Reference no: EM132369240

Accounting for Managers Assignment -

QUESTION 1 - The following financial statements were prepared for the management of Morgan Ltd. The statements contain some information that will be disclosed in note form in the general purpose external financial statements to be issued to the investors.

Morgan Ltd Income Statement For the year ended 30 June 2018
Revenues (Note 2)	$850,500
Expenses, excluding finance costs (Note 4)	686,700
Finance costs	6,300
Profit before income tax	157,500
Income tax expense	63,000
Profit	$94,500

 

Morgan Ltd Statement of Financial Position As at 30 June 2018
Current assets
Cash and cash equivalents		$37,800
Accounts receivables	$299,250
Less: Allowance for doubtful debts	18,900
		280,350
Inventories		252,000
Total current assets		570,150
Non-current assets
Land		63,000
Building	$189,000
Less: Accumulated Depreciation	37,800
		151,200
Store equipment	47,250
Less: Accumulated Depreciation	22,050
		25,200
Total Non-current assets		239,400
Total assets		809,550
Current liabilities
Accounts payables		270,900
Preference dividends payable		3,780
Ordinary dividends payable		25,200
Other current liabilities		12,600
Total current liabilities		312,480
Non-current liabilities
Long-term borrowings (Note 5)		63,000
Total Non-current liabilities		63,000
Total liabilities		375,480
Net assets		434,070
Equity
Share capital		$315,000
Retained earnings		119,070
Total equity		434,070

 

Morgan Ltd Statement of Changes in Equity For the year ended 30 June 2018
Share capital
Ordinary:
Balance at start of period	$252,000
Balance at end of period	252,000
Preference (Note 6):
Balance at start of period	63,000
Balance at end of period	63,000
Total share capital	$315,000
Retained earnings
Balance at start of period	$53,550
Total profit for the period	94,500
Dividends - preferences	(3,780)
Dividends - ordinary	(25,200)
Balance at end of period	$119,070

 

Notes to the financial statements
Note 2: Revenue
Sales	$850,500
Note 4: Expenses
Cost of sales	567,000
Selling and distribution expenses	89,000
Administration expenses	30,700
Note 5: Long-term borrowings
10% mortgage payable	63,000
Note 6: Preference shares
6% preference shares	63,000

Additional information:

1. The balance of certain accounts at the beginning of the year are:

Accounts receivables $315,000

Allowance for doubtful debts (26,350)

Inventories 220,500

2. Total assets and total equity at the beginning of the year were $756,000 and $368,550 respectfully.

REQUIRED:

A. Name the ratios that a financial analyst might calculate to give some indication of the following cases:

1. A company's earning power.

2. The extent to which internal resources have been used to finance acquisition of assets.

3. Rapidity with which accounts receivables are collected.

4. The ability of the entity's earnings to cover its interest commitments.

5. The length of time taken by the business to sell its inventories.

B. Calculate and briefly discuss the suitability of the ratios mentioned for each of the above cases.

C. Given the above financial statements, comment on the company's profitability and liquidity.

QUESTION 2 - Koala Bear Day-care provides day-care for children from Mondays through Fridays. Its monthly variable costs per child are:

Lunch	$100
Educational supplies	75
Other supplies (paper products, toiletries, etc.)	25
Total	$200
Monthly fixed costs consist of:
Rent	$2,000
Utilities (electricity, water, telephone expenses)	300
Insurance	300
Salaries	2,500
Miscellaneous	500
Total	$5,600

Koala Bear charges each parent $600 per child.

REQUIRED:

A. Calculate the break-even point.

B. Koala Bear's target profit is $10,400 per month, calculate the number of children who must be enrolled to achieve the target profit.

C. Koala Bear lost its lease and had to move to another building. Monthly rent for the new building is $3,000. At the suggestion of parents, Koala Bear plans to take children on field trips. Monthly costs of the field trips are $1,000. By how much should Koala Bear increase fees per child to meet the target profit of $10,400, assuming the same number of children as in requirement B?

D. How can a company with multiple products calculate its break-even point? Discuss and support your discussion by readings and research.

QUESTION 3 - Lennox Company uses a job costing system. The company uses predetermined overhead rates in applying manufacturing overhead costs to individual jobs. The predetermined overhead rate in Department A is based on machine-hours, and the rate in Department B is based on direct labour cost. At the beginning of 2018, the company's management has made the following estimates for the year:

	Department A	Department B
Direct labour-hours	15,000	30,000
Machine-hours	50,000	12,000
Direct labour cost	$80,000	$172,000
Manufacturing overhead	162,500	215,000

Job 145 was initiated into production on August 1 and completed on September 15. The company's cost records show the following information on the job:

	Department A	Department B
Direct labour-hours	22	40
Machine-hours	80	20
Direct material used	$450	$250
Direct labour cost	120	180

REQUIRED:

A. Calculate the predetermined overhead rates that should be used during 2014 in Department A and B.

B. Calculate the total overhead cost applied to job 145.

C. What would be the total cost of job 145? If the job contained 10 units, what would be the cost per unit?

D. What factors should be considered in selecting a base to be used in calculating the overhead absorption or recovery rates? Discuss. Your discussion should be supported by readings and research.

Note - Please follow all the instructions and answer all the questions required.