BSB 5005 – Introduction to Accounting

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BSB 5005 – Introduction to Accounting

Part A:

1.
Double Entry
Date Account Debit Credit
Cash 15,000
Oct-01
Capital 15,000
Equipment 5,000
Oct-03 Cash 2,000
Account Payable 3,000
Purchases 6,370
Oct-03
Account Payable 6,370
Advertisement expense 150
Oct-05
Cash 150
Cash 770
Oct-08
Sales Revenue 770
Account Receivables 9,500
Oct-17
Sales Revenue 9,500
Account Payables 4,000
Oct-20
Cash 4,000
Drawings 100
Oct-24
Cash 100
Wages and Salaries 2,500
Oct-27
Cash 2,500
Rent 700
Oct-29
Cash 700
Cash 8,000
Oct-29
Sales Revenue 8,000
Cash 2,000
Oct-30
Account Receivables 2,000

2.

Cash
Date Detail $ Date Detail $
Oct-01 Capital 15,000 Oct-03 Equipment 2,000
Oct-08 Sales Revenue 770 Oct-05 Advertisement Expense 150
Oct-29 Sales Revenue 8,000 Oct-20 Account Payable 4,000
Oct-30 Account Receivables 2,000 Oct-24 Drawings 100
Oct-27 Wages and Salaries 2,500
Oct-29 Rent 700

Balance c/d 16,320

Total 25,770 Total 25,770
Balance b/d 16,320

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BSB 5005 – Introduction to Accounting

Capital
Date Detail $ Date Detail $
Oct-01 Cash 15,000

Balance c/d 15,000

Total 15,000 Total 15,000
Balance b/d 15,000

Equipment
Date Detail $ Date Detail $
Oct-03 Cash 2,000
Oct-03 Account Payable 3,000

Balance c/d 5,000

Total 5,000 Total 5,000
Balance b/d 5,000

Accounts Payable
Date Detail $ Date Detail $
Oct-20 Cash 4,000 Oct-03 Equipment 3,000
Oct-03 Purchases 6,370

Balance c/d 5,370

Total 9,370 Total 9,370
Balance b/d 5,370

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BSB 5005 – Introduction to Accounting

Purchases
Date Detail $ Date Detail $
Oct-03 Account Payable 6,370

Balance c/d 6,370

Total 6,370 Total 6,370
Balance b/d 6,370

Advertisement Expense
Date Detail $ Date Detail $
Oct-05 Cash 150

Balance c/d 150

Total 150 Total 150
Balance b/d 150

Sales Revenue
Date Detail $ Date Detail $
Oct-08 Cash 770
Oct-17 Account Receivables 9,500
Oct-29 Cash 8,000

Balance c/d 18,270

Total 18,270 Total 18,270
Balance b/d 18,270

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BSB 5005 – Introduction to Accounting

Account Receivables
Date Detail $ Date Detail $
Oct-17 Sales Revenue 9,500 Oct-30 Cash 2,000

Balance c/d 7,500

Total 9500 Total 9,500
Balance b/d 7,500

Rent
Date Detail $ Date Detail $
Oct-29 Cash 700

Balance c/d 700

Total 700 Total 700
Balance b/d 700

Drawings
Date Detail $ Date Detail $
Oct-24 Cash 100

Balance c/d 100

Total 100 Total 100
Balance b/d 100

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BSB 5005 – Introduction to Accounting

Wages and Salaries

Date Detail $ Date Detail $
Oct-27 Cash 2,500

Balance c/d 2,500

Total 2,500 Total 2,500
Balance b/d 2,500

3.

Phoenix Ltd
Trail Balance
As at 31st October 2015
Account Name Debit $ Credit $
Cash 16,320
Capital 15,000
Sales Revenue 18,270
Purchases 6,370
Equipment 5,000
Account Payables 5,370
Account Receivables 7,500
Advertisement Expense 150
Rent 700
Wages and Salaries 2,500
Drawings 100
Total 38,640 38,640

4.

Phoenix Ltd
Statement of Profit or Loss
For the month ended 31st October 2015
Sales Revenue 18,270
Cost of goods sold (6,370)
Gross profit 11,900
Expenses
Advertisement Expense 150
Rent 700
Wages and Salaries 2,500 (3,350)
Profit for the year 8,550

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BSB 5005 – Introduction to Accounting

5.
Phoenix Ltd
Statement of Change in Owner's Equity
For the month ended 31st October 2015
Capital, October 1 2015 0
Investment 15,000
Net Income 8,550
23,550
Drawings -100
Capital, October 31 2015 23,450

6.
Phoenix Ltd
Statement of Financial Position
As at 31st October 2015
$ $
Non-Current Assets:
Equipment 5,000
Total Non-Current Assets: 5,000
Current Assets:
Cash 16,320
Account Receivables 7,500
Total Current Assets: 23,820
Total Assets: 28,820
Equity:
Capital 31 October 2015 23,450
Current Liabilities:
Account Payable 5,370
Total Current Liabilities: 5,370
Total Liabilities & Equity: 28,820

