ACC00724 Accounting for Managers Assessment 2

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Accounting for Managers

Assessment No: 2

ACC00724|Accounting for Managers

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ACC00724 Accounting for Managers

Comment on liquidity and financial stability and calculate the overhead allocation rate


Task

QUESTION 1 (10 Marks)

Several potential investors have been studying the affairs Grafton Pty Ltd to decide whether to invest in the company by purchasing unsecured notes with the company was proposing to issue. The statements of financial position at 30 June 2018 and 2019 follow:

GRAFTON PTY LTD

Statement of Financial Position

As at 30 June

CURRENT ASSETS 2019 2018
Cash at bank $3,264 $2,832
Marketable securities $1,519 $1,775
Accounts receivable $1,178 $930
Inventories $2,619 $1,848
Other current assets $3,094 $3,605
Total Current Assets $11,674 $10,990
Non-Current Assets $19,960 $16,276
TOTAL ASSETS $31,634 $27,266
CURRENT LIABILITIES
$Accounts payable $4,880 $4,300
$Bills payable $1,574 $2,555
Current maturities of long-term debt $978 $450
Accrued expense $720 $728
Provisions $3,420 $2,345
Total Current liabilities $11,572 $10,378
NON-CURRENT LIABILITIES    
Long-term debt $5,800 $4,160
Accrued expenses (payroll) $5,425 $4,730
Other non-current liabilities $2,390 $2,055
Total Non-current Liabilities $13,615 $10,945
TOTAL LIABILITIES $25,187 $21,323
TOTAL EQUITY $6,447 $5,943
TOTAL LIABILITIES AND EQUITY $31,634 $27,266

Required:

  1. a.Calculate appropriate liquidity and financial stability ratios for the years ended 30 June 2018 and 2019. Research reveals that typical ratios in the industry for the current and quick ratios are 1.7:1 and 1.0:1 respectively. For financial stability ratios the Debt ratio (total liability/total assets) and the Leverage ratio (total assets/total equity), industry averages are 2.5:1 for the leverage ratio and 60% for the debt ratio. (must show your workings/calculations) (5 marks)
  2. b.Comment on the liquidity and financial stability of the company, given the information available. (3 marks)
  3. c.Would you, as one of the potential investors in unsecured notes, lend money to the company? Explain why or why not (2 marks)

QUESTION 2 (5 Marks)

Dunning Ltd. manufactures a popular power nail gun suitable for the home renovator. Financial and other data for this product for the last twelve months are as follows:

Sales 20,000 units
Selling price $130 per unit
Variable manufacturing cost $50 per unit
Fixed manufacturing costs $400,000
Variable selling and administrative costs $30 per unit
Fixed selling and administrative costs $300,000.

The directors of Dunning Ltd. want to try to increase the profitability of this product and invited senior staff to suggest how this might be done. Three suggestions have been received.

  • The accountant, Jim Jackson, believes that a price increase of $10 per unit is the best way to boost profits. He would spend an additional $125000 on national advertising and contends, that if this is done, sales volume would not drop appreciably from last year.
  • The production manager, Tim Walter, thinks that an improved quality product could increase sales volume by 25% if accompanied by an advertising campaign costing $50000 aimed at tradespeople as well as home renovators. The improved quality would add $5 per unit to the variable cost. Mr Walter believes that the price should not be increased.
  • The sales manager, Sandy Smith, wants to undertake a promotion campaign where a $10 rebate is offered on all nail guns sold during the three months beginning 1 April. Normally 6000 units are sold during that period and Ms Smith believes that this could be boosted to 10,000 units if an advertising campaign costing $40,000 were launched late in March.

You have been asked by the Dunning board to comment on each of these three proposals. Draft a report in response to this request. You are not asked to make an outright choice, but rather to analyse the potential strengths and weaknesses of each proposal by calculating break-even point. The sales volumes forecast by each staff member should be treated as estimates only and your report should examine the effects of variations in actual sales from these forecasts and its respective break-even point. Show your calculations to support your comments and mention qualitative factors that may also be involved.

QUESTION 3 (5 Marks)

ABC Ltd makes trailers. It receives a special order to produce 350 trailers for a local retail outlet. The order will take 2,100 kg of material that costs $16.10 per kg and will require 1,400 direct labour hours and 525 machine hours. The following are the expected/budgeted annual costs for ABC Ltd:

Direct labour $327,600
Direct labour hours 25,795
Direct materials $193,200
Indirect costs $98,400
Machine hours 9,840

Required: (must show your calculations/workings)

  1. a.Calculate the overhead allocation rate: note that the process is labour-intensive (1/2 mark)
  2. b.Calculate the total costs of the special order (1 mark)
  3. c.Calculate the cost of the special order if ABC Ltd uses machine time as the basis for allocating overheads (1/2 mark)
  4. d.Calculate the minimum price per trailer that ABC Ltd could accept. (1 mark)
  5. e.Write around 200 words explaining how segmenting the overheads can help in allocating overhead costs to individual jobs or services. You must support your discussion by readings and research and acknowledge the source of your information (referencing). (2 marks)

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TUTOR PROPOSAL FOR : ACC00724|Accounting for Managers

In ACC00724 Accounting for Managers Assessment 2, the statements of financial position at 30 June 2018 and 2019 are given about affairs that Grafton Pty Ltd decide to consider in the organization. In this, the main task is to give answers on different questions that have been given in the assessment item 2. On the basis of given statements about financial position of the organisation, I will give answers for below given questions:

Question 1:

  • In this task, calculate the appropriate liquidity and financial stability ratio on the basis of given statements for years 30 June 2018 and 2019. According to the research, it has been revealed that typical ratios in particular industry for quick and current ratios are 1.7:1 and 1.0:1.
  • Along with this, I will comment on liquidity and financial stability of the organisation by considering the available information given in statements.
  • I will also provide explanation with reasons as a potential investor that would I lend money to the organisation or not.

Question 2:

In task 2 of ACC00724 Accounting for Managers Assessment 2, detailed information regarding three different proposals have been given in which my task is to draft a report on the basis of request. I will analyse potential weaknesses and strengths of all the proposals by calculating breakeven point. The sales volumes forecast by all the staff members must be treated as estimation only and my report will examine the effects about variations in actual sales from given forecast and break -even point regarding them. My calculations will support all the comments that I have provided in the report and also mention qualitative factors that could also be involved in this discussion.

Question 3:

Task 3 of this report is about ABC Ltd organisation that makes trailers and received special order for producing 350 trailers for retail outlet. The main task that I will do in the report are as follows:

  • First of all, I will calculate the overhead allocation rate by considering the process about labour intensive.
  • After this, the calculation about total costs related to special order will also be done.
  • I will also calculate the cost of that special order if the company uses machine time for allocating overheads.
  • In addition to this, I will also make calculation about minimum price for each trailer that the company could accept.
  • In the end, write summary of approximately 200 words in which I will explain that house segmenting the overhead would help in the allocation of overhead costs to individual services or costs. This discussion will support different readings, researches and source of information in which I will provide reference list about all the sources or articles that I will consider for completing ACC00724 Accounting for Managers Assessment 2. In order to provide reference list, I will follow proper reference style according to the requirements of ACC00724 Assessment 2.