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ACC00724 - Accounting for Managers - Financial Statements - Investors - Accounting Assessment Answer
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ACC00724 - Accounting for Managers - Financial Statements - Investors - Accounting Assessment Answer
Task:
The following financial statements were prepared for the management of Morgan Ltd. The statements contain some information that will be disclosed in note form in the general-purpose external financial statements to be issued to the investors.
Income Statement
For the year ended 30 June 2018
Revenues (Note 2) $850,500
Expenses, excluding finance costs 686,700
Finance costs 6,300
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Profit before income tax 157,500
Income tax expense 63,000
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Profit $ 94,500
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Morgan Ltd
Statement of Financial Position
As at 30 June 2018
Current assets
Cash and cash equivalents $ 37,800
Accounts receivables $299,250
Less: Allowance for doubtful debts 18,900
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280,350
Inventories 252,000
_______
Total current assets 570,150
REQUIRED:
A. Name the ratios that a financial analyst might calculate to give some indication of the following cases:
1. A company’s earning power
2. The extent to which internal resources have been used to finance the acquisition of assets
3. The rapidity with which accounts receivables are collected
4. The ability of the entity’s earnings to cover its interest commitments
5. The length of time taken by the business to sell its inventories
B. Calculate and briefly discuss the suitability of the ratios mentioned for each of the above cases.
C. Given the above financial statements, comment on the company’s profitability and liquidity.
QUESTION 3
Lennox Company uses a job costing system. The company uses predetermined overhead rates in applying manufacturing overhead costs to individual jobs. The predetermined overhead rate in Department A is based on machine-hours, and the rate in Department B is based on direct labour cost. At the beginning of 2018, the company’s management has made the following estimates for the year:
Department A Department B
Direct labour-hours 15,000 30,000
Machine-hours 50,000 12,000
Direct labour cost $80,000 $172,000
Manufacturing overhead 162,500 215,000
Job 145 was initiated into production on August 1 and completed on September 15. The company's cost records show the following information on the job:
Department A Department B
Direct labour-hours 22 40
Machine-hours 80 20
Direct material used $450 $250
Direct labour cost 120 180
REQUIRED:
A. Calculate the predetermined overhead rates that should be used during 2014 in Department A and B. (1 Marks)
B. Calculate the total overhead cost applied to job 145. (1 Marks)
C. What would be the total cost of job 145? If the job contained 10 units, what would be the cost per unit? (1 Marks)
D. What factors should be considered in selecting a base to be used in calculating the overhead absorption or recovery rates? Discuss. Your discussion should be supported by readings and research. (2 Marks)
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