Part B:
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BSB 5005 – Introduction to Accounting

Dear Bryn,
I know you are really concerned about the situation. However, both of you had the choice of
choosing which type of contract, either FOB shipping or FOB destination. Nonetheless, I am
going to clarify why Ellen had a higher bonus than you.
The most recent sale that you made was not included in your bonus because the method you
chose which is FOB destination suggests that the ownership of the good transfers to the final
customer when the good is handed in. This is because we as a company have to pay the extra
charges for transportation and labour. Thus, the order is only considered complete when the
customer received the product. And as you may know, the product reached the consumers in
the following month, hence was not counted in this month’s bonus. Unlike Ellen who chose
FOB shipping point, the ownership was handed in as soon as the product reached the
company shipping our products, and the ownership moved to the customer from that point.
Not to mention, the product reached the shipping point before the end of the month, thus
Ellen’s sales were considered in this month’s bonuses.
To explain even further, lets consider this example, company ACC in the United Kingdom
sells mobile phone devices to customers in Bahrain, and signs FOB destination contract.
Presumably the package got damaged during the delivery. In this situation, company ACC
takes full responsibility of the product and must repay or reship another product that is in
good condition again. This is because FOB destination contract specifics that the legal
ownership of the product is transferred to the buyer once it has been received, thus the
supplier, which is in this case ACC company is held legally responsible for the product during
the shipping process.
On the other hand, if company ACC were to have an FOB shipping contract, as soon as the
product have been sent to the shipping point, or handed out to the carrier company, the legal
ownership no longer belong to ACC company and they do not get held responsible for any
damage that happens to the product. This is because FOB shipping transfer legal ownership to
buyer at the shipping point.
According to your situation, for choosing FOB destination, and the product have not been
received by the buyer before the end of the month, indicates that the order was not complete
and that is why it was not added in your sales for this month.
I hope you now understand the difference between the two contracts, and no longer consider
my decisions unethical. Furthermore, you should keep in mind that your sales will be included
in the next month.

Yours Sincerely,

Part C:

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BSB 5005 – Introduction to Accounting

1. A budget plan is a budgetary arrangement for a future period. A forecast is an

estimation of what is relied upon to happen in the future. Plan suggests an aim to
accomplish. Therefore a budget is plan of what is expected to be accomplished throughout
the time of the budget. Relevant forecasts might well be considered when spending plans
are being prepared; yet there is a fundament distinction between budgets and forecasts

2. The format described is for the most part viewed as a useful method. Budgets are
records solely for the utilization of managers within the business. Hence it is up to them to
use whichever layout they prefer. As there is no legitimate requirement that budgets
should be prepared by any means.

3. It is most likely consistent to say the any manager utilizing would not have any desire
to work for a business which did not have efficient plan of budgeting as without budgets it
would be hard for the managers to co ordinate and motivate themselves and their co
workers to react their targets. This would give managers a lot of degree to show initiative,
and also be a part of an organization, which is sorted out and under control.

4. There is no specific place where a budget should start from, the budget should start
from the area that would limit the other areas for example if sales demand is the limiting
factor then the budget should start from sales budget. However, the limiting factor
changes from a company to another and so does the starting point. Budgets could be seen
as motivators although if you’re looking for the best performance you should set targets
and realistic one’s.

Part D:
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BSB 5005 – Introduction to Accounting

1.

Manufacturing ($) Administration and Total Cost ($)

selling ($)

Variable (46$) Per unit * 20,000 (3$) per unit * 20,000 (49$) per unit * 20,000
Cost
$920,000 $60,000 $980,000

Fixed Cost $80,000 $60,000 140,000 Per year

Total 1,000,000 120,000 1,120,000

Contribution Margin per unit = unit selling price – unit variable cost = $60 - $49= $11

Contribution per unit

Contribution Margin ratio =
Selling price

11/ 60= 0.183 * 100= 18.3%

¿ cost
BEP in units=
Sales revenue per unit−Variable cost per unit

140,000 / (60-49) = 12,728 Radios

¿ cost
BEP in dollars=
contribution marginratio

140,000 / 18.3% = $765,027.3

2. Calculate the margin of safety for next year, expressed both in quantity of radios and
sales value. (4Marks)

Margin of safety in units = planted sales – BEP in units =

20,000 – 12,728= 7,272 Units

Margin of safety in $= margin of safety in units * selling price =

7272* 60= $436,320

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3.
 When the income shows clear at several points of sales, the business should
inspire and motivate the sales team

 The important thing in planning the financial structure of a business is to

provide an understanding of the behaviour of income in the business or in the
company.

 Break-even charts and results can be used for budgeting process when the
company knows in setting budgets and targets.

