A c c o u n ti n g I n f o r m a ti o n f o r Ma n a g e r s

200101
Autumn 2012

Tutor Solutions Week 14

Copyright The University of Western Sydney, 2012 No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without the prior written permission from the Head of School, School of Accounting. Copyright for acknowledged materials reproduced herein is retained by the copyright holder. All readings in this publication are copied under licence in accordance with Part VB of the Copyright Act 1968.

200101 Accounting Information for Managers

Autumn 2012

C ontac t Details
F irs t point of c ontac t for all enquiries and for s tudents having diffic ulties with the unit:
Mrs Susan Green (Unit Administrator) Building EQ Parramatta Campus Phone: 9685 9207 Fax: 9685 9593 Email: business.courses@uws.edu.au [Sue is normally in the office each week on Monday to Thursday inclusive] Unit Coordinator Graeme Mitchell: Vernon Bldg (ED), Room ED.G.212 Parramatta Campus; Email: g.mitchell@uws.edu.au; Phone: 9685 9215 Mob: 0419 291 606 vUWS Coordinator Simon Lenthen: Vernon Bldg (ED), Room: ED.G.11 Parramatta Campus; Email: s.lenthen@uws.edu.au Phone: 9685 9476 Mob: 0414 325 676

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Accounting Program, School of Business

Autumn 2012

200101 Accounting Information for Managers

S c hedule of learning ac tivities

Week No. Date 1 27 February-2 March 2 5-9 March Text Reference / Lecture Topic/ Learning Outcomes (LO) Introduction to accounting (Chapter 1). Business structures (Chapter 2). Ethics and corporate governance (Chapter 3). Business transactions (Chapter 4). Business transactions (Chapter 4). Tutorial Homework* Read learning guide and unit outline. Complete handout in class for Week 1. Study guide: Chapter 1 (C2, C3, C4) and Chapter 2 (E1, E4, E5). Textbook: Chapter 1 (D1.7) and Chapter 2 (E2.15, E2.16a, E2.17a, P2.7). Study guide: Chapter 3 (C3, E1, E4) and Chapter 4 (C3). Textbook: Chapter 3 (D3.10, D3.12, D3.27) and Chapter 4 ( P4.3). Study guide: Chapter 4 (E1, E5 a-e). Textbook: Chapter 4 (E4.7, E4.8, P4.4, P4.12). Due: Mid-semester examination on Saturday, 31 March 2012. Note: Check vUWS site closer to the date for further details. Study guide: Chapter 5 (C1, E2a-c). Textbook: Chapter 5 (E5.10, E5.11, E5.13, E5.14). Study guide: Chapter 5 (MC1-15, E4, E5). Textbook: Chapter 5 (D5.9, D5.10, P5.2, P5.5). INTRA SESSION BREAK Study guide: Chapter 6 (complete the sentence activity on p. 106, C2, E1). Textbook: Chapter 6 (D6.5, D6.8, E6.1, E6.2, E6.5, E6.11, P6.2). Study guide: Chapter 7 (MC1-15, C2). Textbook: Chapter 7 (D7.2, D7.6, E7.2, E7.3, E7.9, E7.20, P7.2). Study guide: Chapter 8 (C1, C2, E1). Textbook: Chapter 8 (D8.3, D8.10, E8.6, E8.10, P8.1). Study guide: Chapter 8 (MC1-15, E3, E4, E5). Textbook: Chapter 8 (D8.8, E8.7, E8.14, P8.7). Study guide: Chapter 9 (C2, E1, E2). Textbook: Chapter 9 (D9.7, D9.8, E9.2, E9.9, P9.7). Study guide: Chapter 10 (C2, C3, C4, E1). Textbook: Chapter 10 (D10.2, E10.2, E10.3, E10.7, E10.13, P10.5).

3 12-16 March

4 19-23 March 5 26-30 March

The balance sheet (Chapter 5, pp. 138163). Note: No lectures or tutorials this week. Staff will be available for additional consultation see vUWS for details. The balance sheet cont. (Chapter 5, pp. 164-174). Income statement and statement of changes in equity (Chapter 6). Time available in tutorial to work on group assignment. INTRA SESSION BREAK The cash flow statement (Chapter 7).

6 2-6 April 7 9-13 April

8 16-20 April 9 23-27 April

10 30 April-4 May 11 7-11 May 12 14-18 May

Financial statement analysis (Chapter 8, pp. 303-22) Due: Group assignment. Financial statement analysis (Chapter 8, pp. 322-42). Budgeting (Chapter 9).

13 21-25 May 14 28 May-1 June

Cost-volume-profit analysis (Chapter 10). Review lecture.

