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Accounting Understanding And Practice 4th Edition Robert Perks - Solutions
Define ‘fixed costs’ and ‘variable costs’.
How does marginal costing differ from absorption costing?
The Cornay Company is planning to reduce the selling price of cornays from £110 per unit to £99 per unit. Fixed costs are £3,600,000 per annum; variable costs are £40 per unit; 80,000 units per annum are made and sold. How many additional units must be sold to make up for the price reduction?
The summarized results of the Poterin Company are as follows:How many more units does it need to sell to make a profit of £50,000?From the above information calculate total costs for each month, variable costs as a percentage of sales, fixed costs, contribution/sales ratio and break-even point.
Persie Limited is dedicated to the production and sale of highly fashionable sunglasses. The company’s budgeted monthly production is 3,000 units. Variable manufacturing costs are £16 per unit, while variable selling costs are £4 per unit. Fixed selling costs are £24,000 per month, while
‘Break-even analysis is pointless, given the unrealistic and simplistic assumptions of the model.’ Identify these assumptions and discuss this statement.
Increasingly, companies are outsourcing activities that were previously handled in-house by employees. What activities do you believe are subject to such a policy? What are the advantages and disadvantages of such a policy?
In the circumstances that a manufacturer is operating with scarce resources, what are the dangers of determining production on the basis of the ranking of the products according to their contribution per unit of that scarce resource?
Absorption costing overstates the profit of a manufacturer when compared to margin costing. Discuss why this might be argued.
Corrina planned to spend £10 to buy 10 kg of dough to make 10 loaves of bread.3 Actually she spent £10.50 and bought 10.4 kg of dough and made 11 loaves of bread.a. Calculate and explain the direct materials cost variance.b. Calculate and explain the direct materials price and usage variances.
Anomelg solicitors employed Maggie to do their conveyancing work; she is treated as ‘direct labour’. They planned to pay her £30 per hour for 100 hours a month and expect her to complete 10 conveyances.During April they paid her £2,400 for 84 hours work and she completed seven conveyances.a
The Wee Lee Cycle Company planned to produce 120,000 bicycles a year (10,000 a month) at a total cost of £80 each, and to sell them for £100 each.Last month it produced 11,000 bicycles at a total cost of £902,000, and sold them for £979,000.a Calculate the budgeted profit for the month.b
The Wool Witch Company manufactures woollen dolls that sell for £28 each and the company plans to manufacture and sell 5,000 a month. The standard production costs per doll are:Last month the company made and sold 4,000 dolls for £108,000.Its costs were:a Calculate the budgeted profit for the
Poleg Limited manufactures kitchen cupboards. The standard cost of each unit is £120, comprising:The company had budgeted to make and sell 1,000 cupboards at a selling price of £150 in June. However, in June, the actual figures were as follows:Prepare a performance report reconciling the budgeted
Mary planned to pay Tom £50 for 5 hours to wash 20 cars.4 Last week Tom and a number of customers were on holiday. She actually paid Fred £45 for four hours to wash 15 cars.a Calculate and explain the direct labour cost variance.b Calculate and explain the direct labour rate and usage variances.
The Aanroc Manufacturing Company budget for May shows the following:Actual results for May were as follows:Required:a Calculate and explain the fixed overhead cost variance.b Explain and illustrate how the standard cost of production can be measured (i) in units, and (ii) in standard hours.c
The standard cost of producing one kiredo is as follows:Fixed overheads are expected to be £180,000 per annum, and the plan is to produce 12,000 kiredos per annum.Last month 1,200 kiredos were produced and the costs incurred were:Calculate the cost variances in as much detail as the information
The Nire Company plans to sell 2,000 nires a month, the standard marginal cost of which is £60 each, at a selling price of £80 each.Last month it sold 2,100 nires for £161,700.Calculate the sales contribution price variance and the sales contribution volume variance.
The following is extracted from the standard unit cost card of RNM Ltd for the quarter ended 31 December 20X9:Variable overheads are determined by using the skilled labour hours, while fixed overheads are absorbed on the budgeted sale units. For the quarter ended 31 December 2009, the following
Which of the following is true?Management accounting, when compared with financial accounting, is:a. More subject to regulationb. More accurate and verifiablec. Focused more on the futured. Distributed more widely to shareholders
In what circumstances is labour (a) a variable cost and (b) a fixed cost.
