Contemporary Accounting A Strategic Approach For Users 10th Edition Phil Hancock, Peter Robinson, Mike Bazley - Solutions

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Qantas, as with other major airlines, is confronted with highly competitive domestic and international markets where a key element to being competitive is having best-in-class aircraft that meet the needs of travellers while doing so in a costeffective and efficient manner. The fleet choice
The accounting rate of return’s (ARR) formula of net profit after tax divided by investment value uses financial variables similar, if not equivalent, to the metrics used in the calculation of the return on investment (ROI). Hence, a manager who has their remuneration linked in part to the ROI
Information and communication technologies (ICT) have infiltrated most aspects of business activity and will continue to grow in importance as process automation, advanced data analytics, voice authentication, artificial intelligence (AI), connected devices, application programming interfaces (API)
The Porter Group is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, net cash flow for each proposal is as follows and estimated income from operations:The company’s capital rationing policy requires a maximum cash
Reflex Ltd is considering the purchase of a new punch machine to produce sporting medallions. The machine would cost$21000 cash. A service maintenance contract on the machine is essential and would cost an extra $1500 per annum. The expected life of the machine is four years and the expected
Silver Corporation is evaluating five investment opportunities to draw upon a maximum of $150 000. The company’s cost of capital is 10 per cent. No investment is accepted if the payback period is greater than four years. The company will only accept a maximum of three investment projects. The
AKP Fashion Designers are considering two investment projects. The estimated net cash flows from each project are as follows:Year Plant expansion($)Retail store expansion ($)1 100 000 150 000 2 130 000 120 000 3 150 000 110 000 4 130 000 110 000 5 170 000 190 000 Total 680 000 680 000 Each project
Option A has a project investment cost of $20 000 which will realise a $2000 salvage value on disposal at the end of the fifth year. Over its five-year useful life, the investment will return an annual annuity in arrears of $6000. The required rate of return is 10 per cent.Use the data below to
The following details are available for three projects:Cash flow ($)Project Year 0 ($) Year 1 ($) Year 2 ($) Year 3 ($) Year 4 ($) Year 5 ($)1 –5000 500 500 500 500 5500 2 –5000 1319 1319 1319 1319 1319 3 –5000 – – – – 8053 a Calculate the net present value of each of these projects,
The Fidget Co. is proposing to spend $91 280 on a seven-year project whose estimated net cash flows are $20 000 for each of the seven years.a Calculate the net present value using a rate of 15 per cent (use the table of present values in Appendix 2).b Based on the analysis prepared in (a), is the
Bloggs Ltd has to replace its widget-making machine in five years. The company estimates the new machine will cost$30 000. It wishes to provide for this machine by putting aside a regular annual amount in a reserve. Natbank has offered the company two options:a Deposit five equal amounts at the
Many contemporary capital investment proposals can have a significant information and communication technology (ICT) component. What are the difficulties associated with identifying and measuring the variables to be accounted for when using DCF analysis for evaluating proposals with a high ICT
‘When it comes to making a capital investment decision, it is only the quantitative outcomes that really matter.’Critically evaluate this statement using a capital investment that you have some knowledge of to illustrate your response.
Discuss why a firm may choose to undertake a postimplementation audit and the factors that determine when and which implemented projects are to be audited.
Two mutually exclusive capital investment proposals have been evaluated using DCF analysis and the difference between their NPVs is marginal. Briefly explain how a consideration of strategic or qualitative factors might influence the evaluation of the two proposals.
‘When using DCF analysis to make an investment decision, many overheads, including depreciation, are irrelevant.’ Critically evaluate this statement and comment on the extent that overheads, including depreciation, are relevant or irrelevant to an investment decision.
NPV and IRR are two DCF methods for analysing a proposed capital investment. Briefly explain how each method can be used to make a capital investment decision and the strengths and weaknesses of each.
A manager said to a company’s shareholder, ‘When it comes to the time value of money, there are two things to remember, it is my time and your money.’ Is this what is meant by the time value of money concept?
Figure 18.1 identifies seven steps for making an investment decision. Noting the investment decision occupies Step 5, discuss the importance of Steps 1 to 4 to the successful implementation of a preferred project.
In what ways do strategic capital investment decisions differ from the day-to-day operational matters that managers devote most of their time and thought to?
