Professional Documents
Culture Documents
Question 1
Hawthorn Industries
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Hawthorn Industries
Cash Flow Statement - Workings
Operating Activities
Wage Expense as per Income Statement $ 49320 Rent Expense as per Income Statement $ 40000
+ Accrued Wages @ beginning 0 - Prepaid Rent @ beginning 0
- Accrued Other Expenses @ end 1720 + Prepaid Rent @ end 10000
= Cash Payments of Wages $ 47600 = Cash Payments of Rent $ 50000
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Question 2 solution
Part A
i)
$900,000 / 90,000 = $10 SP 10.00
$585,000 / 90,000 = $6.50 - VC 6.50
= CM 3.50 FC = $270,000
B/E = FC / CM$pu = $270,000/$3.50
= 77142.8 77,143 units required to break even
iv) CM ratio
CM$pu = $ 3.50 = 35%
SP$pu $10.00
Part B
The manufacturing director is correct. A price increase results in a higher unit contribution
margin. An increase in the unit contribution margin causes the break-even point to
decline.
The financial director’s reasoning is flawed. Even though the break-even point will be lower,
the price increase will not necessarily reduce the likelihood of a loss. Customers will
probably be less likely to buy the product at a higher price. Thus, the firm may be less
likely to meet the lower break-even point (at a high price) than the higher break-even
point (at a low price).
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Question 3 Solution:
Part A
a) X= Production overhead ÷ Direct labour cost
= $70,000 ÷ $200,000
= 0.35 (35%)
= $15/machine hour
= $70,000 ÷ 1,000
= $70/machine hour
= $150,000 ÷ 3,500
= $42.86/labour hour
Part B
Refer text, lecture and tutorial notes.
Part C
In manufacturing, product costs comprise raw materials, direct labour and manufacturing
overhead. Raw materials and direct labour, as direct costs, can be traced to the cost
object. Manufacturing overhead, as an indirect cost, is allocated. In some service
organisations, these cost categories exist in much the same manner. However, many
service organisations have little or no raw materials, as their main cost element is direct
labour. All other costs are treated as indirect or overhead costs, including minor
materials and consumables used in delivering the service. In service organisations,
upstream and downstream costs may also be included in overhead costs as costing of
services is not influenced by accounting standards.
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Question 4 Part A Solution:
a) Production capacity: 40,000
Idle capacity: 4,000 Special order for 6,000 knives
Variable manufacturing costs: $1,600,000/40,000 = $40/knife
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Question 4 Solution Part B
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Question 5 Solution
1. Which of the following is NOT an issue to be taken into account when deciding between
long-and short-term borrowing?
a) Flexibility
b) Balance Sheet Disclosure
c) Re-funding
d) Interest rates
5. The category of financial ratios that helps users to assess the ability of the business to
generate returns for its owners is:
a) Profitability
b) Efficiency
c) Liquidity
e) Gearing
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Jessie Ltd Total Assets = Liabilities + Owners' Equity
Non
Worksheet Current Assets Non Current Assets Current Liabilities Current Owners' Equity
Acc Prepaid Acc Bank Accrued Accounts Liability Retained
Bank Receiv Inv Exp Equip Depn O/draft Wages Payable Loan Capital Earnings Notes
Balance @ beginning $ 7000 5000 500 40000 -4500 4000 500 2000 16500 20000 5000
Transactions / Adjustments
Credit Purchases of stock 18000 18000
Cash sales 30000 30000 cash sales
- cost of sales -9400 -9400 cost of sales
Credit sales 17000 17000 credit sales
- cost of sales -7400 -7400 cost of sales
Paid Acc Pay -13000 -13000
Paid wages -9000 -500 -8500 wages
wages owing 1000 -1000 wages
Collection from Acc Rec 16000 -16000
Interest -500 -500 interest
Rent (last year's prepaid used this year) -500 -500 rent
Rent paid $8250 incl prepaid $250 -8250 250 -8000 rent
Depn 15% of cost -6000 -6000 depn
Bad debts -200 -200 bad debts
Balance @ end 11250 7800 6200 250 40000 -10500 0 1000 7000 16500 20000 10500
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Jessie Ltd
Profit or Loss Statement for year ended 30 June 2014
Sales
Cash Sales $ 30000
Credit Sales 17000 $ 47000
Jessie Ltd
Balance Sheet as at 30 June 2014
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