Which of the following is included in closing inventories of finished goods?a. Cost of direct materials consumedb. Finance costsc. Administrative expensesd. Selling and distribution costs
The trial balance of JackDannie, a manufacturer, as at 30 June year 7 was as follows:Additional information:i Inventories at 30 June year 7 were:ii Machinery is to be depreciated at 10 per cent per annum on a straight-line basis.iii Ignore taxation.You are required to prepare the manufacturing
Which of the following is not true?Financial accounting, when compared with management accounting, is:a. intended mainly for shareholders, creditors and others outside the business;b. more accurate and verifible;c. mainly concerned with providing information to managers;d. a legal requirement.
Which of the following are included in prime cost?a manufacturing overheads;b direct materials;c direct labour;d distribution costs.
The trial balance of Stujerpa, a manufacturer, as at 31 March year 10 was as follows:Additional information: 1 Inventories as at 31 March Year 10 were:2 Machinery is to be depreciated at 10 per cent per annum on a straight-line basis. 3 Ignore taxation.You are required to prepare the
Explain the differences between financial accounting and management accounting.
Draw the following cost behaviour charts:i A supervisor’s salary.ii Cost of raw materials at £15 per unit for the first 100 units, £10 per unit for the next 100 units and £5 per unit for the next 100 units.iii Direct hourly labour with a 50 per cent surcharge for overtime.iv The cost of water
Would you rather be a management accountant or a financial accountant? Why?
Examine the idea that financial accountants act in the public interest but management accountants act only in the interest of managers.
Businesses have financial accounts, and bank statements. Why do they need additional information?
Discuss which of the costs of running a car are ‘fixed’ and which are ‘variable’ in relation to the number of miles run.
Banner Ltd’s cash book showed a debit balance of £8,000 on 30 June Year 4. The bank sent it a statement, showing the same date, but that there was £11,800 in the bank.10 Further investigation revealed the following:a. Unpresented cheques amounted to £6,000 b. On 30 June Banner Ltd had
The trial balance of Sally Glen’s business as at 31 December year 8 is as follows:Adjustments a Closing inventory as at 31 December year 8 amounted to£19,000.b Depreciation is to be provided on shop premises on a straightline basis at 2 per cent per annum.c Depreciation is to be provided on the
The trial balance of Mary Rushen’s business as at 30 June year 5 was as follows.Adjustments a. Closing inventory as at 30 June year 5 amounted to £7,000.b. Depreciation is to be provided on freehold buildings on a straight-line basis at 2.5 per cent per annum.c. Depreciation is to be provided
The trial balance of Brad Head as at 31 December year 3 was as follows:Adjustments a. Closing inventory as at 31 December year 3 amounted to£13,000.b. Depreciation is to be provided on plant and machinery on a straight-line basis at 10 per cent per annum.c. Depreciation is to be provided on
The trial balance of Ellie’s Ltd as at 31 December year 1 was as follows:Additional information a. Inventories as at 31 December year 1 was £21,000.b. Rent prepaid as at 31 December year 1 was £400.c. Accrued electricity as at 31 December year 1 was £200.d. A receivable of £500 is to be
The trial balance of Bulgham, Dhoon and Barony as at 31 December year 9 is as follows:Adjustments a Inventory as at 31 December year 9 amounted to £31,000.b Furniture is to be depreciated on a straight-line basis at 10 per cent per annum.c Rent of £6,000 was paid on 30 November year 9 for the
The trial balance of Michael Orry’s business as at 31 March year 2 is as follows:Adjustments a Closing inventory as at 31 March year 2 amounted to £21,000.b Depreciation is to be provided on plant and machinery on a straight-line basis at 10 per cent per annum.c Depreciation is to be provided on
The trial balance of Faraway Retailers Ltd as at 31 December year 1 is shown below.Additional information a The stocktake on 31 December year 1 revealed the following:b Rent and rates includes a rent payment of £144,000 for the period 1 April year 1 to 31 March year 2.c Electricity for the three
Ballamauda LtdDuring the year ending 31 December year 2 a. A machine, which had originally cost £10,000, and on which £6,000 depreciation had been charged, was sold for £3,400.b. The profit before tax, after deducting the loss on the sale of the machine, was £35,200.c. Interest of £2,400,
Why might a company issue convertible preference shares rather than debentures?
