Questions and Answers of Introducing Accounting

(a) Why do you think capital investment is necessary for companies? (b) What sort of possible capital investment might there be in: (i) the shipping industry? (ii) the hotel and catering industry?
Discuss the general assumptions that underpin capital investment appraisal.
Briefl y outline the fi ve main capital investment appraisal techniques and then discuss the specifi c advantages and disadvantages of each technique.
Why is time money?
State whether the following statements are true or false. If false, explain why. (a) The five main capital investment appraisal techniques are payback period, accounting rate of return, net present
What are the appropriate discount factors for the following: (i) 5 years at 10% cost of capital (ii) 6 years at 9% cost of capital (iii) 8 years at 13% cost of capital (iv) 4 years at 12% cost of
A company, Fairground, has a choice between investing in one of three projects: the Rocket, the Carousel or the Dipper. The cost of capital is 8%. There are the following cash flows.Required:An
Wetday is evaluating three projects: the Storm, the Cloud and the Downpour. The company’s cost of capital is 12%. These projects have the following cash flows.Required:Calculate(i) the payback
A company, Choosewell, has £30,000 to spend on capital investment projects. It is currently evaluating three projects. The initial capital outlay is on a piece of machinery that has a four-year
A football club, Manpool, is considering investing in a new stadium. There are the following expected capital outlays and cash inflows for two prospective stadiums.Assume the football club can borrow
A company, Myopia, has the following details for its new potential product, the Telescope. Myopia’s cost of capital is 10%. The capital outlay is for the Jodrell machine which will last 10 years.
Why are the sources of finance available to a firm so important? What are the main sources of finance and which activities of a business might they finance?
What is working capital and how might a company try to manage it?
What are the advantages and disadvantages of retained funds, debt and equity as methods of funding a business?
What is the weighted average cost of capital and why is it an important concept in business finance?
State whether the following statements are true or false. If false, explain why. (a) Long-term sources of finance are usually used to finance working capital. (b) A trade receivables collection
Lathe plc is a small manufacturing fi rm. It buys in a subcomponent, the Tweak, for £1.50. The cost of insurance and storage per Tweak are £0.40 and £0.50 per item per year, respectively. It costs
A bookshop, Bookworm, buys 2,500 copies of the book Deep Heat per year. It costs the bookshop £0.80 per annum to carry the book as inventory and £20 to prepare a new order.Required:(i) The total
Winter Brollies wishes to revise its credit collection policy. Currently it has £500,000 revenue, a credit policy of 25 days and an average collection period of 20 days. 1% of debtors default.
Albatross plc has the following information about its capital:Required:What is Albatross’s weighted average cost of capital? Source of Finance Current Market Value million % Ordinary shares 4
Nebula plc is looking at its sources of fi nance. It collects the following details. Currently, there are 500,000 ordinary shares in issue, with a market price of £1.50 and a current dividend of
Distinguish between fixed and variable costs. Why are fixed costs irrelevant when making a choice between certain alternatives such as whether to produce more of product A or of product B?
What is contribution per unit and why is it so useful in short-term decision making?
What are the strengths and weaknesses of break-even analysis?
State whether the following statements are true or false? If false, explain why. (a) Fixed costs are those that do not vary with long-term changes in the level of revenue or production. (b)
Jungle Animals makes 10 model animals with the following cost structure.Required:(i) Calculate the contribution per toy.(ii) Calculate the contribution/revenue (sales) ratio per toy.(iii) Which two
An insurance company, Riskmore, has four divisions: car, home, personal and miscellaneous. These four divisions account, respectively, for 40%, 30%, 20% and 10% of revenue and 25% each of the
Scrooge Ltd is looking to outsource its accounts department. Ghost Ltd has approached Scrooge and offered to provide the service for £190,000. Scrooge Ltd ascertains the following costs are involved
A large hotel, The Open Umbrella, has two kiosks. One sells sweets and is open 35 hours per week. The second sells newspapers and magazines and is open 55 hours per week. Unfortunately, next week
Globeco makes four geographical board quiz games: France, Germany, UK and US. Globeco has the following recent results.For next year, there are only 1,500 direct labour hours available. Last year
Freya manufactures heavy-duty hammers. They each cost £4 in direct materials and £3 in variable expenses. They sell for £10 each. Fixed costs are £30,000. Currently 20,000 hammers are
Colin Xiao runs a restaurant which serves 10,000 customers a month. Each customer spends £20, variable costs per customer are £15. Fixed costs are £10,000.Required:(i) What are the current
A computer hardware distributor, Modem, has three branches in Cardiff, Edinburgh and London. It has the following financial details.Head office fixed overheads are £150,000.Required:(i) Calculate
What is strategic management accounting and how does it address some of the limitations of traditional management accounting?
