Revision Paper Assessment 1

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The University of Sydney *

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Accounting

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Apr 3, 2024

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1 ASSESSMENT ONE REVISION BREAK-EVEN – exam practice 1. Calculate the number of units that need to be sold to earn a profit of $150 000 if fixed costs = $950 000, variable costs per unit = $76 and the selling price per unit = $1 420. Show all working. 2. “Break Even Analysis is a useful planning tool used in management accounting . ” Discuss. 3. Distinguish between fixed and variable costs. Provide examples of each. 4. Use the following business information to answer question 4. Narvey Horman is a TV retailer. He expects to sell 100 TV’s each month. Each TV is bought from his supplier for $300 and he plans to break even after 10 months. Fixed costs for the period are $25 000. a) Calculate the price for each TV to break even after 10 months. Show all working. b) If sales decrease to 50 per month, calculate the new break-even price. Show all working.

2 c) Outline two (2) strategies Narvey Horman could implement to improve sales. d) Calculate the profit or loss Narvey Horman would make after 12 months if each TV was sold for $400 and 100 were sold each month. (Assume fixed costs are still $25 000.) Show all working. 5. Heidi’s Headwear is in the fashion business and makes hats from natural Australian materials. The fixed costs of operation for Heidi’s factory total $1 800 per month. The material cost for each hat is $5. Each hat takes two hours to make and the business pays its workers $7 an hour while making the hats. The hats are sold for $30 each. a) If Heidi’s Headwear expects to sell 200 hats per month, calculate how much profit will be made at this level of sales. b) Heidi is considering leasing machinery to manufacture the hats. This would increase the firm’s monthly fixed cost to $3 000 and decrease labour costs to one hour per hat. If Heidi still expects to sell 200 hats per month, calculate how much profit the firm would make if it leased the machinery. c) Explain whether or not Heidi’s Headwear should lease the machinery if 200 hats are sold every month.

3 6. Clarify the term contribution margin. BUDGETING – exam practice 7. Outline the role and purpose of a budget. 8. Why it is useful to perform a variance analysis? 9. Distinguish between significant and insignificant variances in budget analysis. 10. Recommend an appropriate cash management strategy for each of the following business scenarios. Provide justification . a) Penny has just received her annual insurance bill costing $25 000. Her business has had a poor level of cash flows this year and she is concerned about paying this expense.

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4 b) A warmer than expected winter has caused a fall in the sale woollen jackets in Jason’s clothes store. As a result, he has experienced a dramatic drop in his overall cash receipts. 11. Use the following information to answer question 11: Chan Industries expects its credit sales for the months of January, February and March to be totals of $200 000, $275 000 and $310 000 respectively. It is expected that 60% of the sales will be collected in the month of sale, and 40% will be collected in the following month. (Note: credit sales for December were $150 000). Calculate anticipated cash collections from customers for each month in the schedule below. Schedule of Estimated Receipts from Debtors Month Credit sales Est. Receipts January Est. Receipts February Est. Receipts March December January February March $ $ $ 12. Use the Profit & Loss Variance Analysis for Pete’s Packaging Store (SGA 38) to answer the following questions: a) Analyse the variance in Gross Profit.

5 b) Outline possible impacts of the variance in the advertising expense. 13. Complete (i) to (v) in the Variance Report below for Marvellous Mobiles. Marvellous Mobiles Cash Variance Report for the month ending 31 st July, 20X3 Budget Actual Variance Cash Receipts $ $ $ % F/U Cash sales 80 000 (i) 20 000 25.0% F Receipts from debtors 80 000 80 000 - - Total Cash Receipts 160 000 180 000 20 000 12.5% F Cash Payments Payments to creditors 31 200 31 200 - - Wages 34 400 38 400 4 000 (ii) U Delivery expenses 9 600 9 600 - - Office expenses 12 400 14 480 2 080 16.8% U Advertising 18 000 15 000 (3 000) (16.7%) (iii) Rent 27 200 27 200 - - Cleaning 4 800 4 800 - - Electricity (iv) 3 360 160 5.0% U Total Cash Payments 140 800 144 040 (v) 2.3 % U Excess of Receipts/ Payments 19 200 35 960 16 720 87.1% F Bank Balance (1 st July) 23 600 23 600 - - Bank Balance (31 st July) 42 800 59 560 16 760 39.2% F

