ACCTG 101

Assignment 01
Due Thursday, 21 August 2014, 4 p.m.

Assignment 01 will be marked out of 40 marks and is worth 4% of your final grade.
Overall Presentation
Communication: A high standard of written expression and presentation is expected of your
assignment. Correct spelling and grammar are essential. Discussions should be concise,
structured in a logical order, and relevant to the question. Refer to The Business of Writing:
Written Communication Skills for Commerce Students by E. Manalo, G. Wong-Toi, and M-L.
rd
Hansen, 3 edition, 2009.
Referencing: APA referencing is to be used only where necessary however you DO NOT need to
reference the assignment question. However, you DO need to reference your textbook (or any
other text) IF you have QUOTED or PARAPHASED it. (See the library course page on the
ACCTG 101 Cecil home page for details on how to use APA referencing). Always answer the
questions in your own words.
Presentation: Typed on A4 paper using Arial font and 11 font size. If calculations or tables are
required for an answer they should be set out neatly and labelled clearly. Bullet point answers are
acceptable only if the whole sentence makes sense.
Plussage: It is important that you attempt this assignment to the best of your ability in order to
qualify for plussage (see details in course book, page 9).
Hand in: Please make sure that you hand your assignment into the correct box. Do not post it in the
RETURN box as it will NOT be marked. The POSTING boxes are directly behind the lift on
level 0 in the OGGB building.
Workings: For any calculation type questions, you should show all workings, no matter how trivial
they may be as marks are awarded for partial work. This is good practice for the test and exam.
Questions
1.

40 marks

Cost Volume Profit 10 marks

Your friend Patricia wants to open a specialty pet store. She has inquired about obtaining retail
space, purchasing supplies and pets, and advertising in the newspaper but before she commits she
wants you to analyse how her plans will affect profit.
Initially, Patricia plans only to sell Persian kittens for $120 each, and you estimate that total annual
fixed costs for the store will be $5,005 ($2,000 rent, $2,600 wages for part-time help, and $405
advertising). The cost to her of purchasing Persian kittens is $40 each. On average, she expects to
spend $25 to feed each kitten before it is sold and $20 per kitten on miscellaneous items such as
grooming supplies.
Required:
(a)

Calculate
(i)

the number of kittens that need to be sold annually to breakeven.

(ii) the number of kittens that would need to be sold to earn an annual pre-tax profit of
$12,495.
(iii) the pre-tax profit if the store sells 400 kittens annually.
Page 1 of 7

(5 marks)

Assignment 01 Questions

DUE DATE: Thursday, 21 August 2014, 4pm

Patricia believes that under the current price and cost structure (above), she will be able to sell 400
Persian kittens in the first year. However, she is considering three alternative plans that she thinks
may allow her to earn higher profits.

(b)

i.

Raise the selling price of the kittens to $130 per kitten. The costs would not change.

ii.

Purchase only those Persian kittens that are descendants of Cat Club ribbon winners at a
cost of $50 each. She is considering this option because she thinks the perceived
improvement in the breed purity would increase sales volume. The selling price and
other costs would not change.

iii.

Increase advertising to a total of $1,000. With this alternative, the selling price and
other costs would not change.

Analyse separately the effect of each plan on the unit breakeven point and annual profits.
Discuss which alternative (if any) you would recommend to be pursued and explain why.
(5 marks)
(Total 10 marks)

2. Budgeting 13 marks
Panorama Printing is a custom graphics printer that began operations six months ago. Sales have
exceeded managements most optimistic projections. Panorama Printings projected income
statement for each of the next three months follows:
Sales
Beginning inventory
Add: Purchases
Less: Ending inventory
Less: Cost of goods sold
Gross profit
Less: Operating expenses
Operating profit

September
$42,000
6,000
37,800
14,400
29,400
12,600
10,500
$ 2,100

October
$54,000
14,400
44,000
20,600
37,800
16,200
11,700
$ 4,500

November
$68,000
20,600
48,900
21,900
47,600
20,400
13,100
$ 7,300

Sales are made on credit and collected 60% in the month after the sale is made and 40% in the second
month after sale. Purchases are paid 80% in the month in which the merchandise inventory is
purchased and 20% in the subsequent month. Operating expenses includes depreciation of $2,500
and the cash expenses are paid in the month in which the cost is incurred.
Cash on hand at 30 August is estimated to be $36,000.
On 30 August, the accounts receivable balance due from customers totalled $42,000, of which
$30,000 is expected to be collected in September and the remaining $12,000 is to be collected in
October. On 30 August there are two accounts outstanding totalling $16,000, of which $6,000 is
owing to the suppliers for the August purchase and $10,000 for shop fittings erected during August.
The full amount of $16,000 will be paid out in cash in September.

