Sample Exam 2 forAcc1007 PDF

Preview

Summary

Swinburne Business SchoolSwinburne University of TechnologyACCFinancial Information for Decision MakingSample Final Examination 2Weighting: 50% of total assessmentTime allowed: 3 hoursReading time: 15 minutesInstructions:Please attempt ALL questionsPlease answer all questions in the answer booklet p...

Description

Swinburne Business School Swinburne University of Technology

ACC10007 Financial Information for Decision Making

Sample Final Examination 2

Weighting: 50% of total assessment Time allowed: 3 hours Reading time: 15 minutes

Instructions: Please attempt ALL questions Please answer all questions in the answer booklet provided. Good luck

Question 1 (20 marks) Ian’s Aviation Business’ financial position at 1 July 2013 was as follows: Balance Sheet at Start Current Assets

Current Liabilities

Bank

2,000

Debtors

3,000

Stock

2,000

Trade creditors

Non current Assets Machinery

3,000

Non current liabilities 14,000

Loan

8,000

Proprietorship

10,000

21,000

21,000

Over the financial year the follow transactions occurred: Cash sales

17,000

Credit sales

8,000

Credit purchases

10,000

Stock at end

4,000

Paid creditors

6,000

Paid wages

3,000

Paid interest on loan

1,000

Repaid Loan Principal

4,000

Collections from debtors

7,000

Owner’s drawings

5,000

Depreciation of machinery

2,800

Required: 1. Prepare a properly presented Income Statement for Ian’s Aviation Business 2. Prepare a properly classified Balance Sheet to show the financial position of the business as at 31st June 2014.

Question 2 (10 marks) Mary’s Interior Decorators Income Statement for year ended 30 June, 2013 $

$

Sales Less Cost of Sales Gross Profit

19,000 13,900 5,100

Less Operating expenses Salaries Advertising Depreciation Furniture & Fittings

1,000 1,200 1,400

3,600

Net Profit Before Interest Finance Expenses - Interest Net Profit

1,500 900 600

Balance Sheet as at June 30th 2012 $

2013 $

$

10,800

4,300 7,200

Current

Assets Bank Debtors Stock

500 3,200 7,100

Fixed Assets Equipment Less Provision for Depreciation

6,000 4,000

Current Liabilities Bank Overdraft Creditors Term Loan

8,700 800

Proprietorship A. McKenna - Capital Add net Profit

2,000 12,800

11,500

9,970 5,400

-

4,570 16,070 3,200

9,500

3,300

Less Drawings

9,700 200

3,300 600 3,900 930

12,800 Required: Prepare a cash flow statement - Operations, Investing and Financing

13,100

2,970 16,070

Question 3 (15 marks) Tweed Limited is a company which manufactures jumpers which are bought mainly for sporting activities. Present sales are direct to retailers, but in recent years there has been a steady decline because of international competition. In the last financial year, the company recorded its worst profit for ten years. The company considers that a profit of $80,000 should be achieved to earn a reasonable return on investment. The CEO has called for a review of marketing and pricing policies, together with some proposals for increasing profits. The most recent financial results are presented below: Tweed Ltd. Income Statement for period ended 30th June 2013 $ $ $ Sales revenue (100,000 units) 1,000,000 Manufacturing Cost of Goods Sold: Direct material Direct labour Variable factory overhead Variable Sales commissions(constant per unit sold) Variable Delivery costs (constant per unit sold) Fixed costs Profit

100,000 350,000 60,000 20,000 50,000

530,000

270,000 20,000

Required: i) Calculate the number of units required for the company to breakeven ii) Calculate the margin of safety. iii) How are the break even units related to margin of safety units? iv) What is the contribution margin ratio v) If labour is a scarce resource for Tweed Company how might the business maximise its profits?

Question 4 (17 marks) A manufacturing company producing trailer sets has traditionally allocated overheads on the basis of the proportion of the number of units produced (units produced method of allocation). A new management accountant set about an assignment to convince management that Activity Based Costing would provide a superior method of allocation of overheads. An estimate was made for the following year that 200,000 units of a smaller type of trailer would be made and sold whilst 80,000 units of a larger variety would complete the expectations of production and sales. Activity

Cost driver

Total cost $

Ordering and receiving

Orders

200,000

Machine set up

Set ups

600,000

Machining

Machine hrs

2,000,000

Assembling

Parts for assembly

1,800,000

Inspecting and testing

Inspections

700,000

Painting

Parts for painting

300,000

Supervisory

Supervision hrs

1,200,000 6,800,000

The cost drivers relating to each product are as shown below: Cost driver

Small

Large

Total

Orders

1,000

1,500

2500

Set ups

500

700

1200

Machine hrs

300,000

500,000

800,000

Parts for assembly

1,800,000

1,200,000

3,000,000

Inspections

20,000

15,000

35,000

Parts for painting

1,800,000

1,200,000

3,000,000

Supervision hrs

130,000

70,000

200,000

Required: a) What is the overhead cost per small and large trailer using the ABC method? b) What are the limitations of Activity Based Costing?

Question 5 (28 marks) Part A (6 marks) Kothare Cutlery produces unique knives for use in up market restaurants. Production capacity is 40,000 knives per year. Due to the closure of some up market restaurants due to the current economic climate and therefore less discretionary income among customers, Kothare Cutlery now has spare capacity of 4,000 knives per year. However, one very successful restaurant, Vue de Clare, has recently contacted Kothare Cutlery to place a one-off order for 6,000 knives. Budgeted costs for 40,000 knives are: •

Variable manufacturing costs $1,600,000

•

Fixed manufacturing costs $1,800,000 Knives normally sell for $200 each, and Vue De Clare has offered to pay$180 per knife. Vue de Clare has also requested that each knife be presented wrapped in a cloth containing the company’s name. This extra item would involve a machine costing $40,000 and would need to be purchased by Kothare Cutlery. The machine could not be used for other products. a) From a financial perspective, should Kothare Cutlery accept the special order? b) What other factors should be considered before the order is accepted?

Part B (22 marks) .Complete the table by classifying the costs according to their probable response to changes in activity levels over the relevant range. Cost type

Business

Flour

Baker

Equipment depreciation

Farmer

Electricity

Restaurant

Flowers

Florist

Vehicle registration

Bus company

Equipment repairs

Builder

Telephone charges

Accountant

Landing fees

Airline

Logs

Sawmill

Insurance

Electrical

Variable

Semi-variable

repairs Sales commission

Retailer

*Depends on the activity level and airport charge out rate (per traveller or per landing)

Fixed

Question 6 (10 marks) 1. Which of the following is NOT an issue to be taken into account when deciding between long-and short-term borrowing? a) Flexibility b) Balance Sheet Disclosure c) Re-funding d) Interest rates 2. Which of the following is an advantage of using retained profits as an internal source of finance? a) There are no issue costs b) It is a ‘cost free’ source of funds c) The amount raised is certain d) Options a) and c) 3. Which of the following statements is incorrect? a) A rights issue is an example of a share issue b) A bonus issue is an example of a share issue c) A non-renounceable rights issue is an example of a share issue d) A private placement is an example of a Debt issue 4. Liquidity refers to the ability of a company to a) pay off long-term debt b) raise equity capital c) acquire the necessary assets to operate the business d) meet short-term obligations as they mature 5. The category of financial ratios that helps users to assess the ability of the business to generate returns for its owners is: a) Profitability b) Efficiency c) Liquidity d) Gearing...