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BU 1 002 / 1902 Accounting for Decision Making
Formal Exams CBLG TR??? 20???
Sample Examination
Question 1 (11 marks)
The financial statement balances presented below are for Wellington Design Services for the end of the financial year, 30 June 2019:
| Accounts payable | $1 1,000 |
| Accounts receivable | 9,8 00 |
| Accumulated depreciation - building | 1 4 ,000 |
| Administrative expenses | 1 ,250 |
| Advertising incurred | 1 ,200 |
| Advertising payable | 1 ,200 |
| Bank loan | 1 10,000 |
| Building | 1 40,000 |
| Capit al | 1 63,000 |
| C ash | 25,000 |
| Depre ciation | 7,00 0 |
| D rawings | 1 0 ,200 |
| E lectricity | 2 ,800 |
| Fees revenue | 1 70,000 |
| I nventory | 20,000 |
| L and | 1 20,000 |
| Motor vehicle expenses | 20,000 |
| Other expenses | 38, 000 |
| Overhead expense | 9,4 00 |
| Rent revenue | 50, 000 |
| Rent revenue received in advance | 2 ,000 |
| Salaries expense | 40, 000 |
| Supplies used | 20,000 |
Required:
a) Prepare a Statement of Profit or Loss for Wellington Design Services at 30 June 2019. (8 marks)
b) Discuss how management would use a Statement of Profit or Loss to assist in their decision making. (3 marks)
(8 + 3 = 11 marks)
Que stion 2 (11 marks)
The financial information for Archer Pty Ltd at 30 June 2019 is presented below:
| Cash at beginning - bank overdraft | $ (25,000) |
| Cash paid to Suppliers | 456 ,000 |
| Cash receipts from customers | 6 84,000 |
| Credit purchases of inventory | 1 44,000 |
| Credit sales | 33 6,000 |
| Depreciation of motor vehicles | 9,6 00 |
| Depreciation of plant and equipment | 48, 000 |
| Dividends paid | 1 10,400 |
| Expenses paid | 1 05,600 |
| Interest paid | 1 ,500 |
| Loan repayment | 8,0 00 |
| Loss on sale of motor vehicle | 7,20 0 |
| Net profit | 261,60 0 |
| Proceeds from sale of equipment | 36, 000 |
| Proceeds from sale of motor vehicle | 28,800 |
| Proceeds of share issue | 60 ,000 |
| Profit on sale of equipment | 96, 000 |
| Purchase of property , plant and equipment | 1 20,000 |
| Salaries paid | 48, 000 |
Requir ed :
a) Prepare a Statement of Cash Flow Archer Pty Ltd for the 30 June 2019 and determine the final balance of the cash at bank. (8 marks)
b) The CEO of Archer Pty Ltd reviewed the Statement of Cash Flows prepared by the company’s accountant. He was concerned that the statement shows a net outflow for investing activities. Evaluate if negative cash flows from investing activities should be a cause of concern for management and advise when the CEO should be alarmed by the certain results in the Statement of Cash Flows. (3 marks)
(8 + 3 marks = 11 marks)
Question 3 (11 marks)
Brockbank Builders Ltd is preparing a cash budget for months of May and June in 2019. Past records reveal that 20% of all credit sales are collected during the month of sale, 60% in the month following the sale and the balance remaining in the second month following the sale.
The company pays for 75% of purchases in the month after purchase, and the balance is paid in the month following that.
Selling expenses amount to $6,600 per month. Administrative expenses are estimated to be $13,200 per month, which includes $4,800 of depreciation expense. Finance expenses are $1,200 per month. All selling and distribution, administrative, and finance and other expenses (except depreciation) are paid for when incurred.
It is planned to purchase equipment during May 2019 at a cost of $8,500. A $15,000 loan payable will be repaid during June 2019. The interest due at maturity will be $2,650. The company’s expected Cash at Bank balance on 1 May 2019 is $13,500.
Estimated sales and purchases data are as follows:
| 20 19 | Credit Sale s | Credit Purc hases |
| March | 66 ,000 | 33, 000 |
| A pril | 88 ,000 | 65 ,000 |
| M ay | 60 ,500 | 27,500 |
| J une | 71,5 00 | 38, 500 |
Requir ed :
a) Prepare a cash budget for the months of May and June. (8 marks)
b) Review the cash budgets you prepared for Brockbank Builders Ltd in Question 5. Briefly advise if Brockbank Builders Ltd will need to obtain additional financing at the end of June 2019. If additional finance is required, recommend two suitable sources of finance. (3 marks)
(8 + 3 = 11 marks)
Ques tion 4 (11 marks)
MaxiMac Enterprises manufactures 'The Kitchen Wizz'. Data relating to the production of 'Kitchen Wizz' for 2019 was as follows:
| Annual volume in units | $ 32,000 |
| Selling price per unit | $60 |
| Variable manufacturing cost per unit | $28 |
| Annual fixed manufacturing costs | $120,000 |
| Variable marketing and distribution costs per unit | $12 |
| Annual fixed non - manufacturing costs | $360,000 |
Requir ed :
a) Calculate the contribution margin in dollars and the contribution margin ratio for 2019. (2 marks)
b) Calculate the break-even in units and in sales dollars for 2019. (2 marks)
c) Calculate the number of 'Kitchen Wizz' units that would need to be sold in order to make a profit of $45,000. (2 marks)
d) One of the machines involved in the manufacturing process broke down. While MaxiMac can continue production, it cannot maintain the current annual production of 32,000 units. Maximum productive capacity with the machine offline is estimated to be 28,000 units. Until the machine returns to its productive capacity, the annual fixed manufacturing costs will decline by $20,000. How will this impact on MaxiMac’s break- even point and potential for profit? Justify and provide calculations if required. (2 marks)
e) A business owner stated “I am in business to make a profit, I am not interested in merely breaking even” . Discuss how break-even analysis is an important analysis tool for any business. (3 marks)
(2 + 2 + 2 + 2 + 3 = 11 marks)