ACC00724 - Accounting for Managers - Morgan Ltd - Statement of Financial Position - Morgan Ltd - Statement of Changes in Equity - Accounting Assessment Answer

Assessment Task:

ACC00724: Accounting for Managers Assessment Answer

QUESTION 1 
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.

Morgan Ltd
Income Statement
For the year ended 30 June 2018
Revenues (Note 2)                                         $850,500
Expenses, excluding finance costs (Note 4)   686,700
Finance costs                                                    6,300
-------------
Profit before income tax                                   157,500
Income tax expense                                          63,000
-------------
Profit                                                                $ 94,500
========

                                       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
--------------

                                                               280,350
Inventories                                              252,000
_______ 
Total current assets                                 570,150

Non-current assets
Land                                                        63,000
Building                                                   $189,000
Less: Accumulated Depreciation            37,800

_________                                             151,200

Store equipment                                     47,250
Less: Accumulated Depreciation           22,050

_________                                             25,200
_______
Total Non-current assets                      239,400
_______
Total assets                                              809,550

Additional information:
1. The balance of certain accounts at the beginning of the year are:
Accounts receivables $315,000
Allowance for doubtful debts (26,350)
Inventories 220,500

2. Total assets and total equity at the beginning of the year were $756,000 and $368,550 respectfully.
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 acquisition of assets
3. 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 2 
Koala Bear Day-care provides day-care for children from Mondays through Fridays. Its monthly
variable costs per child are:
Lunch                                                                                                     $100
Educational supplies                                                                                 75
Other supplies (paper products, toiletries, etc.)                                        25
                                                                                                         ____________
                                                                                                            Total $200

Monthly fixed costs consist of:
Rent                                                                                                        $2,000
Utilities (electricity, water, telephone expenses)                                       300
Insurance                                                                                                  300
Salaries                                                                                                    2,500
Miscellaneous                                                                                            500
                                                                                                              _________
                                                                                                            Total $5,600

Koala Bear charges each parent $600 per child.
REQUIRED:

A. Calculate the break-even point. 

B. Koala Bear’s target profit is $10,400 per month, calculate the number of children who must be enrolled to achieve the target profit 

C. Koala Bear lost its lease and had to move to another building. Monthly rent for the new building is $3,000. At the suggestion of parents, Koala Bear plans to take children on field trips. Monthly costs of the field trips are $1,000. By how much should Koala Bear increase fees per child to meet the target profit of $10,400, assuming the same number of children as in requirement B?

D. How can a company with multiple products calculate its break-even point? Discuss and support your discussion by readings and research.

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

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