‘Management accountants and strategy do not mix very well. Management accountants should, therefore, not involve themselves in strategic management accounting.’ Discuss the main arguments for and
Briefly outline the nature of the following techniques and then discuss their strengths and weaknesses: (a) value chain analysis (b) life cycle analysis (c) the product portfolio matrix (d) SWOT
Is growth through exploiting the internal resources of a company better than growth through acquisition/merger?
State whether the following statements are true or false. If false, explain why.(a) Strategic management accounting looks at both the internal and external environments of a business.(b) The cost of
You have the following details for three products (the maxi, mini and midi) for five years.Required:In Year 3, state at which stage of their life cycle you would anticipate the products to be
Four products (the apple, orange, pear and banana) have the following financial profiles.Required:Classify the products into either stars, cash cows, question marks or dogs. Explain if you would
You have the following details about Computeco, a computer games manufacturer and distributor. An internal and external audit establishes the following details of two products, the Kung and the
You have gathered the following information for a regional railway company.(a) The mission statement of the company is to survive, be profitable, be safe, give customers good service, run an
You sell the Feelgood, a health cushion, to 100,000 customers. Each cushion costs £25. You obtain the following breakdown of sales by customer category.Required:(i) Using this customer matrix, state
Jill Lee starts her business on 1 January with £15,000 in the bank. Her plans for the first six months are as follows.(a) Payments for goods will be made one month after purchase:(b) All revenue
John Rees has the following information for the six months 1 July to 31 December.(a) Opening cash balance 1 July £8,600(b) Sales at £25 per unit:Trade receivables will be paid two months after the
Fly-by-Night plc has the following revenue forecasts for the revenue for two products: the Moon and the Star.(a) The Moon will sell 1,000 units in January, rising by 50 units per month. From January
David Ingo has opening trade receivables of £2,400 (November £1,400, December £1,000). The trade receivables will be received two months in arrears. Credit sales in January will be £1,000 rising
Thomas Iger has opening trade payables of £2,900 (£400 October, £1,200 November, £1,300 December). Trade payables will be paid three months in arrears. Credit purchases in January will be £2,000
Brenda Ear will have production costs per unit of £5 raw materials, £5.50 direct labour and £2 variable overheads. Production will be 700 units in January rising by 50 units per
Roger Abbit has £1,000 opening inventory of raw materials. Purchases will be £900 in January rising by £200 per month. Production will be 240 units from January to March at £4 raw materials per
Freddie Ox has £9,000 of opening finished goods inventory. In July, 1,500 units will be produced at a production cost of £10 each. Production will increase at 100 units per month; production cost
Asia is a small non-listed manufacturing company. There are the following details: 1. Property, plant and equipment are at cost. Depreciation is at 10% straight line basis per year.2. Purchases will
Peter Jenkins manages a department and has the following budget for the year.Peter receives a budget of 10% of profit for any quarter in which he makes a minimum profit of £8,000. If he makes less
All Sunshine Enterprises runs a hire car service in three locations: London, Oslo and Stockholm. The three operating divisions have the following results for the year.Required:Calculate:a) Return on
‘Setting the standards is the most difficult part of standard costing.’ What considerations should be taken into account when setting standards?
‘Standard costing is good for planning and control, but unless great care is taken can often be very demotivational.’ Discuss.
Standard costing is more about control than motivation. Do you agree with this statement?
‘The key to standard setting is providing a good, fair initial set of standards.’ Discuss.