 Support management plan operation and make a decision between different

methods to apply.

4. One of the limitations of break-even analysis is that it assumes that all revenue and
costs lines to be linear, as a straight line in the graph represents them. However, this is
not always the case because companies usually have price reductions or discounts and
this in turn would affect the slope of the revenue line. The variable cost slope could
also change as the result of paying over time for workers to increase output. Thus, the
total cost is also affected.
Another limitation is that it assumes that the company sells all of its output. However, this is
not usually the case because companies usually have some unsold stock, and in turn this
would cost them additional cost like for example insurance and storage costs. Also, this
unsold stock may be out dated and thus need to be sold at lower prices, and thus lower the
profits earned.
Finally, another limitation is that fixed costs are not always constant. After reaching a specific
capacity, the company would reach its maximum output. In order for the company to produce
more, it would need to increase upon its capacity. This would result in a severe increase in
fixed costs, thereby making the break-even analysis complicated.

Part E:

Schedule of Expected Collection from Customers

Sales June July August
June 135,000 81,000 54,000
July 145,000 87,000 58,000
August 90,000 54,000
Total Collection 81,000 141,000 112,000

June Collection
135,000 * 0.6 = 81,000

July Collection
135,000 * 0.4 = 54,000
145,000 * 0.6 = 87,000

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August Collection
145,000 * 0.4 = 58,000
90,000 * 0.6 = 54,000

Schedule of Expected Payments for Purchases of Inventory

Purchases June July August
June 300,000 150,000 150,000
July 250,000 125,000 125,000
August 105,000 52,500
Total 150,000 275,000 177,500

June Payment
300,000 * 0.5 = 150,000

July Payment
300,000 * 0.5 = 150,000
250,000 * 0.5 = 125,000

August Payment
250,000 * 0.5 = 125,000
105,000 * 0.5 = 52,500

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BSB 5005 – Introduction to Accounting

Budget Flexed Actual

$ $ $
1,000 1,100 1,100
Redding Company
Sales Revenue 31,000
Cash Budget 34,100 34,950
For the months of July and August
Direct labour (11,000)July August
(12,100) (12,210)
Cash Inflow
Trade Receivables
Direct materials 141,000
(10,000) 112,000
(11,000) (11,630)
Cash Sales 255,000 195,000
Fixed overhead (3,000) (3,300) (3,200)
Total Cash Inflows 396,000 307,000
Standard profit 7,000 7,700 7,910
Cash Outflows
Inventory 275,000 177,500
Administrative Expenses 48,000 48,000
Dividends 105,000
Equipment 30,000

Total Cash Outflows 428,000 255,500

Net Cash Flow -32,000 51,500

Opening Balance 50,000 50,000
Initial Closing Balance 18,000 101,500
Minimum Cash Balance 50,000 50,000
Financing Required 32,000
Financing Repaid 34,560
Final Closing Balance 50,000 66,940

Part F:

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Budgeted selling price per unit= 31,000/1,000= 31 31*1,100=$34,000

Budgeted material cost per unit= 11,000/1,000=11 11*1,100=$12,100
Budgeted labour cost per unit= 10,000/1,000=10 10*1,100=$11,000

Sales Volume Variance:

Profit (flexed) - profit (budget) =
7,700-7,000= $700 Favourable

Sales Price Variance:

Sales (actual) - sales (flexed) =
34,950-34,100= $850 Favourable

Materials Cost Variance:

Materials (flexed) - materials (actual) =
11,000-11,630= $630 Adverse

Labour Cost Variance:

Labour (flexed) – labour (actual) =
12,100-12,210= $110 Adverse

Fixed Cost Variance:

Fixed overhead (flexed) - Fixed overhead (actual) =
3,300-3,200= $100 Favourable

Net Income Variance:

Net profit (actual) – net profit (budget) =
7,910-7,000= $910 Favourable

Variance Reconciliation
For the month of March

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$ $
Budgeted Net Income $7,000
Add: Favourable Variance
Sales price Variance $850
Sales Volume Variance $700
Fixed Cost Variance $100
8650
Less: Adverse Variance
Materials Cost Variance ($630)
Labour Cost Variance ($110)
($740)
Actual Operating Profit $7,910

Bibliography

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BSB 5005 – Introduction to Accounting

Loykie Lomine, M. M. (2014). Business Management. Oxford, United Kingdom: Oxford

University Press.
Nicholas, S. (n.d.). Whats is the distinction between Free on Board (FOB) Shipping point and
Destination. From Investopedia: http://www.investopedia.com/ask/answers/052515/what-
distinction-between-free-board-fob-shipping-point-and-destination.asp
University of Sydney. (n.d.). Tutorial 12, Week 13 (Homework) - BUSS1030 Accounting.
Retrieved 12 31, 2015 from Course Hero: https://www.coursehero.com/file/8288896/Tutorial-
12-Week-13-Homework/

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