6 MULTIPLE CHOICE QUESTIONS 1. Fixed cost is divided by contribution margin per unit to calculate: a. fixed output b. variable output c. breakeven number of units d. total number of units 2. A surplus occurs when a business’s: a. revenues are greater than its expenses b. receipts are greater than its payments c. assets are greater than its liabilities d. income is greater than its payments 3. Which of the following would not lead to an increase in net cash flow? a. Reduction in raw material costs b. Higher selling price c. Larger sales volume d. Lower depreciation charge 4. A favourable total sales variance could have been the result of: a. Lower output leading to favourable total COGS variances b. A price cut leading to a proportionality lower increase in sales volume c. A price cut leading to a proportionality higher increase in sales volume d. A fall in sales volume and a price reduction 5. The current sales price is $25 per unit and the current variable cost is $17 per unit. Fixed costs are $40 000. If the sales price is increased by $2, and all other costs remain unchanged, the break-even point in units will: a. increase by 1 000 units b. decrease by 1 000 units c. decrease by 2 000 units d. decrease by 119 units 6. Which of the following is not suitable action for a firm to take during a cash flow shortage? a. Cash drawings b. Buying on credit from suppliers c. Buying non-current assets on credit d. Cash sales 7. If the Contribution Margin ratio is 30% and selling price is $5 000, then the contribution margin per unit will be: a. $900 b. $1 200 c. $1 500 d. $1 600 8. On a cost-volume-profit chart (break-even graph), the total fixed costs are: a. the point where the sales line intersects the Y axis b. the point where the sales line crosses the total cost line c. the point where the total cost line intersects the Y axis d. the point where the total cost line intersects the X axis

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7 9. If the budgeted cost is higher than the actual cost then the difference would be known as: a. Favourable b. Unfavourable c. Positive d. Adverse 10. Billy Corporation has the following budgeted credit purchases for the last half of 20X0: Month $ July 100 000 August 80 000 September 110 000 October 90 000 November 100 000 December 94 000 Historically, the company pays 50% in the month of purchase and the remainder in the month following purchase. What is the expected cash paid in August? a. $ 80 000 b. $ 90 000 c. $ 95 000 d. $100 000 11. The net cash balance can be calculated by: a. Cash receipts plus cash payments b. Profits less expenses c. Opening balance of cash less cash receipts d. Cash receipts less cash payments 12. If the selling price is $5 000 and contribution margin per unit is $1 000, then the contribution margin ratio will be: a. 0.12 b. 0.20 c. 0.05 d. 0.15 13. If the CM is $13 000 and total variable cost is $7 000, then total revenue will be: a. $6 000 b. −$6 000 c. $20 000 d. −$20 000 14. If total revenue is $15 000, total variable cost is $5 000 and fixed cost $2 000, then net profit will be: a. $4 000 b. $8 000 c. $5 000 d. $3 000

8 15. Which of the following would be found in a cash budget? a. Capital contributions b. Depreciation c. Provision for doubtful debts d. Accrued revenues 16. You are given cost and volume information below: Volume Cost $ 1 unit 15 10 units 150 100 units 1500 What type of cost is shown above? a. fixed cost b. variable cost c. mixed cost d. rent cost 17. With fixed costs of $34 000, and a contribution ratio of 0.45 how much revenue is required to achieve a desired profit of $36 000? a. $111 111 b. $182 222 c. $149 091 d. $ 155 556 18. What term can be defined as a means of assessing the difference between a budgeted amount and the actual amount? a. Variance analysis b. Activity based costing c. Investment appraisal d. Master budgeting 19. Salaries paid to supervisors and engineers and cost of leasing equipment are classified as: a. variable costs b. fixed costs c. raw materials costs d. delivery costs 20. A firm sells widgets for $14 each. The variable cost for each unit is $8. The contribution margin per unit is: a. $ 6 b. $12 c. $14 d. $ 8