Questions and Answers of Business Accounting

Reed Ltd manufactures three products A, B and C. Budgeted costs and selling prices for the three months ending 30 September 2016 are as follows:Labour costs are £3 per hour, and material costs are
Paul Wagtail started a small manufacturing business on 1 May 2015. He has kept his records on the double entry system, and has drawn up a trial balance at 30 April 2016 before attempting to prepare
Vale Manufacturing started in business on 1 April 2015, and incurred the following costs during its first three years.Required:(a) Prepare a statement showing the gross profit for each of the three
(a) What are the differences between marginal cost pricing and full cost pricing?(b) How far is it true to state that marginal cost pricing is a short-term strategy?(c) A.S. Teriod Ltd makes five
A Khang Ltd manufactures digital photo albums. The following information is available for the year ending 31 December 2018.Required:(a) Prepare the statement of profit or loss for Khang Ltd for the
(a) Define the term equivalent production and state when the principle is used.(b) During May 2017, M Wurzel & Co. Limited’s output was 4,000 finished items plus 600 partly finished items. There
(a) Explain the difference between the terms overhead allotment, overhead apportionment and overhead absorption.(b) Why are estimated figures used in calculating overhead absorption rates?(c) The
Horden Products Ltd manufactures goods which could involve any or all of three production departments. These departments are simply entitled A, B and C. A direct wages cost percentage absorption rate
From the information given below, you are required to:(a) Prepare a standard cost sheet for one unit and enter on the standard cost sheet the costs to show sub-totals for:(i) Prime cost(ii) Variable
Explain the concept of economic order quantity (EOQ); its advantages to businesses that use it; and the assumptions made in using it.
For the year ended 31 December 2017, the quantities of units sold are expected to be:The opening inventory at 1 January 2017 will be 144 units. The closing inventory desired at 31 December 2017 is
Took comes to see you in March 2016. He is full of enthusiasm for a new product that he is about to launch on to the market. Unfortunately his financial recklessness in the past has led him into
Draw up a cash budget for F. Jack showing the balance at the end of each month, from the following information for the six months ended 31 December 2017:(a) Opening cash (including bank) balance on 1
Mtoto Ltd operate as wholesale ‘cash and carry’ stores and in addition to its main store have two other depots. The company’s summarised statement of financial position as at 31 August 2018 was
David Llewelyn has been advised by his bank manager that he ought to provide a forecast of his cash position at the end of each month. This is to ensure that his cash inputs will be sufficient to
The managing director of Pumpkin Ltd was reviewing the results of the company for the financial year ended 31 March 2017. The following summarised information was available:The managing director was
Belinda Raglan owns a clothing factory. Trading over the last two years has been very successful and she feels that having achieved good results it is now time to request an increase in the overdraft
Moray Ferries Ltd own a single ship which provides a short sea ferry service for passengers, private vehicles and commercial traffic. The present ship is nearing the end of its useful life and the
Using detailed examples, write a report explaining the differences between a cash budget, a cash flow forecast, and a statement of cash flows.
Richard Toms has agreed to purchase the business of Norman Soul with effect from 1 August 2017. Soul’s budgeted working capital at 1 August 2017 is as follows:In addition to paying Soul for the
A company’s estimated pattern of costs and revenues for the first four months of 2017 is as follows:1 One-quarter of the materials are paid for in the month of production and the remainder two
F. Tain is opening his first boutique on 1 July 2018. He is investing £30,000 as capital. His plans are as follows:(i) On 1 July 2018 to buy and pay for premises £60,000; shop fixtures £4,000;
M. Lamb is going to set up a new business on 1 April 2018. She estimates that her first six months in business will be as follows:(i) She will put £60,000 into a bank account for the business on 1
The following information has been extracted from the books of Issa Ltd for the financial year ended 31 December 2017.The company had commenced the preparation of its budget for the year ending 31
The statement of financial position of Pies and Cakes Ltd at 30 June 2018 was expected to be as follows:The plans for the six months to 31 December 2018 can be summarised as:(i) Production costs per
The summarised statement of financial position of Newland Traders at 30 May 2017 was as follows:Selling and materials prices at 30 May 2017 provide for a gross profit at the rate of 25% of sales.The
Len Auck and Brian Land trade as partners in Auckland Manufacturing Company making components for minicomputers. To cope with increasing demand the partners intend to extend their manufacturing
Central Grid plc manufactures tungsten parts which pass through two processes, machining and polishing, before being transferred to finished goods. The management of the company have in operation a
Borrico Ltd manufacture a single product and they had recently introduced a system of budgeting and variance analysis. The following information is available for the month of July 2018:12 Standard
Singleton has been operating for some years as a manufacturer of a single product, and after several years’ growth has decided to form a company Singleton Ltd.His accountant advised him that in an
The following information relates to The Melted Cheese Company Ltd for the year to 31 December 2018:Calculate the price, volume and mix variances for 2018.
