Management and Financial Accounting Teamwork - Accounting & Finance Assignment Help

Assignment Task

Part One
Management Accounting
Margaret enjoys leathercraft, designing and making small things such as bracelets, wallets, and handbags. She has had success selling her products at the local market and has been having trouble keeping up with the demand for products, particularly during the busy summer seasons. She is now planning to turn her hobby into a business, Craft Leather, focusing on her handbag designs.
Her sales figures of handbags for the last year are shown below.
Handbags Nov - Jan Feb - Apr May - July Aug - Oct
Average sales per month 80 60 40 60
Margaret sells the handbags at around $60 each. Her major expense making the handbags is the leather material. On average each handbag requires 0.2 metres of leather. The leather costs $120 per metre, and the fittings cost $1.00 per handbag. All the leather and fittings must be shipped into Tasmania and takes a month to arrive. Margaret will need to have enough material on hand at the beginning of each month for the next month’s production (note: this means the material costs will occur two months before the sales).
Margaret currently sources her leather from an environmentally accredited tannery in South Australia. Margaret makes mention of this in all her advertising material. She has seen cheaper leather from overseas on the internet, $100 per metre, but up until now her level of production has not been sufficient to warrant checking out alternate suppliers.
Margaret currently makes her products at home but will need more space if she expands her production and store her products. She has found a space in a cooperative Art Centre to establish a workshop. She can lease the space for $600 per month paid three months in advance and can cancel the arrangement at any time with only one months’ notice. The cooperative Art Centre also operates a shop and will display and sell her products on commission. She expects they will sell 40% of her handbags. They will keep 25% of the sales price. Margaret plans to establish a stand in the Salamanca Market each Saturday. She will also set up an online presence to take orders for products. She anticipates this business arrangement will enable her to double her sales from the previous year if she works in the business full-time.
Other expenses are estimated to be as follows:
Stall fee $100 per week
EFTPOS $40 per month
Advertising $50 per month
Website administration $500 per annum
Miscellaneous costs $30 per month
Margaret plans to commence the business 1 September 20XX. She anticipates it will take one month to get setup and source materials and another month to prepare goods for sales. She plans to start selling her handbags from 1 November 20XX.
Margaret has some funds she can contribute to the business to cover the setup costs for three months’ worth of materials and rent. Margaret also has some leatherwork tools she currently uses however she will need to purchase some equipment to be able to expand her production to the level required for the business. She will need to borrow money to finance the purchase. She estimates the equipment will cost around $40,000. The equipment has a useful life of 5 years with a residual value of $10,000. Her parents have agreed to lend her the money at a flat interest rate of 6%, interest to be paid at the end of each year. The principal to be repaid in five years’ time. If she buys the equipment, she will be able to expand her products but has no idea of future demand at this stage.

Your Team is required to:
Use management accounting tools to prepare calculations to assess Margaret’s business concept.
Prepare a sales, production, and materials budget for the first two years of operation.
Using this information, prepare budgeted income statements for both years.
Calculate the breakeven quantity of sales and margin of safety for both years (note the commission is a variable cost). Present this information in units and dollars.
Assuming the business will operate for five years. Use your calculations for the profit for year one and two and then year two as the average operating revenue and costs for years three, four and five calculate the following details.
Calculation of the Accounting Rate of Return (ARR),
Payback Period, and
Net Present Value for the equipment.
Your calculations should be prepared in an Excel workbook and you must use a separate excel worksheet for each main point above (a,b,c and d). Your worksheets will need to be linked where appropriate. Take care with your formatting and ensure all worksheets are clearly labelled. The workbook should be labelled Group X Part One.
Write a 500-word informal report to advise Margaret on the outcomes of your calculations above and also about possible factors that should be considered when assessing true ‘performance’. These factors could be non-financial in nature (both positive and negative). Also include some information that Margaret should consider if she sources her leather material from an alternate supplier in the future.

Part Two
Financial Accounting
Margaret decided to open Craft Leather on 1 September 20XX. She contributed her leatherwork tools to the business valued at $2,000 and deposited $15 000 cash in a business bank account. The tools have a useful life of five years with no residual value.
Margaret uses a periodic inventory system.
Transactions up to 30 November 20XX are as follows:
Sept1Prepaid three months of rent $1800.
6Ordered 32 square metres of leather at $120 per square metre and $160 worth of fittings to be paid on delivery.
6Received the loan of $40,000 from her parents.
7Organised a website and paid an annual fee $500 (note: do not treat as a prepayment).
10Purchased the leather work equipment for $40,000 using cash.
27Received and paid for the leather and fittings ordered 6 September.
Oct13Ordered another 32 metres of leather at $120 per metre and $160 worth of fittings on credit, to be paid on delivery.
15Purchased advertising brochures for stall and Art Centre shop $220.
25Paid EFTPOS account fee, $40.
30Received and paid for the leather and fittings ordered 13 October.
30During the month produced 160 handbags, using 32 metres of leather and $160 worth of fittings. (hint: decrease the leather material and leather supplies and increase inventory).
Nov6First market stall day was very successful - sold 35 bags for $2,100 for cash.
6Paid market stall fee $100.
13Ordered another 32 metres of leather at $120 per metre and $160 worth of fittings.
13Second market stall day - sold 30 bags for $1,800.
13Paid market stall fee $100.
18Received payment from Arts Centre shop, 10 handbags sold for $600 commission paid.
18Received order online for one handbag.
20Market stall day sold 44 bags for $2,640.
20Paid market stall fees $100.
21Completed the ordered handbag and received $80, paid $20 postage for order.
25Paid EFTPOS account fee $40.
27Market stall day sold 40 bags for $2,400.
27Paid market stall fees $100.
28Received and paid for the leather and fittings ordered 13 November.
30During the month produced 160 handbags, using 32 metres of leather and $160 worth of fittings.
 

Your Team is required to:
Margaret has requested that you prepare a worksheet, Income Statement and Balance Sheet for the first three months of operation so that she can assess the business.
She has asked that you record the depreciation expense for the equipment for the three months to the end of November. She has also asked that you calculate and record the interest on the loan accrued to date.
Margaret is using a periodic inventory for the handbags, leather supplies and fittings. At the end of each month, she records the handbags in inventory and reduces the balance of the leather and fittings accounts accordingly. Margaret has $4,000 worth of handbags on hand at the end of November.
Margaret requests that you prepare the following:
worksheet for the transactions for the quarter September through to November,
an Income Statement for the quarter September – November, and
Balance Sheet as at the end of November 20XX.

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