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business
accounting for business

Questions and Answers of Accounting for Business

3 In the Lucas and Prowle study, the authors found the failure of smaller firms to make overhead allocations to be appropriate, on cost benefit grounds. Do you agree?
4 What, in the Lucas and Prowle study, do you understand by the term ‘facility sustaining’?
Hector and Co. Ltd has been invited to tender for a contract to produce 1,000 clothes hangers. The following information relates to the contract: Materials: The clothes hangers are made of metal wire
LO1: Explain the nature of full costing, and the reasons why this information is useful to managers
LO2: Deduce the full cost of a unit of output in a single or multi-product (or service) environment, differentiate between direct and indirect costs, and discuss the problem of charging overheads to
LO3: Explain the advantages of segmenting overheads, and use this approach to apply overheads on a departmental basis
L04: Explain the principles of activity-based costing, apply cost drivers, and compare the traditional system of total absorption costing with activity-based costing
LO5: Identify and explain the main uses of full cost information, and the main criticisms of full costing, and apply the concepts of relevant costing and full costing appropriately to several
12.1 LO1/2 Distinguish between:???? ???? • job costing???? ???? • process costing???? ???? • batch costing.What problems tend to occur with each of these?
12.2 LO1 What costs would be included in the full cost of a box of cereal for a corner grocery store that offers free delivery within one kilometre of the store? Why would this information be useful
12.4 LO1/2 Which of the following businesses would be likely to use job costing, and which would use process costing or batch costing????? ???? ????????????????
12.5 LO4 Describe the basic principle of activity-based costing (ABC).
Bodgers Ltd operates a job costing system. Towards the end of each financial year, the overhead recovery rate (the rate at which overheads will be charged to jobs) is established for the forthcoming
How do you decide whether a cost is classified as direct or indirect?
Can the classification of a cost as direct or indirect change within an organisation?
How might two accountants come up with two different figures for costs of the same product?
What problems does this cause for the managers using the figures provided?
This chapter discusses 'segmenting' the overheads. What is meant by this term? How does this help in allocating overheads to individual jobs or services?
Identify and discuss the changes in manufacturing that have created potential problems for traditional manufacturing overhead allocation. What is batch costing, and how does it apply aspects of both
Buisman Company holds 500 kilograms of Material X42 left over from its purchase at $10 per kilogram for a special contract. Buisman could sell the 500 kilograms for $12 per kilogram and can currently
Discuss the relative merits and demerits of absorption costing and relevant costing. Describe the kind of circumstances in which each might be appropriate to use.
What sort of time frame does the full costing concept use? Are you likely to be overcharged or undercharged by a garage that charges for its car repairs using process costing?
What's one key factor that we have ignored with the determination of the cost driver for a particular item? (Hint: What's the logical extension of simple regression?)
One of the criticisms of full costing is that very few companies are in a position to set prices on a cost-plus basis. They have to accept the market price. What use is cost information to companies
Given that ABC should give more accurate estimates of costs, it can be argued that it is surprising that it is not more widely used. Do you agree?
What reasons can you think of that might prevent widespread use? Research shows that the direct labour hour basis of overhead absorption by cost units (products) is the most popular basis in
1 Set out a statement for each of the next two years of possible production showing the costs and revenues you consider relevant to the decision under consideration. State your assumptions and/or
2 Make a recommendation as to whether Toymakers Ltd should proceed with the MacBains, and briefly identify any other information that would be useful.
LO1 Explain why cash and cash flows are important to the reporting entity
LO2 Explain the nature, purpose and layout of the statement of cash flows
LO3 Prepare a simple statement of cash flows
LO4 Prepare a reconciliation of profit with cash flow from operating activities, and explain how useful this is in decision-making
LO5 Identify some of the potential complexities that arise with statements of cash flows
LO6 Explain what the statement tells us, and illustrate how the statement of cash flows can be useful for identifying cash flow management strengths, weaknesses and opportunities, both historically
1 What are the likely personal costs of running out of cash in the way outlined above?
2 Summarise the main reasons for the failure of Pie Face. How might these reasons impact on cash flow?
3 If you were just starting your own business, what steps might you take to minimise the possibility of failure through overtrading?
4 How might you address the questions as to how much credit you would give and what payment terms you would allow customers? What would this imply for the cash resources needed to set up your
5 How important do you regard this last decision?
1 How can a company make a paper loss and survive?
2 How frequently do you check your own personal bank account?
3 What kind of information about cash flows would you require for your own business? How frequently would you wish this information to be available?
4 Do you agree that you can have too many statistics? Do accounting statements run the risk of causing information overload?
5 Do you think that information on cash flows is more useful than the income statement and balance sheet?
Assume that last year’s statement of cash flows for Angus Ltd showed a ‘negative’ cash flow from operating activities. What could be the reason for this? Should the company’s management be
1 Why do you think that BP considers operating cash flow a key performance indicator?
2 Would you expect operating cash flows to be of a similar magnitude each year? If not, why not? What might explain variations?
3 How important do you regard free cash flow?
4 What factors do you think need particular attention when planning for next year’s operating cash flows?