Qualitative factors are not capable of being quantified in terms of costs and revenue. They may stem either from nonfinancial objectives or from factors that might be able to be quantified in monetary terms, but because there is insufficient information to make reliable estimates, they have not
The cost associated with the depreciation of an asset is based on the historic cost of that asset. As the historic cost of an asset is the result of a past decision, which means it is a sunk cost, it is irrelevant to the decision to be made. It follows that depreciation expense, which is based on
An opportunity cost is defined as the maximum benefit that could be obtained from a resource if it were used for some alternative purpose other than the opportunity under consideration. Therefore, opportunity costs of resources are relevant costs in decision making.
An avoidable cost is a cost that can be avoided if an opportunity is not taken up. These are relevant costs as they are directly attributable to the decision to take up an opportunity. In contrast, an unavoidable cost is one that will be incurred regardless of whether the decision in relation to a
A sunk cost is a past cost incurred as a result of a past decision. It follows that these costs are irrelevant to future decisions.Sunk costs can be easily identified because they have been paid or are subject to legally binding contracts, which means the firm can no longer recover them.
As the personal assistant to your company’s managing director, you have been requested to prepare a confidential report on the possible closure of the Hobart factory and the centralisation of all activities within the Perth facility. Two major reasons appear to be behind the request for the
Eatinatural Ltd specialises in the manufacture and sale of health foods. The company has just completed market research on a new type of organic toothpaste called Abrasive. The budget, derived from the market research for one year’s production and sales, was presented to the board by the
Burco Ltd produces and sells two products: X and Y. During the last year, 700 hours were worked and the operating results were as follows:X Y Total Units sold 1 000 1 000 2 000 Sales $10 000 $20 000 $30 000 Variable costs:Labour ($2 000) ($5 000) ($7 000)Materials ($5 500) ($9 000) ($14 500)Total
You have recently been appointed as a consultant to the Murphy Manufacturing Company. The management of the company has prepared a report showing certain data concerning the two products Mox and Tox. The following information has been extracted from this report:Mox Tox Monthly sales in units 1 000
Robinson’s Alphabet Products (RAP) manufactures three products: A, B and C. Each product is manufactured on two different types of plant and equipment: machining and assembly. Estimates for the sales and production activity for the three products for next year are as follows:Details Product A
Pigeon Ltd proposes a production plan for this year, aiming to maximise profits. The following details are available:A B C D E F Labour hours per unit 7.00 9.00 5.00 10.00 6.00 7.00 Machine hours per unit 4.00 3.00 1.00 3.00 1.00 5.00 Maximum demand 2 500 1 200 700 1 100 700 2 900 Selling price
TVS Ltd manufactures a range of digital flat-screen television sets. At present, the company is able to sell only 80 per cent of the plant’s capacity of its 70-centimetre digital sets. These sets are sold to retailers for $2000 per unit. With the present production, TVS sells 10 000 sets, and has
Philco is a manufacturer of portable analogue radios. For a production run of 20 000 units, the cost per radio is as follows:$Direct materials 27.00 Direct labour 13.00 Variable overhead 6.00 Fixed overhead 10.00 Fixed overhead is applied on a per-unit basis.Dorro Ltd has offered to supply the
Mikel Ltd manufactures components for bicycles. At the moment, sales are 100 000 units at $10 per unit. Fixed costs are$500 000 and variable costs are $5.50 per unit.If Mikel stopped production, it would still have long-term fixed costs of $100 000.a Should Mikel stop production? If not, what steps
At present, Coyle Ltd manufactures all the components that go into making up its finished products. A components supplier has offered to fulfil the company’s requirements in relation to two components, the BC100 (at $7.75 each) and the BC200 (at $2.00 each).If the company buys in components, the
Gallop Corporation Ltd has two divisions: production and assembly. The cost per unit that is charged by the production division to the assembly division is set to increase from $12 to $15, which is the same price as customers pay when they purchase directly from the production division. The manager
The MNO Company manufactures gas cylinders for use in campervans and caravans. The costs per cylinder are as follows.$Direct materials per unit 25.00 Direct labour per unit 20.00 Variable overhead per unit 10.00 Fixed overhead (per month) 125 000 MNO manufactures and sells 2000 cylinders per month
XYZ Ltd manufactures two products. On average, it sells 40 000 units of product 1 and 60 000 units of product 2 each year. This year the company has a restricted advertising budget of $50 000, which is only sufficient to effectively promote one product. The marketing department estimates that
Advance Ltd manufactures two solar-powered frisbees – ild One and Bold One. The company has only a limited supply of skilled labour, which is essential in the production process.554 2 A AA A Copyri
However, if the part is purchased, 75 per cent of total fixed manufacturing overhead costs will still be incurred.Required Should Agro make or buy the part?
