Reference no: EM131692898

Learning outcome:

Financial Processes
- Develop financial strategies.
- Identify opportunities to improve financial performance.
- Analysis and Interpretation
- Analyse and interpret an entity's financial report

ASSIGNMENT INSTRUCTIONS

For this assignment you will provide answers and calculations for all parts A, B, and C. You are required to engage in some research into the theories underpinning accounting practices in order to successfully complete this assignment. You will have to substantiate your findings by referencing to source materials including your textbook and Study Guide where needed.

Part A

1) ‘Miriam's Munchies' prepares lunches for sale each day, 6 days a week, from Miriam's lunch bar.
The variable costs to make each lunch average $2.50 per lunch.
The average sale price for each lunch is $8.70.
Miriam's weekly fixed costs (advertising, rates, mortgage interest and others) total $310 per week.
a) What is Miriam's average contribution margin per lunch?
b) Calculate the average number of lunches Miriam must make and sell each week to break even.
c) Miriam has a target profit of $2,400 per week. How many lunches must she sell on average each week to achieve this goal?

2) Miriam's sister also has a business called Jasmine's Munchies' that prepares lunches for sale each day, 5 days a week, from Jasmine's lunch bar.
The variable costs to make each lunch average $3.00 per lunch.
The average sale price for each lunch is $8.99.
Miriam's weekly fixed costs (advertising, rates, mortgage interest and others) total $410 per week.
a) What is Miriam's average contribution margin per lunch?
b) Calculate the average number of lunches Miriam must make and sell each week to break even.
c) Miriam has a target profit of $3,100 per week. How many lunches must she sell on average each week to achieve this goal?

Part B

1) Miriam's Income Statement for the previous (20X1) year was as follows:

a) Calculate the variances from budget (and designate as favourable or unfavourable).

b) Explain possible reasons for the 3 most significant revenue or expense item budget variances (ignore profit and subtotal variances).

2) Jasmine's Income Statement for the previous (20X1) year was as follows:

a) Calculate the variances from budget (and designate as favourable or unfavourable).
b) Explain possible reasons for the 3 most significant revenue or expense item budget variances (ignore profit and subtotal variances).
In addition to this please explain a possible reason for the telephone and internet variance.

Part C

1) The following financial statements are for Rupert's Appliances, a sole trader, for the years ending 31 March 20X3, 20X4 and 20X5.

NB: Average market Accounts Receivable for this type of business is 30 days.

Other information:

The bank overdraft limit is $20,000.
The mortgage is due for repayment in 20X7.

a) Identify the formula and explainin detail what each of the following ratios measure or mean: (You are not required to interpret the results from the financial statements at this point.)
i) Net profit %,
ii) Return on equity %,
iii) Inventory turnover (days),
iv) Accounts receivable turnover (days),
v) Liquidity ratio (= Quick ratio), Debt ratio %.

b) Calculate the following ratios for the 20X3 (if applicable), 20X4, and 20X5 years. Show a full breakdown of your calculations (formula, calculations and answers).
i) Gross profit %,
Net profit %,
Return on equity %
ii) Inventory turnover (times per year),
Inventory turnover (days)
iii) Accounts receivable turnover (times per year),
Accounts receivable turnover (days)
iv) Current ratio,
Liquidity ratio,
Equity ratio %.

c) Comment on the ratios calculated above, and the financial statement results for Rupert's Appliances during the years 20X3-20X5 inclusive, in the following areas:
- Profitability (question b) i) above)
- managerial performance (question b) ii) and iii) above)
- financial stability (question b) iv) above).

d) Recommend to Rupert what you consider to be the 6 most important things to do to correct his financial position and performance. Justify your reasons with full explanations using the information above over the 3 years and carrying out further research as required. Take into account the type of business, performance in today's market, and being proactive to future market trends.

2) The following financial statements are for Sioux Appliances, a sole trader, for the years ending 31 March 20X3, 20X4 and 20X5.

NB: Average market Accounts Receivable for this type of business is 30 days.

Other information:
20X2 Accounts receivable were 52,000
20X2 Inventory were 19,000
20X2 Total assets were 360,000
20X2 Sales were 490,000
The bank overdraft limit is $20,000.
The mortgage is due for repayment in 20X7.

a) Identify the formula and explainin detail what each of the following ratios measure or mean: (You are not required to interpret the results from the financial statements at this point.)
i) Net profit %,
ii) Return on equity %,
iii) Inventory turnover (days),
iv) Accounts receivable turnover (days),
v) Liquidity ratio (= Quick ratio), Debt ratio %.

b) Calculate the following ratios for the 20X3 (if applicable), 20X4, and 20X5 years. Show a full breakdown of your calculations (formula, calculations and answers).
i) Gross profit %,
Net profit %,
Return on equity %,
ii) Inventory turnover (times per year),
Inventory turnover (days)
iii) Accounts receivable turnover (times per year),
Accounts receivable turnover (days)
iv) Current ratio,
Liquidity ratio,
Equity ratio %.

c) Comment on the ratios calculated above, and the financial statement results for Sioux's Appliances during the years 20X3-20X5 inclusive, in the following areas:
- Profitability (question b) i) above)
- managerial performance (question b) ii) and iii) above)
- financial stability (question b) iv) above).

d) Recommend to Sioux what you consider to be the 6 most important things to do to correct his financial position and performance. Justify your reasons with full explanations using the information above over the 3 years and carrying out further research as required. Take into account the type of business, performance in today's market, and being proactive to future market trends.