Accounting for Managers (ACC00724) S3 2019
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Assessment 2 (20 Marks)
QUESTION 1 (10 Marks)
Several potential investors have been studying the affairs Grafton Pty Ltd to decide whether to invest in the company by purchasing unsecured notes with the company was proposing to issue. The statements of financial position at 30 June 2018 and 2019 follow:
GRAFTON PTY LTD
Statement of Financial Position
As at 30 June
2019 2018
CURRENT
ASSETS $ $
Cash at bank 3,264 2,832
Marketable securities 1,519 1,775
Accounts receivable 1,178 930
Inventories 2,619 1,848
Other
current assets 3,094 3,605
Total Current Assets 11,674 10,990
Non-Current
Assets 19,960 16,276
TOTAL
ASSETS 31,634 27,266
CURRENT
LIABILITIES
Accounts payable 4,880 4,300
Bills payable 1,574 2,555
Current maturities of long-term debt 978 450
Accrued expense 720 728
Provisions 3,420 2,345
Total
Current liabilities 11,572 10,378
NON-CURRENT
LIABILITIES
Long-term debt 5,800 4,160
2019 201
$ $
Accrued expenses (payroll) 5,425 4,730
Other non-current liabilities 2,390 2,055
Total
Non-current Liabilities 13,615 10,945
TOTAL
LIABILITIES 25,187 21,323
TOTAL
EQUITY 6,447 5,943
TOTAL
LIABILITIES AND EQUITY 31,634 27,266
Required:
- Calculate appropriate liquidity and financial stability ratios for the years ended 30 June 2018 and 2019. Research reveals that typical ratios in the industry for the current and quick ratios are 1.7:1 and 1.0:1 respectively. For financial stability ratios the Debt ratio (total liability/total assets) and the Leverage ratio (total assets/total equity), industry averages are 2.5:1 for the leverage ratio and 60% for the debt ratio. (must show your workings/calculations) (5 marks)
- Comment on the liquidity and financial stability of the company, given the information available. (3 marks)
- Would you, as one of the potential investors in unsecured notes, lend money to the company? Explain why or why not (2 marks)
QUESTION 2 (5 Marks)
Dunning Ltd.
manufactures a popular power nail gun suitable for the home renovator.
Financial and other data for this product for the last twelve months are as follows:
Sales 20,000
units
Selling
price $130
per unit
Variable
manufacturing cost $50
per unit
Fixed
manufacturing costs $400,000
Variable
selling and administrative costs $30
per unit
Fixed
selling and administrative costs $300,000.
The directors of
Dunning Ltd. want to try to increase the profitability of this product and
invited senior staff to suggest how this might be done. Three suggestions have
been received.
- The accountant, Jim Jackson,
believes that a price increase of $10 per unit is the best way to boost
profits. He would spend an additional $125000 on national advertising and
contends, that if this is done, sales volume would not drop appreciably from
last year. - The production manager, Tim
Walter, thinks that an improved quality product could increase sales volume by
25% if accompanied by an advertising campaign costing $50000 aimed at
tradespeople as well as home renovators. The improved quality would add $5 per
unit to the variable cost. Mr Walter believes that the price should not be
increased. - The sales manager, Sandy Smith,
wants to undertake a promotion campaign where a $10 rebate is offered on all
nail guns sold during the three months beginning 1 April. Normally 6000 units
are sold during that period and Ms Smith believes that this could be boosted to
10,000 units if an advertising campaign costing $40,000 were launched late in
March.
You have been
asked by the Dunning board to comment on each of these three proposals. Draft a
report in response to this request. You are not asked to make an outright
choice, but rather to analyse the potential strengths and weaknesses of each
proposal by calculating break-even point. The sales volumes forecast by each
staff member should be treated as estimates only and your report should examine
the effects of variations in actual sales from these forecasts and its
respective break-even point. Show your calculations to support your comments
and mention qualitative factors that may also be involved.
QUESTION 3 (5 Marks)
ABC Ltd makes trailers. It receives a
special order to produce 350 trailers for a local retail outlet. The order will
take 2,100 kg of material that costs $16.10 per kg and will require 1,400
direct labour hours and 525 machine hours. The following are the
expected/budgeted annual costs for ABC Ltd:
Direct labour $327,600
Direct labour hours 25,795
Direct materials $193,200
Indirect costs $98,400
Machine hours 9,840
Required:
(must show your calculations/workings)
- Calculate the overhead
allocation rate: note that the process is labour-intensive (1/2 mark)
- Calculate the total costs
of the special order (1 mark) - Calculate the cost of the
special order if ABC Ltd uses machine time as the basis for allocating
overheads (1/2 mark) - Calculate the minimum
price per trailer that ABC Ltd could accept. (1 mark) - Write around 200 words
explaining how segmenting the overheads can help in allocating overhead costs
to individual jobs or services. You must support your discussion by readings
and research and acknowledge the source of your information (referencing). (2
marks)
THE END
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