Agro Company produces 10 000 units of part 7021 for its products. The unit cost per unit of part 7021 is as follows:$Direct materials 5 Direct labour 10 Variable manufacturing overhead 6 Fixed manufacturing overhead 8 Total 29 Agro can purchase 10 000 units of part 7021 for $25.00 each. If the part
Sprinks Ltd produces three products: A, B and C. The following is an estimate of costs and revenues for the forthcoming year:A B C$ $ $Sales 32 000 50 000 45 000 Total cost 36 000 39 000 33 000 Net profit (loss) (4 000) 11 000 12 000 The total cost of each product comprises one-third fixed costs
Calculators Ltd manufactures and sells pocket calculators. The price of these calculators is $22. The company’s current output is 45 000 units per month, which represents 90 per cent of its productive capacity. Kodix, a chain-store customer which specialises in selling electronic goods, offers to
The Platinum, a 5-star 500 room beachside resort, has been approached by Australia’s Luxury Escapades (ALE) to be part of its next multimedia sales promotion to intending holiday-makers. ALE would like to offer a package of nights (i.e.three, five and seven nights) and room grades (i.e. superior,
A firm can make many short-term decisions (e.g.‘retain or replace’; ‘make or buy’; ‘continue with or discontinue’) where a decision-maker needs to identify relevant costs. In identifying relevant costs, other cost concepts, such as opportunity and sunk costs, may need to be identified.
In making a short-term decision, such as make or buy, where no constraints exist, explain why a decision cannot be properly made when managers only consider financial data. What other forms of data should be gathered prior to deciding to make or buy?
Drills-R-Us manufactures a critical component it uses in assembling automated drilling rigs. It has received an offer from an overseas supplier for a version of the component that is 5 per cent lower than the company’s cash cost of making. Identify and discuss two qualitative factors Drills-R-Us
In some circumstances, the opportunity cost of a resource might be higher than the resource’s purchase price. Explain why this might be the case.
Explain why a shortage of resources in an organisation is a short-term phenomenon.
In the majority of cases, fixed costs are irrelevant in decision making, but on some occasions, they are relevant. Describe the circumstances when fixed costs are relevant to future decisions.
Discuss the reasons why accrual accounting methods are not appropriate for decisions concerning the future.
The margin of safety is the excess of budgeted (or actual) sales revenue over break-even sales. The margin of safety can also be measured as the excess of budgeted (or actual) units sold over break-even sales in units.
The contribution margin is the difference between total revenue and total variable costs (irrespective of whether they are manufacturing or non-manufacturing costs). The contribution margin can be measured as a percentage of sales, dollars per unit or total dollars. The contribution margin per unit
The BEP is the point where costs are exactly covered by income and there is no profit or loss.