Refer to learning outcomes on page 3 * Ch = Chapter, MC= Multiple Choice, C = Classification questions, D = Discussion questions, E = Exercises, P = Problems

Accounting Program, School of Business

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200101 Accounting Information for Managers

Autumn 2012

Week 14 In-C las s S een S olutions

E10.2 Find the missing figure for each of the following independent cases:

Selling Variable Price/unit costs/unit $40 $20 $18 $12 $20 $25 $8 $6 $5 $4

Units Contribution Fixed Profit sold Margin (total) costs (Loss) 60 000 $1 200 000 $900 000 $300 000 10 000 $60 000 $48 000 $12 000 50 000 $250 000 $250 000 0 100 000 $50 000 $150 000 $200 000 500 000 $500 000 $460 000 $40 000

E10.7 In the Whine Company, it costs $20 per unit ($15 variable and $5 fixed) to make a product that normally sells for $45. A foreign wholesaler offers to buy 3000 units at $25 each. The Whine Company will incur special shipping costs of $1 per unit. Required Assuming that Whine has excess operating capacity, indicate the net profit (or loss) it would realise by accepting the special order. Unit Contribution Margin from Normal Sales Sales Price per unit $45 Variable costs 15 Contribution margin $30

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Accounting Program, School of Business

Autumn 2012

200101 Accounting Information for Managers

Unit Contribution Margin From Special Order Sales Price $25 Variable costs 16 ( additional $1 shipping costs) Contribution margin $ 9 Profit would increase by $9 x 3 000 units = $27 000 Fixed costs are irrelevant, as the level of costs will not change within the relevant range. E10.13 Chloe Enterprises operates a single-product entity. Data relating to the product for 2011 were as follows:

a. Calculate the break-even units for 2011.

Selling price Less: variable manufacturing variable marketing etc. Contribution Margin

$60 $28 12 40 = $20

Break-even = $480 000/ ($20) = 24 000 units b. Calculate the profit achieved in 2011. Profit = (32 000 units *$20) $480 000 = $160 000

Accounting Program, School of Business

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200101 Accounting Information for Managers

Autumn 2012

c. Changes in marketing strategy are planned for 2012. This would increase variable marketing and distribution costs by $4 per unit, and reduce fixed non-manufacturing costs by $80 000 per year. Calculate the units that would need to be sold in 2012 to achieve the same profit as in 2011. Contribution margin will decrease due to increased variable costs Currently $20 less additional $4 variable marketing = $16 To achieve same profit as 2011 = ($400 000 + $160 000)/ ($16) = 35 000 units d. Would you recommend the change? Explain. Based on the increased number of units required to achieve the same profit, the change is not recommended in the short term.

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Accounting Program, School of Business

Autumn 2012

200101 Accounting Information for Managers

Week 14 Homework S olutions

Solutions to the Study Guide Questions can be found in the Study Guide

D10.2, E 10.3, P 10.5

C hapter 10
D10.2 Using examples, distinguish between fixed and variable costs.

Total fixed costs do not change within the relevant range of activity. For example, regardless of the level of production, a manufacturer would still need to pay the rent, insurance and salaries of permanent staff. Variable Costs per unit do not change, however, total variable costs change proportionately with changes in activity. For example, a manufacturer who produces wooden tables. The cost per table would be the same, however, the total cost of manufacturing the tables will change proportionate to the level of production. Say each table consumed $10 of variable costs (such as wood, nails, glue), if 10 tables were manufactured the total variable cost would be $100 (10 tables $10) and if 100 tables manufactured the total variable cost would be $1000 (100 tables $10).

E10.3

For each of the following independent situations, calculate the break-even point in units: a. Variable cost per unit of $2, annual fixed costs of $60 000 and selling price per unit of $6

$60 000 / ($6 $2) = 15 000 units

b.

Variable costs per unit of $10, annual fixed costs of $120 000 and selling price per unit of $20

$120 000 / ($20 $10) = 12 000 units c. Variable costs per unit of $15, annual fixed costs of $90 000 and selling price of $18

$90 000 / ($18 $15) = 30 000 units

Accounting Program, School of Business

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200101 Accounting Information for Managers

Autumn 2012

P10.5

Break-even: single product; profit calculation Janna Processing is a single-product entity, and provides the following summary data relating to its product for 2011:

Required a. Calculate the break-even in units and sales dollars for 2011 Contribution margin = $50 (24 + 8) = $18
Breakeven units = $756 000/ $18 = 42 000 units Sales $ = 42 000 units x selling price of $50 = $2 100 000 Or using the contribution margin ratio method $756,000 / (18/50) = $2,100,000

b. Calculate the profit earned in 2011.

Profit in 2011 = (48 000 units * $18) - $756 000 = $108 000

c. Janna Processing is considering changes in plant operations and the production process for 2012. The changes would result in a reduction of variable costs per unit of $6, and increase fixed manufacturing costs by $265 000. How many units would need to be sold to earn the same profit as in 2011? Would you recommend the changes? Changes Existing Variable costs = $32 less $6 reduction = $24 adjusting contribution margin to 50 26 = $24 Fixed costs Currently $756,000 plus $265,000 additional = $1,021,000 To earn the same profit as 2011 = ($1 021 000 + $108 000)/$24 = 47 042 units This is slightly less than the 48 000 units required to sold in 2012 to earn the equivalent profit. This move, would also have some impact on the mix between fixed and variable costs (operating leverage).

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Accounting Program, School of Business