Questions

Questions

Question 1:

A. contribution margin per unit:

The contribution margin per unit is determined as follows:

CM = P – V, where CM is the contribution margin, P is the price and V is the variable cost

Selling price = $9

Direct labour and ingredient costs = $5

Given that

CM=P–V

Then in our case

CM=$9–$5=$4

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Therefore the contribution margin per unit = $4

Answer: $4

B. contribution margin ratio:

The contribution margin ratio is determined as follows:

Contribution margin ratio = (contribution margin / price) X 100

Therefore in our case

Contribution margin ratio = (4 / 9) X 100 = 44.44%

Therefore the contribution margin is 44.44%

Answer: 44.44%

C. break even point

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The break even point is the point where total revenue is equal to total costs

Total cost = fixed cost + variable cost

Fixed cost = 5,000

Variable cost = 5 X 1500 units = 7,500

Total cost = 5,000 + 7,500 = 12,500

Break even point price:

Total cost = total revenue

And total revenue = units X price

Total revenue = 12,500

Price = 12,500/1500 = 8.33

Therefore the break even point is $8.33

Answer: $8.33

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D. net profit on current sales:

Total revenue = 1500 X 9 = 13500

Total cost = 12500

Total profit = total revenue – total cost

Total profit = 1,000

Answer: $0

E. monthly profit of $2000

Profit = total revenue – total cost

Profit = (price X units) – (fixed costs + variable costs)

Profit = (9 X units) – (5000 + (5 X units))

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2000 = 9u – (5000 + 5u)

2000 = 9u -5000 -5u

7000 = 4u

U = 7000/4

Units = 1750

Answer: 1750 units

Question 2:

Journal entries:

General journal of Don Duo

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Date

Particulars

Debit

Credit

June 30

electricity  expense

$ 180

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electricity  payable

$ 180

June 30

Prepaid  insurance

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$2880

Insurance  expense

$2880

June 30

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Unearned  service revenue

3,000

service  revenue

3,000

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June 30

Salaries  expenses

$1800

salaries  payable

$1800

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June 30

Depreciation  expenses

4200

accumulated  depreciation – office equipment

4200

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June 30

Accrued  service revenue

3,600

service  revenue

3,600

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Trial balance:

Don duo

Adjusted trail balance

June 30 2009

No.

Account title

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Debit

Credit

100

Cash at bank

8,000

104

Accounts  receivable

4,200

112

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Prepaid  insurance

2,880

113

Supplies

1,560

115

Accrued Service  Revenue

3,600

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130

Office equipment

21,000

131

Accum Depn –  Office Equip

4200

200

Account payable

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5400

213

Unearned service  revenue

1800

215

Salaries Payable

1,800

218

Electricity  Payable

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180

300

Capital

26,100

310

Drawings- Don  duo

1,300

400

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Service revenue

16080

500

Salaries expense

6600

505

Supplies Expense

840

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510

Rental expense

1200

515

Insurance  Expense

0

520

Depreciation  Expense

4200

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530

Electricity  Expense

180

600

GST control

3000

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58,560

58,560

Income statement:

Income statement

For the month ended 30 June 2009

Revenue

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16080

Cost of supplies  used

840

Gross profit

15240

Other expenses

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Insurance  Expense

0

Depreciation  Expense

4200

Electricity  Expense

180

Salaries expense

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6600

Rental expense

1200

Total expenses

12180

Net profit

3060

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Question 3:

The best company to invest in is Microsoft, the following are the reason why this is the best option.

1. The sales turnover ratio indicates the number of times a company sells and replaces its inventory in a given period of time; Microsoft has a ratio value of 11 while goggle ratio value is therefore Microsoft a better option given that it can generate more sales in a given period.

2. The Gross profit percentage for Goggle is 89% while Microsoft has a gross profit percentage of 78%, despite goggle having a higher ratio value it is evident that Microsoft will sell more products and therefore the gross profit level will be higher.

3. The Net profit as a percentage of sales ratios for Goggle is 18% while Microsoft value is 20%, therefore per unit sold Microsoft earns more than goggle.