Golden Bakeries Ltd has three major product lines: bread rolls, doughnuts and fudge cakes. For the year ended 31 December, Golden Bakeries Ltd achieved the following sales volumes:Bread rolls Doughnuts Fudge cakes Total Sales in kilograms 400 000 100 000 100 000 600 000 The incomplete statement of
This year, Ashfield Ltd sold 8000 car alarms at $90 each. The following details are available.Variable costs per unit Total fixed costs Production $50 $100 000 Selling $10 $80 000$60 $180 000 Ashfield can reduce its variable production costs by $10 per unit if it invests $100 000 in new
Einstein Medallions manufactures medals made of rare and precious metals. The Platinum product line is the sole product line manufactured at the company’s Yokine minting facility and the line comprises three different medals: TY-01, TY-02 and TY-03.Currently the production of these three medals
Fishy Limited has determined the number of units of Product Y that it would have to sell in order to break even. However, Callum Murray, company CEO, would like to attain a 30 per cent profit before tax on sales of Product Y.Required a Explain how break-even analysis can be used to determine the
DEF Ltd produces digital radios and sells these for $250 each. The company can produce a maximum of 5000 units per year. Variable costs are $185 per unit and fixed costs are $243 750 per year, regardless of production.a Calculate the break-even point.b What is the profit for the company if it sells
The Incr-Edible Pie Eating Company has the following revenue and cost functions for next year:Total revenues = $30x Total costs = $400 000 + 20x where x = number of units Required a Prepare a break-even chart for the Incr-Edible Pie Eating Company. Label the vertical axis in $100 000 amounts to a
The Threadbare Clothing Company has to decide whether to produce trousers or skirts. The manager knows that the demand for trousers is 1200 per month at a selling price of $45 each and the demand for skirts is 800 at $45 each. Costs of production are as follows:
You are in charge of organising a conference for a group of 40 accounting academics. You have obtained the following details:Rental of conference venue $3 500 Speakers’ fees and reimbursed travel costs $5 250 Notebooks and pens (for 40 conference packs) $400 Cost of lunch and morning and
The Green Finger Co. is considering an investment in a new compost bin. The equipment is expected to generate additional annual sales of 5000 units at $20 per unit. The cost of the equipment is $160 000 and it is expected to have a 10-year life and zero residual value. Selling expenses related to
Clean-it Pty Ltd makes washing machines, and with its existing plant capacity the maximum production possible is 1000 units per year. Total fixed costs are estimated at $240 000 per annum and the selling price of each machine is $1160.Sales for the next year are expected to drop to 900 units. The
Cleaner Homes 4U offers cleaning services for households. The company has budgeted fixed costs of $3000 per month for office rent, advertising and a receptionist. Variable expenses for the cleaners’ wages and cleaning supplies are $100 per average job. Cleaner Homes charges $150 for the average
Mr Potter sells various pottery items at local markets. His total fixed expenses (depreciation on the kiln, utilities, tools and portable selling booth) are $10 000 per year. The average price for a piece of pottery is $15.00, and the average variable cost (e.g. clay, paints, glazes and price tags)
Remember Enterprises manufactures miniature digital diaries. Variable costs are $30 per diary, the selling price is $45 per diary and total fixed costs are $120 000.Required a What is the contribution margin for one diary?b How many diaries must Remember Enterprises sell to break even?c If Remember
With a sales figure of $500 000, Fidget Ltd achieves the budgeted break-even point for widget sales. Fixed costs are$200 000 per annum.a What is the contribution margin in total and as a ratio?b If variable costs are $6 per widget, what is the selling price?c If 55 000 widgets are sold, calculate
In the table below, fill in the blank spaces.W X Y Z Total sales revenue $72 500 $42 000 $60 000 Total variable costs ($17 000) ($40 000)Total contribution margin Total fixed costs ($20 000) ($24 000)Total costs ($72 500) ($50 000)Total profit before tax $10 000 $5 000 $9 000 Income tax (@ 30%) ($3
In the table below, fill in the blank spaces.A B C D Total sales revenue $30 000 $50 000 $40 000 Total variable costs ($15 000) ($10 000)Total contribution margin Total fixed costs ($12 000) ($22 000)Total costs ($20 000) ($25 000)Total profit before tax $15 000 $5 000 Income tax (@ 30%) ($3 000)
Identify and briefly discuss the limitations of CVP analysis for making short-term managerial decisions.
Chaos Ltd distributes products into markets with a downward-sloping demand curve. The budget for next year is forecasting that the company will be lucky to break even. At a recent meeting of the corporate executive, it was suggested that Chaos Ltd ought to increase the selling prices of its
Activity-based costing (ABC) is said to give a better understanding of the true cost behaviour of many manufacturing overheads. For example, many fixed manufacturing costs previously perceived as being fixed vary according to the number of batch- or productsustaining level activities undertaken.
Happy Ltd sells products X, Y and Z. The budgeted sales mix for the three products is 50 per cent of X, 30 per cent of Y and 20 per cent for Z. The budgeted contribution margins per unit are $2.00 for X, $2.50 for Y and $3.25 per unit for Z. Annual total fixed costs are budgeted to be $720 000. How
What is meant by the term ‘sales mix’ and why is it important in determining the break-even point in a multi-function firm?
Manufacturing firms that utilise advanced manufacturing technologies typically have a higher proportion of their cost structure comprised of fixed costs. Briefly discuss what this might mean in terms of contribution margin per unit sold, the break-even point in units sold and the margin of safety.
How can CVP analysis assist a firm to make decisions about next year’s selling prices, production volumes and promotional expenditures?