The following data was collected for Metal Chain Ltd for the year ended 31 October 2018.Calculate the price, volume and mix variances for the year. Budget Budget selling sales units Product
Felicidade plc manufactures a detergent in one of its factories. The information for the year to 30 June 2018 was as follows:The standard cost of manufacturing a litre was £3.10.Calculate the price
The Morningside Company Ltd had the following results for the year to 31 December 2017. A single product – a woggley – was made by the company.The standard cost of manufacturing each unit was
If fixed costs are £70,000; selling price per unit is £14; and the variable cost of each unit in £6:(a) What is the number of units sold at which a profit will be made for the first time?(b) What
Which of the following two mutually exclusive alternatives should be selected if a 6% interest rate is used for the calculation of net present value? Machine X project Machine Y project Net cash flow
The annual profit forecast for a project is:The project requires that a new machine be purchased for £180,000. It will be depreciated using the straight line method over five years to a residual
What is the payback on a project requiring £60,000 initial investment that has a net cash inflow of £41,000 in Year 1, £23,000 in Year 2, and £8,000 in Year 3?
Polemic Ltd manufacture and sell a single product. The following information is available for three financial years ending 30 September.Additional information:(1) When the management of Polemic
At the monthly senior management meeting of Hampshire plc on 1 May 2017, various suggestions were made to improve the profit to be made by selling the firm's single product in the last quarter of the
Magwitch Limited’s finance director produced the following forecast breakeven chart for the year ending 31 May 2018:During the year the company produced and sold 20,000 units, and both revenue and
What is the internal rate of return on the project in Question 50.7?Data From Question 50.7What is the payback period on the following project cash flows? (Brackets indicate expenditure.)
Look at your chart again and use it to find the profit or loss recorded at(a) 1,000 units, (b) 4,000 units, (c) 6,500 units and (d) 8,500 units.Before proceeding, look at the answers to this
Assuming that all sales are for cash, what is the internal rate of return on the project in Question 46.15A?Data from Question 46.15The annual profit forecast for a project is:The project requires
Which of the following two mutually exclusive alternatives should be selected if a 5 per cent interest rate is used for the calculation of net present value? Machine X project Machine Y project Net
Using internal rate of return, which of the two projects in Question 46.17 would be preferred?Data from Question 46.17Which of the following two mutually exclusive alternatives should be selected if
Which of the following two mutually exclusive alternatives should be selected if a 7 per cent interest rate is used for the calculation of net present value? Project X Project Y Net cash flow Year
Using internal rate of return, which of the two projects in Question 46.19A would be preferred?Data from Question 46.19Which of the following two mutually exclusive alternatives should be selected if
Equipment with an estimated useful economic life of four years has an NPV of £4,200 using an 8 per cent discount rate. What is the annualised equivalent of the £4,200 NPV?
Two mutually exclusive alternatives are available. Project X will require initial investment of £50,000 and run for three years at a cost of £8,000 per annum. Project Y will require initial
A machine with a four-year useful life could be purchased for £50,000. It would have zero residual value at the end of the four years. Alternatively, the machine could be rented at £15,180 per
What sorts of things were done in this investigation phase?
What is e-commerce?
Compared with businesses operating in a traditional trading environment, what advantages concerning receipt of payment can you see for a business operating in a B2C environment?
What happens in a typical business-to-consumer transaction?
What impact is e-commerce having upon the role of the accountant?
Why can retail businesses not afford to ignore e-commerce?
For the company in Question 37.3A, what would be the costs of the following jobs, given that the direct labour rate per hour is Dept P £6; Q £9; R £8; S £11; T £10?Data from Question 37.3:A
Calculate the appropriate overhead variances from the following data.(a) Budgeted for £9,000 variable overhead expenditure and 1,500 labour hours of production activity.(b) Budgeted for £60,000
Calculate the overhead variances in the following cases:(a) Budgeted for £19,000 fixed overhead. The actual fixed overhead turns out to be £18,109.(b) Budgeted for production of 6,000 units in 300
Calculate the overhead variances of Mark & Son Ltd. The budget is prepared as:(a) Total budgeted variable overhead: £120,000.(b) Total budgeted fixed overhead: £48,000.(c) Budgeted level of
Calculate the overhead variances of Changes Ltd. The budget is prepared as:(a) Total budgeted variable overhead; £80,000.(b) Total budgeted fixed overhead; £120,000.(c) Budgeted level of production
The Morningside Company Ltd had the following results for the year to 31 December 20X7. A single product – a woggley – was made by the company.The standard cost of manufacturing each unit was
Felicidade PLC manufactures a detergent in one of its factories. The information for the year to 30 June 20X5 was as follows:The standard cost of manufacturing a litre was £3.10.Calculate the price
The following data was collected for Metal Chain Ltd for the year ended 31 October 20X8.Calculate the price, volume and mix variances for the year. Budget Budget selling sales units Product
The following information relates to The Melted Cheese Company Ltd for the year to 31 December 20X1:Calculate the price, volume and mix variances for 20X1. Budget Product units XY
Singleton has been operating for some years as a manufacturer of a single product, and after several years’ growth has decided to form a company Singleton Ltd.His accountant advised him that in an
Flint Palatignium Ltd calculates the prices of its output by adding a mark-up of 15 per cent to standard costs. These standard costs are arrived at by reference to budgeted outputs and estimated
HGW Limited produces a product called a Lexton. The standard selling price and the manufacturing costs of this product are as follows:The projected production and sales for March 20X4 were 520
If fixed costs were £7,000 and the contribution per unit were £2, what would be the break-even level of sales?
