BSB 5005 – Introduction to Accounting

Title of Assessment Assessment Two – Group Case

Due Date 31st December 2015, 11:59 PM

Type Group Case

Weighting 35%

1. Demonstrate the way in which different managerial tools

such as BEP, Margin of Safety, flexed budget, budgets and
variances can be used for short term
2. Interpret and apply financial accounting principles and the
foundational theoretical framework
Learning Outcomes 3. Prepare financial statements including Statement of
Financial Position, Statement of Financial Performance,
and Statement of Owners Equity
4. Demonstrate appropriate use of workplace skills and
technology

 All parts are obligatory.

Submission Requirements
 Submit written assignment electronically via Moodle.
 Submissions should only be in Word doc with the use of
tables.
 Show all your calculations.
 Team should consist of 5 members.
 Name and ID of all members should be written on the cover
page.
 Use the standard cover page.
 Use APA referencing.

Part A: (33.5 Marks) - LO 3

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BSB 5005 – Introduction to Accounting

You have been hired as an accountant for Phoenix Ltd. This is the first month for this
business. It is a retail business and sells electronics. The last accountant left in a hurry and has
left things in a mess. Listed below are a jumble of transactions and source documents. Make
sure that you order the items chronologically before you proceed. The dates in the invoices
and receipts are in the following format; mm/dd/yyyy.
1.

2. The

owner started the business with BD 15,000. The owner started the business on 1st
October 2015.

3.

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4. The business purchased equipment worth BD 5000. The equipment is not for resale.
BD 2000 was paid in cash and the remaining was on account. The transaction date was
3rd October 2015.

5. The business had hired 4 staff and paid their salaries on 27 th October. The wages and
salaries were BD 2500.

6. Rent of BD 700 was paid on 29th October 2015.

7. The business advertised for itself in the newspaper. The business paid BD 150 on 5 th
October 2015.

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8.

9. The credit customer Ahmed Jassim paid BD 2000 on 30th October 2015.

10. The owner withdraws BD 100 on 24th October 2015.

11.

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12. Paid High Tides, credit supplier, BD 4000 BD on 20th October 2015.

Instructions

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BSB 5005 – Introduction to Accounting

1. Prepare journal entries to record each of the events listed above. (12.5 Marks)
2. Post the journal entries to T-accounts and balance the T-accounts. (5.5 Marks)
3. Prepare a trial balance as of 31st October 2015. (6.5 Marks)
4. Prepare Statement of Profit or Loss for the month ended 31st October 2015. (3.25 Marks)
5. Prepare statement of owner’s equity for the month of October ended 31, 2015 (2 Marks)
6. Prepare Statement of Financial Position as at 31st October 2015 (3.75 Marks)

Part B : (9.5 marks) – LO 2 & 4

Ellen Corhy and Bryn Davis, two salespersons in adjoining territories, regularly compete for
bonuses. During the last month, their dollar volume of sales, on which the bonuses are based,
was nearly equal. On the last day of the month, both made a large sale. Both orders were
shipped on the last day of the month and both were received by the customer on the fifth of
the following month. Ellen's sale was FOB shipping point, and Bryn's was FOB destination.
The company "counts" sales for purposes of calculating bonuses on the date that ownership
passes to the purchaser. Ellen’s sale was therefore counted in her monthly total of sales,
Bryn’s was not. Bryn is quite upset. She has asked you to just include it, or to take Ellen's off
as well. She also has told you that you are being unethical for allowing Ellen to get a bonus
just for choosing a particular shipping method.

Instructions

Write a reply to Bryn. Explain why the sale he made is not included in the sales, hence
affecting his bonus. Explain the terms; FOB shopping & FOB destination. Give examples to
clarify terms. Elaborate and support your decision. (9.5 Marks)

Part C: (12 Marks) – LO 1 & 4

You have overheard the following statements:

1. “A budget is a forecast of what is expected to happen in a business during the next
year.”
2. “Monthly budgets must be prepared with a column for each month so that you can see
the whole year at a glance, month by month.”
3. Budgets are OK but they stifle all initiative. No manager worth employing would
work for a business that seeks to control through budgets.”
4. “Any sensible person would start with the sales budget and build up the other budgets
from there.”

Instructions
Critically discuss these statements, explaining any technical terms. (12 Marks)

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Part D: (15 Marks) – LO 1

Mona Ltd makes a standard model of car radio, which it sells to car manufacturers for $60 each.
Next year the business plans to make and sell 20,000 radios. The business’s costs are as follows:

Manufacturing
Variable materials $20 per radio
Variable labor $14 per radio
Other Variable Costs $12 per radio
Fixed Costs $80,000 per year
Administration & Selling
Variable $3 per radio
Fixed $60,000 per year

Instructions

1. Calculate the break-even point for the next year, expressed both in quantity of radios
and sales value. (4Marks)
2. Calculate the margin of safety for next year, expressed both in quantity of radios and
sales value. (4Marks)
3. Discuss any four reasons as to why a business might find it useful to know its Break
Even Point and Margin of Safety. (4Marks)
4. Discuss the three limitations Break-even analysis. (3 Marks)

Part E: (14.75 Marks) – LO 1

Redding Company has budgeted sales revenues as follows:

June July August
Credit sales $135,000 $145,000 $ 90,000
Cash sales 90,000 255,000 195,000
Total sales $225,000 $400,000 $285,000
Past experience indicates that 60% of the credit sales will be collected in the month of sale
and the remaining 40% will be collected in the following month. Purchases of inventory are
all on credit and 50% is paid in the month of purchase and 50% in the month following
purchase. Budgeted inventory purchases are:
June $300,000
July 250,000
August 105,000
Other cash disbursements budgeted: (a) selling and administrative expenses of $48,000 each
month, (b) dividends of $105,000 will be paid in July, and (c) purchase of equipment in
August for $30,000 cash.

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The company wishes to maintain a minimum cash balance of $50,000 at the end of each
month. The company borrows money from the bank at 8% interest if necessary to maintain
the minimum cash balance. Borrowed money is repaid in months when there is an excess cash
balance. The beginning cash balance on July 1 was $50,000. Assume that borrowed money in
this case is for one month.

Instructions
Prepare a cash budget for the months of July and August. Prepare separate schedules for
expected collections from customers and expected payments for purchases of inventory.

Part F: (15.25 Marks)

Antonio Ltd makes product X, the standard costs of which are:

$
Sales Revenue 31
Direct labor (2hours) (11)
Direct Materials (1Kg) (10)
Fixed Overheads (3)
Standard Profit 7

The budgeted output for March was 1000 units of product X; the actual output was 1,100 units,
which was sold for $34950. There were no inventories at the start or end of March.

The actual production costs were:

$
12,21
Direct Labor (2,150 hours) 0
Direct Materials (1,170 11,63
Kg) 0
Fixed Overheads 3,200

Instructions
Prepare the fixed and flexible budget. Calculate the variances for March and use them to
reconcile the budgeted and actual profit figures.

Good Luck

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