4. the Times interest earned ratio indicates the ability of a company to meet its debts goggle has a ratio value of 23% while Microsoft has a ratio value of 15%, despite Microsoft having a lower ratio it is still evident that compared to the industry this value is considerably high.

5. the Return on equity ratio indicates equity earnings for a given period, Microsoft has a value 36% while goggle has a value 45%, however given that Microsoft will sell more than goggle and

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given that its net profit percentage is higher the 36% will yield higher returns than the 45% return for goggle

6. The Return on assets ratio indicates the level of asset usage in generating income, Microsoft has a ratio value of 24% while goggle is 18% therefore Microsoft manages its assets more effectively than goggle.

Question 4:

Thomas Green

Purchases, cost of goods sold and inventory budget

July –Sep 2009

July

August

September

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Cost of goods sold

sales

45000

60000

55000

Cost of goods sold

31500

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42000

38500

Plus desired ending  inventory

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Next month 40% cost of goods sold

16800

15400

$14,000

12000

12000

12000

12000

ending inventory

28800

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27400

26000

=Total inventory required

60300

69400

64500

Less beginning inventory

24600

28800

27400

=Purchases

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35700

40600

37100

Question 5:

a. Triple bottom line:

Social:

Involves practices that are fair and benefit the community labour and stake holders

Economic:

This refers to value created by a firm and it is important in that it enables a firm to realize profits

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Environment:

This refers to practices that do not harm the environment.

B. business structure:

Hierarchical structure:

Advantage:

Easy to coordinate activities

Disadvantages:

Communication may take longer

Functional structure:

Advantage:

Encourage specialization

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Disadvantage:

Poses coordination problems which may take long

Product structure:

Advantage:

Focuses on market segment and therefore needs of consumers are met

Disadvantage:

Function duplication example several sales departments

C. ethical responsibility of accountant

Competence

Confidentiality

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Not to perform acts that discredits the accounting profession

Question 6:

Bank reconciliation statement:

Bank reconciliation 31

st

Amount

Bank balance 31  august 2009

4,766

Add

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deposit

500

Less

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cherub    1134

550.00

Cherub 1137

160.00

Adjusted bank  balance 31 august 2009

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4556

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Summary of the adjustments to cash at bank 31 august  2009

Cash at bank bal  31 august 2009

4,799

Add

EFT Deposit

300

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Less

DD-QBE Ins

480

Bank fees

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63

Adjusted cash at  bank balance 31 august 2009

4556

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Question 7;

Option A:  upgrading existing facility

Year

0

1

2

3

4

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5

Cash inflows

800,000

900,000

1,000,000

1,100,000

1,200,000

Cash outflows

975,000

350,000

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350,000

450,000

450,000

500,000

Net cash flows

-975,000

450,000

550,000

550,000

650,000

700,000

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Option B: build new facility

Year

0

1

2

3

4

5

Cash inflows

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1,250,000

1,150,000

1,000,000

900,000

800,000

Cash outflows

1,000,000

500,000

450,000

400,000

350,000

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300,000

Net cash flows

-1,000,000

750,000

700,000

600,000

550,000

500,000

a. The payback period is the time taken by an investment to fully payback the amount invested, option A payback period is 2 years and option B payback period is two years

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b. rate of return for options A & B

Option A accounting rate of return = 49.14%

Option B accounting rate of return = 63.42%

c. NPV:

Option A: $849,421

Option B: $1,044,832

d. best option:

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the net cash flow for option A is lower than the net cash flow for option B, for option A the net present value is lower than the investment amount while for option B the net present value is greater than the invested amount, the accounting rate of return for option A is 49.14% which is lower than the accounting rate of return for option B which is 63.42%,for this reason therefore the best investment option will be Option B given that this option has a higher accounting rate of return, a higher net cash flow over the period and a net present value that is greater than the investment amount.

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REFERENCE:

Stickney, C. and Schipper, K. (2006) Financial Accounting: An Introduction to Concepts,

Methods and Uses, New Jersey: Prentice hall press.

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