Test 2 - Second online test PDF

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Second online test...

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Question 1 Relying on absolute values in an entity’s financial statements to predict future risks is not meaningful because: all of the statements listed are correct.

an increase in current liabilities does not necessarily mean the entity is having liquidity problems.

an increase in the profit figure does not necessarily indicate an increase in the profitability of the entity.

an increase in non-current liabilities does not necessarily mean the entity has become more reliable on external funding.

Question 2 Which of these ratios is not a measure of the ability of an entity to pay its debts? Interest coverage ratio.

Working capital ratio.

Quick ratio.

All of the given options are measures of the ability of an entity to pay its debts.

Question 3 Which of the following statements is correct?

Low liquidity ratios can indicate liquidity problems.

High liquidity ratios may indicate excessive investments in unproductive current assets.

Low liquidity ratios are undesirable.

All of the statements listed are correct.

Question 4 Non-financial considerations are: none of the options are correct.

never considered when undertaking an analysis to assess an entity’s performance.

not normally considered important when undertaking an analysis to assess an entity’s performance.

normally considered important when undertaking an analysis to assess an entity’s performance.

Question 5 Financial information is presented here for two companies. Fill in the missing amounts. (Do not express any of the numbers in parentheses.) Young Ltd

Rice Ltd $

Sales

$90,000 100,000

$ Sales returns

$5,000 9,000

Net sales

$81,000

Cost of sales

$56,000

$95,000 $ 57,000

$ Gross profit

$38,000 25,000

$ Operating expenses

$15,000 23,000

$ Profit

$15,000 10,000

Calculate the profit margin ratio and the gross profit ratio for each company.

(Use percentage form for the ratios and round the ratios to 1 decimal place.)

Profit margin ratio Young Ltd

11

%

Rice Ltd

15

%

Gross profit ratio Young Ltd

28

%

Rice Ltd

38

%

Question 6

Ryans Music provides individual music lessons in the homes of clients. The following data are provided with respect to the last 12 months of activity ending 30 June 2017. $ Lesson Lesson Annual Lesson costs

selling price labour cost fixed costs sheet music

45 30 26,000 5

(a)

Assuming selling prices and costs remain the same as for 2017 calculate the number of lessons that are required to be sold in 2018 to break even.

2,600

Break even in units lessons

(b)

If 4,900 music lessons were ‘conducted’ in 2018, what profit would be achieved? $ Profit (2018) 23,000

(c)

For 2018, Ryans expects the lesson labour cost to increase by $2 but, because of local competitive forces, Ryans does not wish to increase the lesson price. With some careful management, Ryanshopes to reduce annual fixed costs to $23,000. Calculate the number of music lessons that would need to be performed in order to match the profit calculated in (b) above.

Number of lessons required to match profits

5,750

lessons

Question 7 The Coffee Club sells specialist coffee drinks from a rented cart on the beachside on the Gold Coast. Provided below is a summarised version of the income statement for July 2016. Sales revenue Less: Expenses Cost of beverages Cost of napkins Rent of cart Wages Total expenses

$6,000 $3,000 600 600 1,500

Profit

5,700 $300

The cost of beverages and napkins are classified as variable costs.

(a) Calculate the contribution margin ratio. (Round answer to the nearest whole number.) Contribution margin ratio

40

%

(b)

Calculate the break-even sales in dollars. (Use your rounded answer from part (a) when calculating your answer for part (b). Round your part (b) answer to 0 decimal places, e.g. 1,005.) $ Break-even sales 5,250

Question 1

Kane & Associates is a local legal entity employing six solicitors, four paralegals and six administrative staff. The entity has a costing system that assigns costs to clients. There are two departments — legal support and commercial. The entity uses a different indirect cost rate for each department. The following information was taken from the budget for the coming year. Legal support department

Commercial department

3,400

13,600 5,200 1,060 $32,700 $750,000 $430,000

Planned solicitor hours Planned paralegal hours Number of clients Legal supplies Salaries — solicitors and paralegals Indirect costs

300 $16,800 $168,000 $112,000

The indirect costs are allocated to the clients as follows. ● Departmental indirect costs — number of solicitor and paralegal hours. ● Legal supplies are charged on a per client basis.

The entity uses a cost-plus pricing policy with a 20 per cent mark-up. Client Case Number FR110 has been completed and is ready for the invoice to be sent to the client. The following costs and times were recorded for the client. ● Solicitor hours — Support 40 hours. ● Solicitor hours — Commercial 171 hours. ● Direct cost of solicitors — $14,520.

(a)

Calculate the indirect cost rate for each department. (Round answers to 2 decimal places, e.g. 15.25.)

Legal support department

Commercial department

$ Indirect cost rate

$

32.94

22.87

per hour

per hour

(b)

Calculate the indirect cost rate for legal supplies. (Round answers to 2 decimal places, e.g. 15.25.) Legal support department

Commercial department

$ Indirect cost rate for legal supplies

56

$

30.85

per client

per client

(c)

Determine the total cost for Client Case FR110. (Round answer to 2 decimal places, e.g. 15.25.) $ Total cost for Client Case FR110

19,835.22

14520 56 30.85 1317.6 3910.77 =19835.22 (d)

Calculate the amount the client should be invoiced for the work undertaken. (Round answer to 2 decimal places, e.g. 15.25.) $ Amount client should be invoiced for work undertaken 23,802.26...