Reference no: EM131566

Accounting Assignment

Part One (please provide clear calculations and explanations, submit supporting excel file if needed)

Grace's Rugs is holding a two-week carpet sale at Will's Club, a local warehouse store. Grace's Rugs plan to sell carpets for $500 each. The company will purchase the carpets from a local distributor for $350 each, with the privilege of returning any unsold units for a full refund. Will's Club has offered Grace's Rugs two payment alternatives for the use of space.

Option One: A fixed payment of $5,000 for the sale period
Option Two: 10% of total revenues earned during the sale period

Assume Grace's Rugs will incur no other costs.

Required:
A. Calculate the breakeven point in units for (a) option 1 and (b) option 2.

 B. At what level of revenues will Grace's Rugs earn the same operating income under either option.
       a)For what range of unit sales will Grace's rugs prefer option 1.
       b)For what range of unit sales will Grace's rugs prefer option 2.
C. Briefly explain and interpret your answer to requirement 2.

D. Grace's Rugs predict that 30 carpets per day will be sold on the first three days of the two week sale. The sale starts on a Sunday. On the subsequent 11 days of the sale, sales of carpets will reduce by 10% each day. Prepare a sales budget showing the sales of carpets each day in units and dollars. (Note that Grace's Rugs is conservative and will round down if the percentage calculation results in a fraction.)

E. To meet these sales projections customers have been offered a 'buy now pay later' scheme. Under this scheme it is estimated that 70% of customers will pay in full on the day of purchase for a 10% discount, 20% will pay half immediately and the remaining amount on the last day of the sale for a 5% discount (given on the last day for the total amount), 8% will delay any payment immediately and will pay fully on the last day of the sale and 2% will be bad debts. These bad debts will be sold to a debt collection agency for 50% of the debt value on the last day of the sale. You are required to present the cash collections schedule for the duration of the sale.

F. A friend has contacted Grace's Rugs and asked if they could use some of the local warehouse space during the same two week period to sell their household decorator items. The warehouse store is 200 square meters and they would like to rent 50 square meters from Grace's Rugs. The cost of the local warehouse space for the two week period is $10,000.
a) Outline what issues Grace's Rugs should consider in deciding whether to let 50 square meters to her friend.
b) If the warehouse space cost is allocated based on square meters what cost Will be charged to Grace's Rugs and to her friend.

G. Calculate the budgeted profit/loss for Grace's Rugs assuming that the 50 square meters was let to her friend and that the expected sales as outlined above was not affected.

Part Two (please provide clear and exact answers on below questions)

1.     Provide for a general definition of the income statement, its purpose as well as its relation to the Balance Sheet and Cash Flow statements?

2.     What is an accrual principle and what is the most common alternative to one?

3.     Under which conditions (e.g. for whom/why/etc.) would you generate a deal-based Profit & Loss vs. periodical Profit & Loss?

4.     What is the difference between a Debit Note and a Credit Note?

5.     What are the Incoterms and how do they relate to the issues of accounting?

6.     What is an open sales order?

7.     Can you tell if a sales order can be considered open if delivery has happened but payment has not been done yet?

8.     What is a back order and how would you link the concepts of a "backorder" and a "customer service"?

9.     How would you measure the customer value?

10.  What is the life time value of a customer? What advice would you give to a sales person based on the list of such values for a given sample of our customers?

11.  How would you calculate the amount of VAT that is owed to (by) the Tax Office by (to) the Company?

12.  Provide a number of examples for Payment terms as well as explain their meaning? Under which conditions would you make use of which terms?