Exam 1 2015, questions PDF

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Swinburne Business School Swinburne University of Technology ACC10007 Financial Information for Decision Making Sample Final Examination 1 Weighting: 50% of total assessment Time allowed: 3 hours Reading time: 10 minutes Instructions: Please attempt ALL questions Please answer all questions in the a...

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Swinburne Business School Swinburne University of Technology

ACC10007 Financial Information for Decision Making

Sample Final Examination 1

Weighting: 50% of total assessment Time allowed: 3 hours Reading time: 10 minutes Instructions: Please attempt ALL questions Please answer all questions in the answer booklet provided. Good luck

Question 1 1

Roscommon Industries Balance Sheet as at 30th June 2014 and 2015 2014 $ Current Assets Bank Accounts receivable Less Allowance for doubtful debts Stock Prepaid expense - Rent Non Current Assets Vehicle Less Accumulated depreciation Building

Total Assets Current Liabilities Accounts payable Accrued expense - Wages Bank overdraft Equity Capital Retained earnings at beg. Add Net profit Less Drawings Total Equity Total Liabilities and equity

2015 $

16,600 23,400 -24,400 -64,400

468 30,400 10,000 89,332

50,600 -20,000 70,600

50,600 7,590 20,000 68,010

135,00 0

157,342

37,200 --37,200

34,200 1,720 400 36,320

50,000 47,800 --

50,000 47,800 64,222 (46,000 )

-97,800 135,00 0

-49,400

116,022 157,342

2

Profit or Loss Statement for the year ended 30 June 2015 $

$

Sales

506,000

Less cost of goods sold

304,000

Gross profit

202,000

Less expenses Van running expenses

35,000

Electricity

5,400

Depreciation

7,590

Doubtful debt expense

468

Wages expense

34,320

Premise rent expense

55,000

Total expenses

137,778

Net Profit 64,222 Required: Prepared a statement of cash flows for Roscommon Industries for the year ended 30th June 2015.

3

QUESTION 2 Part A Define the following terms a) Stepped fixed costs b) Semi-variable costs c) Contribution margin ratio Part B State four underlying assumptions for cost-volume-profit analysis Part C Alpha Company produces a single product. It sold 5 000 units last year with the following results Sales

$ 125,000

Variable Costs

90,000

Fixed Costs

28,000

Profit before Tax

$

Tax 30% Profit After Tax

7,000 2,100

$

4,900

Required a) b) c) d) e)

Calculate contribution margin per unit Calculate contribution margin ratio Calculate the company’s break-even point in units Calculate the company’s break-even point in sales dollars If the business wants to make a PBT = $10,500 how many units would it have to sell?

Part D a) In your own words explain what Break-even analysis means, and why it is important to a business.

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Question 3 Lewis Toy Company manufactures stuffed animals in house. An outside supplier Nguyen Company has offered to supply the stuffed animals at $22 each. Lewis Toy Company requires 10,000 stuffed animals each year. The total manufacturing product costs of the stuffed animals are as follows: Item Price per unit

Product $32

Variable costs per unit Direct material

$12

Direct labour

$ 6

Variable overhead

$ 2

Fixed overhead costs per unit

$ 3

Total unit costs

$23

The fixed overhead is an allocated expense that relates to the rent of the factory. The rent would still be incurred regardless of whether the stuffed animals are made or outsourced to Nguyen. Required: a) b) c) d)

What are the alternatives Lewis Toy Company has in relation to sourcing its product? List the relevant costs for each alternative? What is the total relevant cost for each alternative? Based on your answer to c) above, should Lewis Toy Company continue to make the product or buy it from Nguyen Company? Explain e) Give an example of an irrelevant cost in this decision and explain why it is irrelevant f) What are the relevant costs in a decision making context? g) What is meant by a limiting factor (scare resource). Give two common examples.

5

Question 4 Part A: West Works Ltd uses a predetermined overhead rate in applying overheads to product costs, using direct labour costs for cost centre X and machine hours for cost centre Y. The following details the estimated forecasts for 2014. Cost Centre X

Cost Centre Y

Direct labour hours

36,000

14,000

Direct labour costs

$ 400,000

$ 280,000

4,000

40,000

$ 280,000

$ 600,000

Machine hours Production overheads Required:

a) Calculate the predetermined overhead rates for cost centres X and Y? b) Calculate the predetermined overhead rates if machine hours is used for X and direct labour hours for Y? c) Why do companies calculate predetermined overhead rates? Part B Why is it important for an entity to determine the costs incurred and how these costs behave? What purpose/purposes is this cost information used?

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Question 5 Select the most appropriate answer for the following: 1. Operating, financing and investing activities are shown on which financial statement? a) Profit or Loss Statement b) Retained Earnings Statement c) Balance Sheet d) Statement of Cash Flows 2. Which of the following is NOT found in a Balance Sheet? a) Assets b) Owner’s Equity c) Depreciation expense d) Accounts Payable 3. Which of the following is NOT a financing activity? a) Payments to suppliers b) Cash dividends paid c) Repayment of long-term debt d) Issue of shares 4. Which of the following characteristics would normally be associated with equity capital? a) Interest payment b) Dividend payment c) Related to big business d) Secured investment

5. Which of the following is a long term source of external finance? a) Bank overdraft b) Finance leases c) Invoice discounting d) Retained profits

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Question 6

Emma’s Business Balance Sheet as at 31 December 2013 Current Liabilities

Current Assets Bank

4,000

Prepayments - rent Accounts receivable nventory

Accounts payable -inventory

400

Accrued expenses- wages

3,000 9,000

Less Acc depreciation

16,400

Loan

9,000

Total Liabilities

( 5,000)

Assets

$13,000

Equity

28,500 23,500

Capital Retained earnings

$39,900

20,000 6,900

Owners equity

$26,900

Liabilities and Equity

$39,900

During 2014 the follow transactions and events occurred: 1. 2. 3. 4. 5. 6. 7. 8. 9.

200

Non Current Liabilities

Non Current Assets Machinery

3,800

Credit purchases of inventory Credit sales Paid accounts payable – inventory Paid wages Wages owing at 31/12/2014 The full year’s office rent is The amount of office rent paid this year Interest on loan paid . Received payments from debtors

10. Owner’s drawings 11. Doubtful Debts 12. Depreciation is 10% of the cost of the machinery 13. Inventory at end of year

$ 32,000 55,000 25,000 6,000 300 4,000 3,600 450 37,000 4,000 30 7,500

Required: 1. Complete the worksheet 2. Prepare a properly presented Income Statement for the year ending 31 December 2014 3. Prepare a properly classified Balance Sheet as at 31st December 2014

Question 7 8

Balance Sheet extracts as at 30 June: 2014

2015

2016

$

$

$

Current Assets Cash

3,000

16,000

20,000

Accounts receivable

100,000

45,000

35,000

Inventories

120,000

68,000

65,000

Total Current Assets

223,000

129,000

120,000

Non Current Assets

240,000

210,000

198,000

Profit or Loss Statements for the years ended 30 June: 2015 2016 Credit Sales

600,000

500,000

Less Cost of Sales

360,000

280,000

Gross Profit

240,000

220,000

General

170,000

140,000

Interest

25,000

15,000

Net Profit before Tax

45,000

65,000

Less tax

13,500

19,500

Net Profit after Tax

31,500

45,500

Less Other Expenses

Required: A) Calculate the following ratios for 2015 and 2016: i) Return on assets ii) Net profit margin iii) Gross profit margin iv) Inventory turnover (in days) v) Average settlement period for accounts receivable (in days) B) Write a short report to the owner about: i) Profitability ii) Efficiency

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