ACC60002 – Revision Questions Page 1 of 5 Question 1 [Bright P/L] Consider the following beginning and ending balances in relation to the Balance Sheet items for Bright P/L, for the financial year 2014: Beginning Ending $000 $000 Assets Bank 184 245 Debtors 316 260 Stock 500 580 Equipment 1,600 2,200 Accumulated depreciation (800) (965) Total assets 1,800 2,320 Liabilities Trade creditors 360 520 Loan 500 780 Equity Proprietorship 940 1,020 Total liabilities and equity 1,800 2,320 In addition, consider the following Income Statement for Bright P/L, for the same financial year: $000 Sales revenue 2,940 Cost of goods sold (1,960) Gross profit 980 Selling expense (340) Administrative expense (455) Depreciation expense (165) Net profit 20 Required: 1. Prepare a Cash Flow Statement for Bright P/L, for the financial year 2014. 2. Provide an analysis of the Cash Flow Statement that you have prepared.ACC60002 – Revision Questions Page 2 of 5 Question 2 [Matthew Manufacturing] Matthew Manufacturing is a company that produces clothing for the supporters of football teams. The company currently produces clothing for the supporters of two teams, the Tigers and the Saints. The company has been producing Tigers clothing for many years and has only recently started making the Saints clothing. Due to the designs of the clothing the Tigers clothing is much easier to produce than the Saints clothing. The company has been concerned for some time that its competitors appear to be selling supporters clothing for a much lower price. You have been hired to assess the company’s performance. After a three-month assessment, you have gained the following information on the factory’s production activities and costs associated with the two products: Tigers Saints Production (units) 100,000 20,000 Overhead per unit* $63.75 $28.69 Cost of direct materials and labour per unit $16.14 $20.00 Total cost $79.89 $48.69 Selling price $111.84 $68.16 *Calculated using a plant-wide rate based on direct labour hours, which is the current way the company allocates factory overhead to products. Number of production runs 100 200 Receiving orders 400 1,000 Machine hours 125,000 60,000 Direct labour hours 250,000 22,500 Clothing design hours 5,000 5,000 Materials handling 500 400 You believe that the company would benefit from switching the overhead assignment to an activity-based approach, since activity-based cost assignment is more accurate and will provide better information for decisionmaking. To assist the company in accepting this recommendation, you have assigned the factory’s activities into pools. Cost Pool Cost Set-ups $240,000 Machining $1,748,250 Receiving $2,100,000 Product Design $1,960,000 Material handling $900,000 Required: 1. Recompute the unit cost of each product using activity-based costing. 2. Describe what actions you would take based on the information provided by the activity-based unit costs.ACC60002 – Revision Questions Page 3 of 5 Question 3 [X Ltd] X Ltd. produces three different products: A, B and C. The results for the company for the past year are presented as follows. A B C Total $ $ $ $ Sales 2,500,000 1,500,000 3,200,000 7,200,000 Cost of goods sold (2,100,000) (1,550,000) (2,500,000) (6,150,000) Gross profit 400,000 (50,000) 700,000 1,050,000 Operating expense (550,000) (200,000) (350,000) (1,100,000) Net profit (150,000) (250,000) 350,000 (50,000) The CEO believes that the company should stop making products A & B. However, before making a final decision, the CEO asks the accountant to provide more details about the cost items and these are presented below. A B C $ $ $ Cost of goods sold Variable manufacturing costs 1,250,000 1,000,000 1,700,000 Fixed manufacturing costs 850,000 550,000 800,000 Operating costs Variable 350,000 130,000 200,000 Fixed 200,000 70,000 150,000 The fixed operating costs include an allocation of the CEO’s salary of $150,000 and rent of the display room of $50,000. The fixed manufacturing costs include an allocation of factory rent of $300,000 and central lighting of $100,000. The above fixed costs have been allocated on the basis of sales: 35% to A, 20% to B, and 45% to C. All other costs are directly traceable to each product line. Required: 1. Prepare a reformatted report to assist the CEO with the decision as to whether or not to discontinue one or more products. 2. Based on your revised report, would you recommend the discontinuance of any of the products? What additional information would you seek, if any?ACC60002 – Revision Questions Page 4 of 5 Question 4 [Comtech] Comtech P/L manufactures and sells a specialised graphics interface card for laptop computers. Price and cost data are as follows: Selling price per unit $50.00 Variable costs per unit Direct material $21.00 Direct labour $10.00 Overhead $6.00 Selling $2.60 Total variable costs $39.60 Annual fixed costs Manufacturing overhead $384,000 Selling and administration $552,000 Total fixed costs $936,000 Forecast annual sales: 120,000 units or $6,000,000. Required: 1. What is Comtech’s break-even point in units? 2. What is Comtech’s break-even point in sales dollars? 3. What is Comtech’s margin of safety? 4. How many units would Comtech have to sell to earn a profit of: a. $130,000 before tax? b. $140,000 after tax, assuming a tax rate of 30%? 5. Management estimates that direct labour costs will increase by 10% next year. All other costs are expected to be unchanged. How many units will Comtech have to sell next year to reach its break-even point? 6. If Comtech’s direct labour costs do increase by 10%, what selling price per unit must it charge to maintain the same dollar contribution margin that it is currently achieving?ACC60002 – Revision Questions Page 5 of 5 Question 5 [Part 380] A company can manufacture 10,000 units of part 380 for the following costs: Sub-total Per Unit Direct material $80,000 $8 Direct labour $10,000 $1 Variable overhead $40,000 $4 Fixed overhead allocated $50,000 $5 Total $180,000 $18 The same component part can be purchased for $16 per unit from a supplier. Required: 1. Should this company make part 380, or should it buy part 380 from a supplier? Provide numerical analysis and your reasons. 2. What is your recommendation, given the additional information below as to making or buying part 380 and the utilization of the capacity? Provide your financial analysis. Any free capacity can be utilized to produce 10,000 units of another product, which would involve the following costs and revenues per unit: Selling price $10 Variable costs $2 Allocated fixed costs $5 Profit $3