Assignment Practice Questions

Module Name: Computer Applications in Accounting

Module Code: LSBM208

Level 5

Module Leader: Asare Amaning

This assessment is worth 40% of the module grade

Word Limit 2,000 words

Acceptable Formats for Submission Microsoft Excel

Assessment 1 Details 3.1 Task

Part A – background information for tasks 1-3 Paddy William runs an expanding educational toy
manufacturing business with two established brands called ‘Old heads’ and ‘Information technology.
You are part of the management accounting team; your role includes assisting with internal costing
problems and solutions.

You are required to complete all three tasks.

Use your knowledge of the ‘Excel’ spreadsheet package to make all the necessary calculations.
Comments should be included in the Excel document. 1

Task 1

One of the major supermarket chains has contacted the company with a proposal to purchase toys
from the ‘Old heads’ range, as long as they can negotiate a discount price. The current demand is for
75,000 units, which represents 75% of the production capacity.

The following information is also available:

Variable Cost per toy £30

Fixed Cost per toy (based on 75,000 units) £6
Normal selling price £80
The supermarket’s suggested discount price £66

You are required to:

• Calculate the profit from the current demand of 75,000 ‘Old heads’, producing a profit statement
in the ‘Marginal Costing’ format.

• Use your knowledge of ‘Marginal Costing’ and calculate whether the company should consider
taking on this special supermarket order at the discount price assuming that the supermarket’s
maximum demand is 25,000 units and there are no additional costs to be incurred in satisfying this
demand. Determine the effect this would have on profits.

• Write a memo to Paddy with your results from 2 (above) and include any other nonfinancial
considerations he should think about before making his decision.

Task 2
1
The information from your analysis of the special purchase price has given rise to a request for
further clarification from Paddy. Presume a normal selling price of £80.00 per Toy. Given the current,
normal demand of 75%, and the available capacity, show Paddy:

• The break-even point in units and in sales revenue

• Prove your answer to 1 with a profit statement (set out in the ‘Marginal Costing’ format) to
clearly illustrate the results of your break-even calculation.

• How many toys would need to be produced and sold to result in a profit of £1,200,000?
Prove your answer with a profit statement (set out in the ‘Marginal Costing’ format) to
clearly illustrate the results of your break-even calculation.

• Paddy is concerned that the current production costs and overheads may not be sustainable.
How many Old heads would need to be produced and sold to maintain a profit of
£1,200,000 if variable costs per Old-head were to rise to £40, and fixed costs would be £8
per toy (based on 75,000 units). The current economic climate makes it unlikely that the
selling price can be increased. Your calculations should presume a continued selling price of
£80.00 per young learner toy.

• Based on your calculations, do you think the production of these toys is viable?

Task 3

Paddy is hoping to expand the business by entering the retail market with the opening of outlets in
strategic locations. This could be relatively risky, and he consequently needs to take a cautious
approach for the enterprise to be viable. The idea is to start by setting up a small outlet in Cotswold
and to sell existing brand. The outlet is due to open on 1 st January 2021.

You need to complete a business plan for Paddy, which includes a six-month cash budget.

The following information has been made available:

• Shop fittings will be purchased on 1st of January for £50,000. These will have to be paid for at
the end of the month.

• Depreciation is £5,300 a year.

• Rent of the outlet premises will be £48,000 per annum, payable in monthly instalments at the
start of each month.

• Wages: £7,000 per month.

• Other costs incurred in the running of the business (excluding purchases) will be £15,000 per
month, payable in the month following the month in which the costs are incurred.

• Purchases will be supplied on one month’s credit (i.e. purchases in January will have to be
paid for by the end of February).

• Half the sales are expected to be in cash, the remaining half on credit. Credit terms are one
month after sales (i.e. credit sales in January will not be settled until February).

• Paddy intends to inject £42,000 as capital into the business on the 1st January.

The following forecast has been drawn up for sales and purchases after market research was
undertaken:

2
 Month Sales Purchases
£ £
January 78,000 32,000
February 106,000 62,000
March 142,000 76,000
April 174,000 82,000
May 202,000 94,000
June 226,000 114,000

You are required to:

• Prepare a monthly cash budget for the six months from January to June 2021.

• Provide Paddy your recommendations that are based on the cash budget you drew up.

You should use Excel spreadsheets to complete the tasks.

Part B - background information

Preparation of a Functional Budget and Profit Statement

WANZAM Ltd Functional Budgets.

WANZAM Ltd manufactures three products for the building industry. Budgeted sales of the products
X, Y and Z are as follows

Product Sales Quantity Price/Units Opening Stock

X 4,000 170 1,500

Y 8,000 180 3,500

Z 6,000 190 2,500

Materials information:

Components M1 M2 M3 M4
Unit Cost £6 £8 £10 £12
Quantities/units
X 8 6 2 4
Y 10 8 4 6
Z 8 4 2 10
Opening stock 50,000 40,000 25,000 42,000

Labour Skills

Skilled Labour Semi-skilled

Hourly Rate £15.00 £12.50
Hours per unit X 3 1.5
3
 Hours per unit Y 4 2
Hours per unit Z 5 2.5

The company plans an increase of 20% in the quantities of finished stock held at the end of the
budget period, and a reduction of 10% in the quantities of component stocks.

Production overheads amount to £288,720 and are absorbed using total direct labour hours for
production.

Selling and distribution overheads total £852,000 and are absorbed as a percentage of total sales
volume.

You are required to complete all the following budget and statement of predicted profit by applying
your knowledge of the ‘Excel’ spreadsheet package to make all the necessary calculations.

a) Sales budget

b) Production budget

c) Material usage budget

d) Material purchases budget

e) Labour utilization budget

f) Statement of predicted profit