UNIT CODE: ACT205 UNIT NAME: ACCOUNTING FOR MANAGERS

Assignment Information

Semester 1 2023 Assessment 45%

The assignment is to be submitted before 23.59pm Monday 12th June 2023 in Week 14

The assignment must be lodged online via the ACT205 Learnline Assignment Lodgement link on the ACT205 Learnline site

Assignment should be typed. Only word docs and/or Excel converted to pdf will be acceptable. Handwritten answers will be rejected.

Question One

Peter is a manager employed by Hempworth Trading Pty Ltd. He is worried that the company's cash position is not as strong as it should be as whenever he pays the trade accounts payables the business is short of cash.

He has asked you to look at how long it takes to collect the accounts receivables and what the size of the average accounts receivables would be if the company was able improve the collection period so that it was less than the payment period for payables of 30 days. He thought that a collection period of 28 days would be reasonable. All sales are on credit terms.

He also believes that the inventory stays too long in the company's warehouse and that the cash flows would be improved if inventory could be turned around in a shorter period thereby lessening the stockholding costs and improving cash flow. He thinks that a target turnaround of 30 days should be achievable.

The following data was extracted from the financial statements:

Required

Hempworth Trading Pty Ltd

Profit and Loss Account (Extract)

for the year ended 30th June 2023

Net Sales $1,250,000

Cost of sales 765,712

Hempworth Trading Pty Ltd

Statement of Financial Position (Extract)

As at 30th June

2023 2022

Current assets

Accounts receivable $172,725 $128,645

Inventory 100,997 75,222

Write a business letter to Peter advising him about:

a) The current collection period for accounts receivables and what the projected average accounts receivables would be if the collection period was reduced to 28 days.

b) The benefits and risks associated with a reduced accounts receivable collection period.

c) Themethodsthatthecreditcontroldepartmentcanemploytoimprovethecollectionof accounts receivables.

d) The time that the inventory currently stays in the warehouse and what the average inventory value would be if Peter's target of 30 days was met.

e) The benefits and risks associated with a reduced inventory holding period.

(Total 8 marks)

Question Two

Required:

Prakash and Declan run a bakery in Palmerston. They have estimated their cash receipts and payments for the quarter ending 30th September 2023.

July August September

Receipts Sales ....................................................................................................................... $198,000. $231,000 $282,000 Sale proceeds of old ovens......................................................................................................................... 97,500 Payments Ingredients...........................................................................................................51,000 58,650 71,850

Head Baker's wages........................................................................................15,000 15,000 15,000

Salaries and retail staff wages...................................................................52,500 58,500 67,500

Replacement ovens.........................................................................................198,750 Rent and administration expenses..........................................................30,000 30,000 30,000

At the 30th June 2023 the business had a bank balance of $58,350.

a) Prepare a cash budget for July, August and September 2023 identifying the monthly total receipts, total payments and the anticipated closing bank balance at the end of each month.

b) Prakash and Declan have been looking at the opportunity for expansion of their business. At the moment they are replacing the old equipment but are considering the purchase of additional ovens with a larger capacity in the future in three to four years' time.

They would like advice about leasing the replacement ovens instead of buying them outright in July and how this could affect their projected cash flow and the flexibility of their options. They have advised you that the monthly lease payments would be $17,250 per month.

Prepare an amended cash budget to reflect a leasing agreement instead of an outright purchase of the replacement ovens and explain the differences to Prakash and Declan.

(Total 15 marks)

Question Three

Wonderful Pile Pty Ltd manufactures a range of carpet shampoos which includes three products, Weekly Spruce shampoo, Monthly Shine shampoo and Quarterly Touch shampoo. Their projected sales and cost data for the financial year 2023/4 based on past practice are as follows:

Required:

Weekly Spruce Monthly Shine Quarterly Touch

Sales mix (350,000 units) 87,500 122,500 140,000

Selling price $28 $38.50 $24

Variable cost per unit 20 24.50 14

Total fixed costs $555,900

a) Calculate the break-even point in total units and units per product for the 2023/4 projections.

b) Calculate the before tax profit (loss) for 2023/4 based on these projections.

c) Acompetitorhasbeenincreasingtheirmarketshareandthemanagementteamat Wonderful Pile Pty Ltd are keen to change their focus and at the same time increase their profit before tax.

They have suggested that they should concentrate on the product with the highest contribution margin and propose changing the sales mix to 20% Weekly Spruce, 50% Monthly Shine and 30% Quarterly Touch whilst maintaining the same total sales of 350,000 units. This initiative would increase fixed costs by $58,900.

Advise management whether this proposal will increase profit before tax, any changes to the break-even point in total units and units per product, and any other observations that you consider relevant.

(Total 14 marks)

Question Four

Humpty Doo Production Systems Pty Ltd make designer kitchen furniture for the Top End home market. There are two types of product, the Family Suite, and the upmarket Designer Suite. In September 2023 420 Family Suites were made and 105 Designer Suites were created which incurred indirect production overhead costs of $119,700.

A breakdown of the indirect production costs is shown below:

Activity Cost driver Total cost

Materials handling Number of requisition orders $40,950

Machine set-ups Number of machine set-ups 44,100

Quality inspections Number of quality inspections 34,650

Total $119,700

1,050 735 990

Total

The cost driver volume for the two products is shown below:

Cost driver Family Suite Designer Suite

Number of requisition orders 840 210

Number of machine set-ups 420 315

Number of quality inspections. 570 420

Required

a) Calculate the indirect activity cost rate for each activity using the total amount of each cost driver.

b) Allocate the indirect production overhead costs for September to the products using the activity cost rates calculated in (a).