Required
(a)

Prepare the following budgets for September, October and November using the templates
below:
(10 marks)
1) Sales Budget
Sep

Oct

Nov

Budgeted total sales revenue $

Expected cash collections:
From This Month sales
From Last Month sales
From 2 Months ago sales
Total cash collections $
2) Purchases Budget
Sep

Oct

Nov

Sep

Oct

Nov

Oct

Nov

Budgeted cost of purchases $

Expected cash payment:
From This Month purchase
From Last Month purchase
Total cash payment to suppliers $
3) Operating Expenses Budget
Budgeted Operating expenses $
Total cash payments $
4) Cash Budget
Sep
Cash Receipts from Sales $
Cash Payments:
For Purchases $
For Operating Expenses $
For shop fittings in August $
Total Payments $
Net Cash flow during the month$
Add: Beginning Cash $
Ending Cash $
(b)

The management of Panorama Printing are uncertain as to the future of this company and have
asked for your advice. What advice would you provide based on the cash budget for the three
months?
(3 marks)
(Total 13 marks)

Assignment 01 Questions

DUE DATE: Thursday, 21 August 2014, 4pm

3. Costing - 17 marks
You are well known amongst your friends as a very good baker. A friend of yours asks you how
much you would charge her to make a birthday cake for her brother. You make an arrangement
with her that she will cover the cost of the ingredients and supplies plus a mark-up of 40% on the
cost price of the chocolate birthday cake below.

Preparation time: 15 minutes

Cooking time: 30 minutes Bake at 350 F (175 C)

Required
a) Set up a table as per below and calculate the total cost of the ingredients for the cake and the
frosting.
(8 marks)

Cost of Ingredients: Cake

Ingredients

Quantity

Product

Workings

Cost per
ingredient
$

Butter

125g

Mainland Butter 500g @ $4.60

Granulated
white sugar

250g

Chelsea Icing sugar 500g @

$1.91

Eggs

Farmer Brown Eggs Dozen

Brown Size 6 12 pk @ $4.00

Vanilla
Extract

1 tsp (5ml)

Hansells Essence Vanilla

Extract 50ml @ $5.99

Unsweetened 40g
Cocoa
powder

Cadbury Cocoa Powder

Bournville 125g @ $2.49

Boiling
water

125ml

Milk

125ml

See part (b) below for

information on this product
cost.
Homebrand Milk Standard 1L
@ $2.35

All-purpose
flour

260g

Salt

tsp (2.5g) Skelleruo Salt Plain Table 1kg

@ $1.69

Baking soda

1 tsp (5g)

Total Costs for the cake

Homebrand Flour Standard

Plain 5kg @ $7

Edmonds Baking Soda

Bicarbonate 210g @ $1.99

Costing for the frosting

Ingredients

Quantity

Product

Workings

Cost per
ingredient
$

Butter

75g

Mainland Butter 500g @ $4.60

Confectioners 345g
(Icing) sugar

Chelsea Icing sugar 500g @

$1.59

Cocoa powder

50g

Cadbury Cocoa Powder

Bournville 125g @ $2.49

Milk

60ml

Homebrand Milk Standard 1L @

$2.35

Vanilla
Extract

1 tsp (5
ml)

Hansells Essence Vanilla Extract

with Seeds 50ml @ $5.99

Total Costs for the frosting

Supplies
Supplies

Quantity

Product

Cake box

9x9x4 Inches pack of 10

cardboard boxes @ $14.40

Cake board

11 Inch Cake Card Round,

2mm thick @ $1.10

Workings

Cost

Total Costs for the supplies

b) In order to calculate the cost of the boiled water, you access the Watercare Services website
(http://www.watercare.co.nz) and find this information:

You also access Contact Energys website

http://www.contactenergy.co.nz/web/saveenergy/appliances) and find this information:

Using the above information, calculate the cost of the boiling water used in making the cake
and insert it in the table above in order to complete the total cost of the cake. (Show your
workings).
(1 mark)
c) Based on your calculations in (a) and (b), calculate the price that you would charge your
friend for making this birthday cake for her brother.
(2 marks)
d) After discussing this scenario with a fellow accounting student, you realise that you have not
charged for overhead costs. This student suggests that the overheads would probably be about
20% of the cost of the ingredients. Discuss whether you agree with this estimate and justify
your answer. What four possible overhead costs would be part of your analyses if you were to
identify the actual overhead costs? Discuss how you would allocate (apply) those costs to the
cost of making the cake.
(2 marks)
e) Discuss two other costs you could consider when calculating the costs of making the cake.
(4 marks)
(Total 17 marks)