Why is it useful to prepare a CVP chart when illustrating the impact of changing volumes on revenues, costs and profits?
In undertaking CVP analysis, several important assumptions must be made. Identify and briefly explain two such important assumptions.
If the fixed costs associated with a product increase while variable costs and the selling price per unit remain constant, briefly explain what will happen to:a contribution margin b break-even point.
Suppose a firm with a contribution margin ratio of 0.3 increased advertising expenses by $10 000 and found sales increased by $30 000. Why is this simple problem an important one?
Explain why the contribution margin produces profit when an entity sells goods above the break-even point.
What are the problems associated with CVP analysis in a multi-product firm?
The cash budget helps a business to plan when to invest excess cash at the highest rates and, when necessary, to borrow cash at the cheapest rates. It also allows a business to decide when it may have the cash resources to embark on property, plant and equipment upgrades. If a business is not able
It is important that there is communication between sales and production departments so that production levels do not fall short of expected sales, or exceed them by too great a margin. If there is no communication, the business may incur the costs of lost sales or storage and potential stock
In the case of a small retail business, the main emphasis of the budget will be on consumer sales and, in particular, any changing pattern of sales. Attention will also be given to ensuring that there are sufficient purchases to meet customer demand. Typically, in a manufacturing business, budget
The master budget normally represents a summary of the individual functional budgets of the organisation as a whole.It conventionally consists of a budgeted statement of profit or loss and other comprehensive income and a statement of financial position.
If budget goals have no flexibility and are set too high, employees will become demotivated, which can result in poor quality work, absenteeism and so on.
A budget is a defined plan of action expressed in monetary terms. However, it should be stressed that different types of organisations will require different types of budgets to enable them to function effectively. The budget must match the organisation’s circumstances, for example, units of
Faraday Ltd is a wholesaler. The management has been extremely worried about the entity’s cash position over the last few years. In January, they sought your advice and asked you to prepare a cash budget for the forthcoming months of April, May and June. In addition, they asked you to write a
Alan Blue is considering going into business by opening a supermarket. Suitable premises have been found. Before granting him overdraft and lending facilities, his local bank has asked him to draw up a cash budget for the first three months of trading.Required a Prepare a cash budget that covers
Borough Equipment Ltd produces two products, A and B, for sale to electrical wholesalers. The following information relates to the six months ending 31 December:Overheads for the six months are expected to be $25 000. The company uses a variable costing system and treats overheads as a period
The financial controller of BBQ Essentials requests estimates of sales, production and other operating data from the various administrative units every month. Selected information concerning sales and production for May is summarised as follows:Sales territory Estimated sales for May Basic backyard
The owner of a business that sells fitness equipment for use in homes has requested a forecast of sales from her two salespeople for the next three months. She is trying to prepare a cash budget for the first quarter of next financial year. The two sales representatives provide the following sales
The finance manager of Art & Craft Direct Ltd has provided the following information:Materials used in manufacture Enamel ($) Paint ($) Porcelain ($) Total ($)Total purchases budgeted for June 28 580 5340 96 400 130 320 Estimated inventory, 1 June 1250 2400 4540 8190 Desired inventory, 30 June 2000
Kanga Pie Company produces two types of pie: chicken and fish. The monthly sales budget is for sales of 20 000 chicken pies and 12 000 fish pies. Pies are snap-frozen after manufacture. For this month, opening inventory is 2000 chicken pies and 1500 fish pies. Kanga wishes to budget for a closing
Buzzbub is preparing its quarterly production budget and the following forecast information is available:Product Estimated sales (units)Opening inventory(units)Closing inventory(units)P 300 15 30 Q 35 10 5 R 100 10 15 Required a Prepare the production budget in units.b Give the total cost of
CJH Ltd is preparing its annual budget. The following data is available:
With reference to Sivraj Ltd (Worked example 15.1), prepare a statement of profit or loss and other comprehensive income and a statement of financial position from the data provided.
Jenny Smith, a university student, decided that she needed to prepare a cash budget on her personal finances for the months March to June inclusive. From the following information, prepare a cash budget for Jenny for each month and comment on her cash position:$Cash balance at 1 March 2637 Paid

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Contemporary Accounting A Strategic Approach For Users 10th Edition Phil Hancock, Peter Robinson, Mike Bazley - Solutions

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