1 The importance of operating flows is clear. What questions arise for you when considering just the first two lines of the statement relating to receipts from customers and payments to suppliers and
2 Do you see anything else of interest regarding other items in the operating flows?
3 Identify the main differences between the figures for cash flows from investing activities over the two years covered by the statement?
4 Why are the financing flows so different over the two years?
5 What are your initial thoughts regarding the level of dividends paid?
The relevant information from the accounts of Dido Ltd for last year is as follows:$m Sales 500 Cost of sales (300)Depreciation (34)Other expenses (44)Profit for the year 122 At the beginning of the
2 Prepare a statement reconciling the profit for the year with the cash flows from operating activities.
Can you think of other non-cash business transactions that must be adjusted for in preparing the statement of cash flows?
You are told that:• land and buildings were revalued upwards by $20,000• fixtures and fittings, which had cost $5,000, and which had been depreciated by $3,000, were sold for $1,000.(a) Calculate
(b) Show the relevant extracts from the statement of cash flows.
Explain how the reconciliation statement can be useful in working capital management.(a) Do you see any particular difficulties in using the financial reporting framework for forecasting purposes?
(b) How do you think that a forecast statement of cash flows might help in planning and decision-making?
LO1: Explain why cash and cash flows are important to the reporting entity
LO2: Explain the nature, purpose and layout of the statement of cash flows
LO3: Prepare a simple statement of cash flows
LO4: Prepare a reconciliation of profit with cash flow from operating activities, and explain how useful this is in decision-making
LO5: Identify some of the potential complexities that arise with statements of cash flows
L06: Explain what the statement tells us, and illustrate how the statement of cash flows can be useful for identifying cash flow management strengths, weaknesses and opportunities, both historically
The statement of cash flows is similar to the statement of financial performance in what basic respect? How is it different?
What is the cash flow statement equivalent to the statement of financial performance 'bottom line'?
Identify the three categories of the sources (uses) of cash used in the statement of cash flows.
For a newly established and growing entity, what would the expected cash flows be from the three separate activities?
Does the reconciliation of profit to cash flow from operations prove that the statement of cash flows has been prepared correctly?
In accordance with Australian Accounting Standards, you have revalued your land and buildings upwards by $20,000.
Where does this revaluation show on the statement of cash flows? What information does the cash flow statement provide that is not available from the statement of financial position or the statement
Explain how the following accounts could change, as indicated, without a cash flow consequence: (a) an increase in the land account (b) an increase in share capital (issued) (c) a decrease in the
As a first-year accounting student, Irene is confused. She thought she was learning that accrual accounting provided more useful information about the financial performance and position of an
How does the accountant decide whether to classify an interest payment or receipt as an operating activity?
There are two methods of calculating 'cash flow from operating activities': the direct method (gross flows) and the indirect method (reconciliation). (a) Explain the difference between the two
The net cash flow from long-term borrowing during an accounting period can basically be determined through a comparison of the long-term liabilities at the beginning and end of the year. Describe two
How do projected financial statements assist in the decision-making, planning and control processes?
How would you convert 'cash received from customers' from the cash flow statement into sales revenue for the statement of financial performance? Assume no bad debts.
Your brother (tech-head) insists that depreciation is a source of cash. He cites the fact that depreciation is an 'add back' item on the reconciliation of net profit to cash flow from operations. Set
What would you expect to observe in the reconciliation of 'profit after tax' to 'cash flow from operating activities' over a period of years in a business suffering financial stress?
A stated advantage of the statement of cash flows is that it identifies possible sources of future cash flows. Explain how it might do this.
1 Explain why preparation of a set of projected financial statements might be useful.
2 Make the necessary computations to reflect the plans outlined above, clearly stating any assumptions.
3 Comment on the feasibility of the plans, and suggest any courses of action that management might take.
4 Evaluate the use of the projected financial statements in terms of efficiency of planning and decisionmaking in the context of this particular business.
5 State what advantages there might be in using spreadsheets to prepare statements of this type.
6 Sensitivity analysis is an analysis in which variables in a decision are changed one at a time, with the view to identifying which variables are most important to the success of the decision, plan
LO1 Outline and discuss a range of social and environmental issues, and the way in which accounting can contribute
LO2 Explain what is meant by corporate social responsibility and the Ceres Principles
LO3 Outline the major studies that have occurred on accounting for corporate social responsibilities
LO4 Explain triple bottom line reporting
LO5 Outline the Global Reporting Initiative, and discuss its main framework in broad terms and its linkage with ideas of integrated accounting
LO6 Explain the balanced scorecard approach and its advantages.
1 Why do you think that the public suddenly cut back savagely on purchases of supermarket branded milk?
2 Do you believe that the actions of Coles in launching a new milk brand that would contribute to a fund to help support dairy farmers in Victoria had any credibility?
3 Do you think that the issue has any long-term implications for the two supermarkets?
4 Do you think that the two supermarkets have any responsibility for the wellbeing of their dairy suppliers?Should the consequences of the price war, in terms of both suppliers and consumers, have

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