The capital structure of two companies is as follows:The EBIT of both companies was as follows:The rate of corporation tax on profits is 25 per cent.a Calculate the net profit after-tax earned for ordinary shareholders for each year and for each company.b Comment on the effect that gearing has had
The directors of the Palazine Company are seeking funding of£50m to finance an expansion programme. The summarized financial statements for the most recent year are set out below:The following suggestions have been made for raising the additional finance. You are required to explain the effects of
The earnings per share and the dividend per share of Uppen Down plc for the last few years are shown below (in pence):a You are required to calculate the dividend cover for each year;the proportion of profits that was distributed as dividends; and the dividend yield based on the share price at the
An extract of Sky High plc’s statement of financial position as at 1 October 20x6 is given below:On 1 January 20x7, the company issued 1 right share for every 5 in issue for £4 each when the market price was £5.a Show how the rights issue should be accounted for in the statement of financial
What is the minimum amount of funding with which it is possible to start a business? Could a business be started with zero funds?What sort of business could each member of the group start, with little or no funding? Prepare a (very brief) business plan. Would it be necessary to raise substantial
Prepare a list of companies that are not currently paying dividends. (Look for shares with a zero yield in the Financial Times’s listing.) Why are these companies not paying dividends? Each member of the group could research a number of companies. Can the companies be classified into groups each
Why are some companies high-geared, and others low-geared?Each member of the group should examine the statements of financial position of a number of companies, probably in different sectors. It may be easiest to do this using the companies’ websites.The group should agree the way in which
Prepare a list of companies which have arranged bonus (scrip) issues in the last three months. (You can look at the Financial Times website for this information.) Note down the share price before and after the bonus issue and the market capitalization (shown in Monday’s Financial Times) before
Why might a company want high levels of working capital?
Can a company operate with zero or negative levels of working capital?
How would you detect overtrading, and why does it matter?
What steps can be taken to speed up the collection of receivables?Why might a company deliberately allow an increase in the time taken for receivables to pay?
What factors are taken into consideration in the conventional model for calculating economic order quantities (EOQs)?
How can a company avoid having liquidity crises?
The Congle Company uses 40,000 wongles a year. Each wongle costs £1.25 to buy; stockholding costs are estimated to be 32 per cent per annum of the cost of the inventory held; each order costs £20 to place. What ordering quantity will minimize costs? How many orders will be placed each year? How
Fleshwick Traders has a large overdraft on which interest of 17 per cent per annum is being charged. The directors are considering offering cash discounts to customers to encourage prompt payment.Annual sales, all on credit, amount to £365,000, and the receivables figure at present is £90,000.
Stokeypokey Wholesalers Ltd is proposing to set up a branch in Northern Ireland. Experience elsewhere suggests that sales will start off at £100,000 a month in January, and then increase by£100,000 a month until reaching £400,000 in April. Then sales will increase by £80,000 a month until they
How can a company operate with minimum levels of working capital?
Working capital should be managed to maximize profitability.Explain and comment.
What steps can be taken to minimize bad debts?
What are the main limitations of the EOQ model?
The Scottish Cake Company has annual sales of £1,200,000.Annual non-current costs are £150,000 and last year’s profit was£50,000. At the year end the receivables figure was £100,000.The company has been offered a contract for supplying cakes to the Swaysco Supermarket Group in England. Sales
The summarized statement of financial position of the Warmel Trading Company as at 31 December last year was as follows:Last year sales amounted to £3,600,000 and net profit before tax was £600,000. The company’s target ROCE is 15 per cent. It is estimated that variable costs amount to 50 per
The following information has been extracted from the most recent annual report and accounts of Greyhound Leather Manufacturers Ltd:a The finance director is pleased with the management of working capital, but the chairman is more concerned about profitability.Making use of appropriate
The directors of Woebun Standard Components plc have been very successful in persuading their customers to pay, on average, in one month. However, they believe that this policy is restricting sales and that sales would increase by 15 per cent if the average collection period for receivables was
The Bonjarron Decorating Company uses 14,400 large-size cans of white gloss paint in a year. It uses different suppliers and on average pays £20 per can. It has limited storage space and reckons that the annual stockholding costs amount to 20 per cent of the cost of the stocks held. Administration
Many small businesses may be seen as ‘overtrading’. Accountants are too conservative about such things. To be successful, a rapidly expanding small business needs to sail close to the wind. Discuss these views.
Large businesses should not have working capital problems. It is easy for them to borrow large sums on a long-term basis. The problem for large businesses is not working capital; it is excessive gearing. Discuss.
Discuss the effects on ‘just in time’ of increasing proportions of manufacturing (for the UK) taking place in Eastern Europe, Africa and Asia.
Can working capital, like manufacturing, be ‘outsourced’? Could a company operate with zero or negative capital employed, make some profits, and therefore have a ROCE of infinity?
Large companies can bully small customers to pay up promptly, while they need not bother paying their own bills on time. Small companies have to pay up promptly if they are to continue to receive supplies, but they cannot force large customers to pay them promptly if they are to continue to make
How does cash budgeting for a business differ from the way in which you do your own, personal cash budgeting. Should it differ?(Other than the amounts of money being very different!)
