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Accounting for Managers ACC00724


Accounting for Managers (ACC00724) S2, 2019

Assessment 2 (20 Marks)

QUESTION 1 (10 Marks)

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.

Morgan Ltd

Income Statement

For the year ended 30 June 2018

Revenues (Note 2)                                                                          $850,500

Expenses, excluding finance costs (Note 4)                            686,700

Finance costs                                                                                           6,300


Profit before income tax                                                                157,500

Income tax expense                                                                           63,000


Profit                                                                                                     $ 94,500              


Morgan Ltd

Statement of Financial Position

As at 30 June 2018

Current assets

Cash and cash equivalents                                                                           $ 37,800

Accounts receivables                                                     $299,250

  Less: Allowance for doubtful debts                            18,900



Inventories                                                                                                         252,000


Total current assets                                                                                        570,150


Non-current assets

Land                                                                                                                      63,000

Building                                                                                $189,000

  Less: Accumulated Depreciation                                  37,800

                                                                                                _________        151,200

Store equipment                                                             47,250

  Less: Accumulated Depreciation                             22,050

                                                                                                _________        25,200


Total Non-current assets                                                                              239,400


Total assets                                                                                                        809,550


Current liabilities

Accounts payables                                                                                          270,900

Preference dividends payable                                                                       3,780

Ordinary dividends payable                                                                           25,200

Other current liabilities                                                                                    12,600


     Total current liabilities                                                                            312,480


Non-current liabilities

Long-term borrowings (Note 5)                                                                 63,000


Total Non-current liabilities                                                                       63,000


Total liabilities                                                                                                 375,480


Net assets                                                                                                           434,070



Share capital                                                                                                      $315,000

Retained earnings                                                                                             119,070


Total equity                                                                                                       434,070


Morgan Ltd

Statement of Changes in Equity

For the year ended 30 June 2018

Share capital


Balance at start of period                                                                             $252,000


Balance at end of period                                                                                 252,000


Preference (Note 6):

Balance at start of period                                                                                63,000


Balance at end of period                                                                                  63,000


Total share capital                                                                                            $315,000


Retained earnings

Balance at start of period                                                                               $53,550

Total profit for the period                                                                                94,500

Dividends – preferences                                                                                                  (3,780)

Dividends – ordinary                                                                                        (25,200)
Balance at end of period                                                                               $119,070

Notes to the financial statements

Note 2: Revenue

                Sales                                                                                                      $850,500

Note 4: Expenses

                Cost of sales                                                                                       567,000

                Selling and distribution expenses                                               89,000

                Administration expenses                                                               30,700

Note 5: Long-term borrowings

                10% mortgage payable                                                                  63,000

Note 6: Preference shares

                6% preference shares                                                                    63,000

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

  • Total assets and total equity at the beginning of the year were $756,000 and $368,550 respectfully.


  1. Name the ratios that a financial analyst might calculate to give some indication of the following cases: (2 Marks)
  2. A company’s earning power
  3. The extent to which internal resources have been used to finance acquisition of assets
  4. Rapidity with which accounts receivables are collected
  5. The ability of the entity’s earnings to cover its interest commitments
  6. The length of time taken by the business to sell its inventories
  7. Calculate and briefly discuss the suitability of the ratios mentioned for each of the above cases. (6 Marks)
  8. Given the above financial statements, comment on the company’s profitability and liquidity. (2 Marks)

QUESTION 2 (5 Marks)

Koala Bear Day-care provides day-care for children from Mondays through Fridays. Its monthly variable costs per child are:

Lunch                                                                                                                    $100

Educational supplies                                                                                           75

Other supplies (paper products, toiletries, etc.)                                     25


Total                                                                                                                      $200


Monthly fixed costs consist of:

Rent                                                                                                      $2,000

Utilities (electricity, water, telephone expenses)                                   300

Insurance                                                                                                300

Salaries                                                                                                   2,500

Miscellaneous                                                                                        500


Total                                                                                                      $5,600


Koala Bear charges each parent $600 per child.


  1. Calculate the break-even point. (1 Marks)
  2. Koala Bear’s target profit is $10,400 per month, calculate the number of children who must be enrolled to achieve the target profit (1 Marks)
  3. 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? (1 Marks)
  4. How can a company with multiple products calculate its break-even point? Discuss and support your discussion by readings and research. (2 Marks)

QUESTION 3 (5 Marks)

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:

                                                                        Department A             Department B

Direct labour-hours                                        15,000                         30,000

Machine-hours                                                50,000                         12,000

Direct labour cost                                           $80,000                       $172,000

Manufacturing overhead                                162,500                         215,000

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:

                                                                        Department A             Department B

Direct labour-hours                                        22                                40

Machine-hours                                                80                                20

Direct material used                                       $450                            $250

Direct labour cost                                           120                              180


  1. Calculate the predetermined overhead rates that should be used during 2014 in Department A and B. (1 Marks)
  1. Calculate the total overhead cost applied to job 145. (1 Marks)
  2. What would be the total cost of job 145? If the job contained 10 units, what would be the cost per unit? (1 Marks)
  3. 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. (2 Marks)