State whether the following statements are true or false. If false, explain why. (a) Favourable cost variances are where actual costs are less than standard costs. (b) Flexing the budget means
Stuffed restaurant has the following results for December 2012Required:(a) Calculate the flexed budget.(b) Calculate the sales price variance.(c) Calculate the overall cost variances for materials,
Engines Incorporated, a small engineering company, has the following results for April 2006 for its product, the Widget. It budgeted to sell 12,500 widgets at £9.00 each. However, 16,000 widgets
Birch Manufacturing makes bookcases. The company has the following details of its June production.Required:Calculate the:(i) overall direct materials cost variance(ii) direct materials price
Sweatshop has the following details of direct labour used to make tracksuits for July.(a) Standard: 550 sweatshirts at 2 hours at £5.50 per hour.(b) Actual production: 500 sweatshirts at 1,050 hours
Toycare manufactures puzzle games. It has the following details of its March production.Required: Calculate the:(i) overall direct materials cost variance(ii) direct materials price variance(iii)
Wonderworld has the following details for its variable overheads for August for its Teleporter. Each Teleporter is expected to take two labour hours and variable overheads are expected to be £2.50
Special Manufacturers has the following details for its variable overheads for July on its Startrek product. Each Startrek is expected to take three labour hours and variable overheads are expected
Peter Peacock plc manufactures a subcomponent for the car industry. There are the following details for August: Required:(i) Calculate the flexed budget and overall variances.(ii) Calculate the
Supersonic plc manufactures an assembly mounting for the aircraft industry. In July, it was expected that 80,000 assembly mountings would be sold at £18.80 each. In actual fact, 76,000 assembly
What are the advantages and disadvantages of budgeting?
Why do some people think that the cash budget is the most important budget? Do you agree?
The behavioural aspects of budgeting are often overlooked, but are extremely important. Do you agree?
State whether the following statements are true or false? If false, explain why. (a) The four main aspects of budgets are planning, coordinating, control and motivation. (b) The commonest limiting
What is creative accounting? And why do you think that it might clash with the idea that the financial statements should give a ‘true and fair view’ of the accounts?
Does creative accounting represent the unacceptable face of accounting flexibility?
Why do you think that there are those strongly in favour and those strongly against creative accounting?
What incentives do managers have to indulge in creative accounting?
Will creative accounting ever be stopped?
You are the financial accountant of Twister plc. The managing director has the following draft accounts. She is not happy.1. The company’s policy is to record revenue prudently, one month after
Why is the study of international accounting important?
What are the main divergent forces and which are the most important?
Compare and contrast the main features of the Anglo-American and continental European accounting systems.
Taking any one country, rank the divergent forces in order of importance.
Has the UK more in common with the US than with France?
Will the convergent forces outweigh the divergent forces?
What are the main branches of management accounting and what are their main functions?
Why do you think that management accounting has been so keen to lose its costing image?
What are the following types of cost and why are they important? (a) Direct cost (b) Indirect cost (c) Fixed cost (d) Variable cost (e) Standard cost
The management accountant has been described as a professional with a toolkit of techniques. How fair a description do you think this is?
Why have management accountants been criticised for being cost minimisers and how might they be revenue maximisers?
State whether the following statements are true or false. If false explain why.(a) The two main branches of management accounting are cost accounting and decision making.(b) Total absorption costing
What is costing and why is it important?
Compare and contrast the traditional and the more modern activity-based approaches to costing.
Overhead recovery is the most difficult part of cost recovery. Discuss.
Target costing combines the advantages of both market pricing and cost-plus pricing. Discuss.
State whether the following statements are true or false. If false, explain why. (a) A cost is an actual past expenditure. (b) When recovering costs for pricing we use total absorption costing.
Sorter has the following costs:Required: An analysis of Sorter’s costs between:(i) Direct materials(ii) Direct labour(iii) Production overheads(iv) Administrative expenses(v) Selling and
Costa has the following costs:Required:A determination of Costa’s:(i) prime cost(ii) production cost(iii) total cost Salaries of administrative employees Wages of factory supervisors Computer
Makemore has three departments: Departments A and B are production and Department C is a service support department. It apportions its overheads as follows (see brackets):You have the following
Flight has two products, the ‘Takeoff’ and the ‘Landing’. They go through two departments and incur the following costs:Takeoff’s indirect overheads are absorbed at £7 per labour hour for
An up-market catering company, Spicemeals, organises banquets and high-class catering functions. A particular function for the Blue Devils university drinking club has the following costs for 100

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