Distinguish between factoring and invoice discounting. Explain the circumstances in which a company considering these two forms of finance would be likely to prefer factoring rather than invoice discounting.
Complete the double entry for each of the following transactions:a The owner of a business pays additional capital to the company;the cash account is debited and it is credited to the __________.b A business repays a loan; the cash account is credited and it is debited to the ___________.c The
Record the following transactions of A Florist using double-entry bookkeeping; summarize them in the form of a trial balance, and prepare an income statement for the month of January, and a statement of financial position as at the end of the period.At the end of January the closing inventory of
Record the following transactions of Moorey using double-entry bookkeeping; summarize them in the form of a trial balance, and prepare an income statement for the one-month period and a statement of financial position at the end of that period.At the end of the month the inventory of goods
At 31 March 20X0, included in the trial balance of BC Limited were the following balances:The following additional information is given in relation to the y/e 31 March 20X1:It has been decided to offset the sales ledger balance against the purchase ledger balance.Required:i Draw up sales and
In preparing the trial balance, you notice that the debit side exceeds the credit side by £970. Upon investigation, you identify the following mistakes:1. Goods returned to suppliers amounting to £250 have been entered as a debit in the purchases account by mistake.2. A cash payment for £560 has
a Accountants cannot do their job effectively if they do not have a detailed understanding of the business’ bookkeeping systems.b Bookkeeping is done by technicians and computers; it is not a matter for managers and accountants.Discuss these two statements. With which do you most agree, and why?
The power of accountants and accountancy lies mainly in their control of the official financial recording system. Discuss.
A French balloonist landed in a field somewhere in the south of England. He hailed a passer-by and said, ‘Can you tell me where I am, please?’ The passerby said, ‘You are in a wicker basket in a field.’ The Frenchman said, ‘You are an accountant, aren’t you?’The Englishman said,
What is the point of learning the principles of double entry and its application since generally, even in very small companies, the process of completing the accounting records and the preparation of annual accounts are both computerized?
The trial balance of Noddy’s Business as at 31 December year 6 is as follows:Prepare an income statement for the year ended 31 December year 6, and a statement of financial position as at that date. Debit Credit Shop premises 400,000 Capital as at 1 December year 6 370,000 General expenses
The trial balance of Mona Ramsey as at 30 September year 3 was as follows.Adjustments a Closing inventory as at 30 September year 3 amounted to £15,000.Prepare an income statement for the year ended 30 September year 3, and a statement of financial position as at that date. Bank 24,321 Capital
The trial balance of E. Zee’s Business as at 31 December year 7 was as follows.Prepare an income statement for the year ended 31 December year 7, and a statement of financial position as at that date. Debit 170,000 Credit Workshop Payables 15,000 Capital as at 1 January year 7 145,000 General
The trial balance of Isabella Stanley as at 31 March year 9 was as follows:Adjustments a Closing inventory as at 31 March year 9 amounted to £22,000.Prepare an income statement for the year ended 31 March year 9, and a statement of financial position as at that date. Administration expenses 43,000
Andreas, Jude and Sandy are in business together, sharing profits in the proportion 3 : 2 : 1. Their partnership agreement provides for interest on their fixed capital balances of 8 per cent per annum, and that Sandy should receive a salary of £13,400 per annum. Their trial balance as at 30 June
Would you rather be in business as a sole trader, in a partnership, or in a company? Why?
What are the various ways of sharing profits between partners, and why are they used?
Is there, or should there be, a standard format for the financial statements of unincorporated businesses? Why or why not?
Why is there a need for ‘adjustments’ to a trial balance at the year end?
Bookkeeping records transactions; trial balances, statement of financial positions and income statements summarize and present the results of those transactions. It is unrealistic to expect such summaries to be ‘useful’, except in a very narrow sense. Discuss.How useful would you like financial
What are the three main sources of finance for businesses?
What are the main differences between preference shares and ordinary shares?
Explain the advantages and disadvantages of a company increasing its gearing.
You are given the following information about two companies:a You are required to calculate for each company for each year:i capital gearing ratio;ii interest cover;iii dividend cover;iv proportion of profits paid out as dividends.b Explain what each shows.c Comment on the financial performance and
Explain what factors affect a company’s dividend distribution in a year.
Complete the double entry for each of the following transactions:a Sales made for cash are credited to the sales account and debited to the __________.b Sales made on credit to Smith are debited to the Smith account, and credited to the __________.c Purchases made for cash are credited to the cash
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