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Direct material used
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$450
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$250
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Direct labour cost
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120
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180
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REQUIRED:
A. Calculate the predetermined overhead rates that should be used during 2014 in Department A and B.
B. Calculate the total overhead cost applied to job 145.
C. What would be the total cost of job 145? If the job contained 10 units, what would be the cost per unit?
D. What factors should be considered in selecting a base to be used in calculating the overhead absorption or recovery rates? Discuss. Your discussion should be supported by readings and research.
Note - Please follow all the instructions and answer all the questions required.