DOLLAR AND SENSE

Facilitator- Zel Stankovic

Name: - Jay Kathe
Student No: - 00743065
No of Words: - 1150
TABLE OF CONTENTS

Answer 1 ……………………………………………………………………………….…………2.0.

Answer 2……………………………………………………………………………...3.0

Answer 3…………………………………………...5.0

Answer 4…………………………………………………………......7.0

References………………………………………………………………………...8.0
Answer 1.

A. When selling the inventories in the same price as original amount then in this case
the company’s revenue in terms of sales will increase but the profit ration will
decrease.
B. When purchasing the equipment, the ROA which is the return on assets will
decrease, eventually because the average number of sales will reduce the profit
margin for the firm. However, when purchasing an equipment for the business, it is
categorised as an asset on the business and thus equipment’s such as table, chairs
or vehicle can be categorised under asset to help and function the business.
C. When paying the creditor, the current amount of the ratio will increase and thus
on other hand it will reduce the liabilities, which will in turn lead to increasing in
the current assets and which will decrease the liabilities overall.
D. When purchasing the inventory on credit, this will lead the ration for current asset
to decrease and in turn will increase the current liabilities.
E. Collecting the funds as accounts receivable will decrease the time for debtors to
pay back and raise the turnover. Thus, this will lead to increase trade debtors and
will in turn decrease the sales for the business.
F. Selling an inventory to the customer will increase the turnover and thus which will
result in increase of sales in the business and which in turn will decrease the
average ration for the inventory.
Answer 2.

Financial statement ratio has significant limitations such as the financial statements are
considered as historic cost and can be mis leaded easily, additionally it also represents the
current positioning of the firm.

Historical cost refers to the past transactions and also transaction is at first recorded at
their expense. This only becomes a concern when inspecting the balance sheet, however,
the estimations of all the assets and liabilities may change in long run.

In the event that the inflation rate is generally high, the amount that is related with
resources and liabilities is yet to be determined in the balance sheet and it will
significantly show low as the inflation is being adjusted. This generally helps in
maintaining the long-term assets.

A view of financial statements can be obtained by looking at the business's financial

reports or cash flows. However, working time and operating hours might vary and thus
this might bring up a spike in sales and business. In order to get a better understanding of
the current performance, it is preferably better to look on the past financial statements.
Answer 3.

(A)

Limit Sanitizer n co.

Limit Sanitizer n co. as the name says it all. We have specialized hand sanitizer as in this pandemic
the most important thing for everyone’s safety. As the demand for hand sanitizer is increased too
much in the market and by use of hand sanitizer it can reduce the spread of covid-19 and can save
testing too. Experience the first spray based hand sanitizer in the market.

Name of cost Variable/fixed $ Value per item Explanation as to why

fixed/variable

Hand wash Fixed $5 As it’s per bottle and less people will

go for it n go for sanitizer.

Soap Fixed $3 It will be fixed as it will not change

the number of sanitizer produced

Face masks Variable $5 its variable as it will alter the output.

Facial wipes Fixed $10 its fixed cost as number of it can’t

change the output.

Sanitary pads Variable $10 its variable as it can alter the output.

Toilet paper Fixed $6 its fixed as the number of it can’t change

the output.

Face wash Fixed $8 its fixed because it doesn’t determine

any output.

Body spray Fixed $10 its fixed as it cant change the output.
Multi-vitamin tablets Fixed $25 its fixed as it’s a packed tablets and cant

change any output.

Immunity booster Variable $20 its variable because it changes the

output based on its quantity.

(B) I am selling hand sanitizer for $50 per unit. As it is on high demand and prevent spread of
covid-19. I produce 10 units of sanitizer per day and making $500 per day and making a profit of
$350 per day.

(C) Break even point for a month.

Contribution margin = revenue – variable

= 67 / ( 350 – 35)

= 0.21 per day ( 0.21 x 30)

= 6.38 units Approx = 7 units

Dollars

Breakeven in dollars = Fixed cost / contribution margin ratio.

One unit cost = $50

= 6.38 x 50

= $319.

(D) units to earn a desired profit.

Fixed cost + desired profit / contribution margin per unit.

= (67 + 5000) / 315

=16.08 units.

Dollars to earn a desired profit

( fixed cost + desired profit) / contribution margin

= 50 + 16.08 =$1608.
(E) In margin of safety the term indicates the amount of sales which are above the break even
point. As in simple words, the margin of safety indicates the amount by which the company’s sales
could decrease before the company has no profit.

Margin of safety in units is as follows-

Margin of safety = Sell – breakeven units

= 5000 – 6.38

=4,993 Units.

Margin of safety in dollars :

Sell – breakeven = 4,993 – 50

= 4,993 x 50

= $ 249650.

Answer 4.

(A)

i. The net present value for both the project is positive however the NPV for project Tuscany
is higher than project Bordeaux. Project Tuscany is beneficial and is higher because of the
higher NPV. The project Bordeaux NPV is $32,876 which is less than NPV for Project
Tuscany which is $38,367.
ii. When considering the payback period, the lower the payback period the better it is for the
firm to accept the project. Therefore, Project Bordeaux has lesser payback period
comparatively than project Tuscany. The payback period for Bordeaux is 1.3 years, where
as the project for Tuscany is 1.8 years. Henceforth, project Bordeaux is better because the
lower the payback period the quicker it is and the lesser the risk.
iii. The higher the accounting rate of return the more the investment and thus project
Bordeaux is better because the project Bordeaux has a higher accounting rate of return of
29.2% than the project Tuscany of 24.9%.

(B)

Based on the conclusion derived, method 3 is preferably better than other methods, where as on
other hand to determine the best projects the best project is project Bordeaux because it shows
the accounting rate of return and as this project has the highest rate of return of 29.2% and
whereas for project Tuscany the rate of return is significantly lower at 24.9%. I choose this method
because in long run its substantially better for the firm to invest in project Bordeaux and increase
the higher return to revenue, which thus leads the project Bordeaux to be more profitable among
both the projects.

REFERENCES

i. Scott, Dr 1941, 'The Basis for Accounting Principles', The Accounting Review, vol. 16, no. 4,
pp. 341–349.
ii. Limitations of financial statements, AccountingTools, viewed 12 January 2021,
https://www.accountingtools.com/articles/limitations-of-financial-statements.html.
iii. Accounting rate of return (ARR) method - example, formula, advantages and
disadvantages, Accounting for Management, 25 December, viewed 12 January 2021,
https://www.accountingformanagement.org/accounting-rate-of-return-method/
iv. (PDF) ANALYSIS OF FINANCIAL STATEMENTS, ResearchGate, viewed 12 January 2021,
https://www.researchgate.net/publication/338385318_ANALYSIS_OF_FINANCIAL_STATE
MENTS.