# accounting 420

There are five questions each worth 10 marks respectively. Each question may contain a number of sub-parts or questions that you will need to complete. Please show all relevant formulas used as well as your workings for all calculations. Failure to show all workings will result in a loss of marks.

Question 1 TOTAL (10marks) By The Sea is a small bed and breakfast located in Bicheno, Tasmania. The price for one nightâ€™s accommodation is \$65 per person with a Continental breakfast each morning of the stay. The young couple who are the owner managers of the property estimate that their variable costs per person are \$25.These estimated variable costs include :

â€¢Food \$12

â€¢Cleaning \$7

â€¢Utilities\$6

The fixed costs of running the property include Council rates and taxes, water and insurance. These costs are projected at \$58,000 per annum. The property currently has the capacity to accommodate10 guests on any given night. Required:(Show all workings and calculations where required) Calculate the following.

a)The contribution margin per unit for one nightâ€™s accommodation for one guest.(1 mark).

b)The contribution margin ratio.(1 mark)

c)The breakeven point in number of nightsâ€™ accommodation in units and in dollars of revenue.(1 mark)

d)The number of nightâ€™s accommodation to earn a target net profit of \$80,000 for the year ignoring income taxes.(2marks)

e)The business plans to sell 2,500 rooms over the coming financial year, calculate the margin of safety, what does this margin of safety mean, explain?(2 marks).

f)The business is predicting that the costs of food due to the bushfires is going to rise by 10% over the coming year. The owners are seeking to spend \$5,000 on advertising with local travel agents to promote their small business. Based on these additional assumptions, what will be the new breakeven point in units?(3 marks)

Question 2 TOTAL(10marks)The Albert Street convenience storeâ€™s owner has some concerns regarding one of its product offerings and its current poor performance and how this is going to affect the overall business. The product in question is the juice bar section. The manager of the store has provided you with the following profit analysis regarding the juice bar; Required:(Show all workings and calculations where required)

• Evaluate the profit analysis that has been prepared by the manager. Discuss with reference to relevant costing concepts.(5 marks)
• Based on your findings in (a), prepare a profit/loss analysis which is more suitable in order to make decision, for the continuation of the Juice Bar. Do you recommend the continuation of the Juice Bar? Why, Why not?(5 marks)

The manager of the store has provided you with the following profit analysis regarding the juice bar; Required:(Show all workings and calculations where required)

Question 3 TOTAL (10 marks)

CLM Accountants Pty Ltd offer a range of accounting services. The company uses a costing system that estimates the cost of each clientâ€™s job by accumulating the costs of the professional labour, that works on the actual job (direct labour cost), plus a charge for overhead.

The cost of the specialized labour and the associated charge out rates used for the clients are as follows;

 Cost of Labour Chargeout rate for billing to clients Senior Accountants assistant \$40 \$200 Graduate Accountant \$20 \$140 Senior Accountant \$150 \$450

The overhead rate is based on the specialized labour costs, which are budgeted at \$250,000 for the current year.

The budgeted overhead costs for the whole of the business for the current year are as follows;

 Management Salaries \$170,000 Support staff salaries \$110,000 Depreciation â€“ Computer hardware \$140,000 Printing and Stationery \$22,000 Telephone and internet \$15,000 Insurance \$45,000 Depreciation â€“ Office furniture \$8,000 Rent \$110,000 Electricity \$16,000 Advertising \$14,000

During the month of September, the company worked on three clients jobs. These jobs required the following labour (in hours);

 Client Name Senior Accountant – Assistant Graduate Accountant Senior Accountant Royal Pines 20 90 5 Emerald Lakes 35 85 10 Colonial 55 120 15

Required: (Show all workings and calculations where required)

1. Calculate the overhead recovery rate to be used by CLM Accountants Pty Ltd. (2.5 marks)
2. Calculate the cost of the jobs for each of the three clients. (4.5 marks)
3. Calculate the fees that will be charged to each of the clients based on the provided chargeout rates for billing to clients. (3 marks)

Question 4 TOTAL (10 marks)

You are currently earning profits of \$120,000 per year before tax. In order to expand your business you will require \$400,000 to support this expansion.

You expect that this expansion will generate an additional \$80,000 of before tax profit each year forever. You have a couple of alternatives:

1. The bank will give you an interest only loan of 8% each year for five years. At the end of this time, you can pay the \$400,000 back or you might be able to roll over the loan.
2. An investor has indicated that they are willing to invest the whole \$400,000 but they want a 50% shareholding of your business.

Required: (Show all workings and calculations where required)

a. Using the information above, discuss the advantages and disadvantages of each option (at least 2 advantages and disadvantages for each option) and explain your decision on that

option you will select (5 marks)
b. Provide calculations within your analysis to justify your decision (5 marks)

Question 5 TOTAL (10 marks)

Veggie Patch Companyâ€™s budgeted income statement includes the following data;

 Colourful Blooms Company Sep Oct Nov Dec Sales \$ 120,000 \$150,000 \$165,000 \$190,000 Commission expenseâ€”30% of sales \$ 36,000 \$45,000 \$49,500 \$57,000 Wages expense \$ 40,000 \$42,000 \$48,000 \$52,000 Rent expense \$ 5,000 \$5,000 \$5,000 \$5,000 Utilities expense \$ 1,700 \$1,900 \$2,000 \$2,200 Insurance expense \$ 2,100 \$2,100 \$2,100 \$2,100

The following assumptions regarding the budget are as follows;

• Cash sales are 30% and credit sales are 70% of the business
• Collection of the credit sales are 30% in the month of sale, 40% in the next month and 20% in the second month after the sale. 10% of the sales are not collectable.
• Credit sales for August are \$70,000
• Commission expenses, 40% will be paid in the month that they were incurred and 60% will be paid in the following month.
• 25% of the wages expense will be paid in the month that incurred and 75% will be paid one month later.
• Insurance was prepaid for the upcoming year on August.
• Rent and utilities are paid in the month that they were incurred.
• The cash balance on the 1 September was \$20,000.

Required: (Show all workings and calculations where required)

Prepare a cash budget for each of the months October, November and December for the Veggie Patch Company. (10 marks)

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