Hedges Ltd has fixed costs of £8,000. The variable costs are £4 per unit. The revenue (selling price) is £6 per unit. You are required (i) to draft a schedule as follows filling in the columns
Cover up the schedule you constructed as your answer to 44.1(i) and look instead at the break-even chart constructed as the answer to 44.1(ii). Answer the following:(a) What are the total costs at
Look at the chart again and, without looking back at what you have just read, attempt to answer the following two questions by taking readings off your chart:(i ) What would the total costs of the
Look at your schedule in answer to 44.1(i) and answer the following:(a) What are the total costs at production levels of (i) 4,000 units; (ii) 7,000 units; (iii) 9,000 units;(iv) 5,500 units? You
Polemic Ltd manufacture and sell a single product. The following information is available for three financial years ending 30 September.Additional information:1. When the management of Polemic
From the schedule in 44.1(i), calculate the profit or loss that would be made at levels of (i) 3,000 units; (ii) 10,000 units; (iii) 4,000 units; (iv) 7,000 units; (v) 8,500 units Data from
From your break-even chart for 44.1(ii), calculate the profit or loss that will be made at levels of (i) 3,000 units; (ii) 10,000 units; (iii) 4,000 units; (iv) 7,000 units; (v) 8,500 units.Data
The relationship between income/cost/volume suggests that there are four ways by which profit can be increased. These are:1. Increase unit selling price.2. Decrease unit variable cost.3. Decrease
At the monthly senior management meeting of Hampshire plc on 1 May 19X0, various suggestions were made to improve the profit to be made by selling the firm’s single product in the last quarter of
Magwitch Limited’s finance director produced the following forecast break-even chart for the year ending 31 May 19X1:During the year the company produced and sold 20,000 units, and both revenue and
You are employed by Monarch Ltd which manufactures specialist hydraulic seals for the aircraft industry. The company has developed a new seal with the following budgeted data.The draft budget for the
(a) How far is it true to state that a company’s break-even point occurs where the contribution just equals the fixed costs?(b) A company’s detailed information of costs and sales has been
(a) If you were lent £17,000 for 64 days at 6 per cent, how much interest would you pay?(b) If a debt factor offered to discount a £4,000 bill of exchange at 12 per cent, and if the bill had an
What is the real rate of interest of discounting the bill of exchange in Question 45.1?Data from Question 45.1(a) If you were lent £17,000 for 64 days at 6 per cent, how much interest would you
Interest of £600 is charged and included in a loan of £4,200, i.e. the £4,200 received included the £600 interest charged. The loan has to be repaid at £1,050 per quarter over the next 12
If £5,000 is invested for four years at 7 per cent compound per annum, how much interest is earned over the five years?
If the interest on the investment in Question 45.4 had been compounded every six months, how much interest would have been earned over the four years?Data from Question 45.4If £5,000 is invested for
Shares bought on 1 January 20X4 for £2,500 were sold on 31 December 20X8 for £4,400. What was the rate of annual compound interest on the investment?
Should you accept an offer of £50,000 for your rights over the next 12 years to the £5,000 annual rent from shop premises you own and have leased to a local company? You could invest the £50,000
In relation to the rental income, what rate of interest does the offer made in Question 45.7 represent?Data from Question 45.7 Should you accept an offer of £50,000 for your rights over the next 12
A condition of an 8-year loan of £40,000 is that the borrower will pay equal annual amounts into a sinking fund so that it accumulates at the end of the 8 years to the amount of the loan. The
If the interest on the sinking fund in Question 45.9 were at 7 per cent, how much would the annual payments into it be?Data from Question 45.9A condition of an 8-year loan of £40,000 is that the
What is the implied interest rate if equipment can be leased for three years at £8,000 per annum and the cash price is £21,000?
The annual rental payments on a five-year lease are £11,000. If the rate of interest payable on borrowing for this purpose is 9 per cent, what is the capital value of the lease?
The following project costs have been estimated relating to the upgrading of some equipment; all the costs are being incurred solely because of the project:Ignoring tax, prepare a statement showing
If you had £5,000 to spend today and had the choice of investing it in a five year bond with a bank, or lending it to a friend who had just opened a restaurant and who offered you 10 per cent of the
Assume the company in Question 46.1 pays tax at 30 per cent, on 30 September each year, nine months after the end of its financial period. The company receives 20 per cent writing-down allowances on
Assuming an interest rate of 6 per cent, what is the net present value of the net of tax cash flows in Question 46.2 for 20X4, 20X5, 20X6 and 20X7?Data from Question 46.2Assume the company in
How could you address these deficiencies to ensure payback was effectively applied?
If two projects both require the same investment and one has an NPV of £100 and the other an NPV of £240, which should be selected? Would this always be the case?

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