Exercise and Solution on Accounting and Finance for Managers

Exercise
1. Discus the similarities and differences between GAAP and IFRS
2. Trop Co. produces 3 kinds of fruit juice, whose costs, prices, and expected sales are
provided below:

Apple Orange Cranberry

Sales price per unit $1.50 $2.00 $2.50
Variable cost per unit $0.50 $0.50 $0.50
Expected sales units 20,000 units $20,000 units 10,000 units
Trop Co. has a total fixed cost of $84,000.

Required:
Given the current sales mix:
a) Determine the overall Breakeven in quantity and sales dollar
b) Determine the break-even quantity and sales dollar for each
Solution:
a)
BEP in total Units = Total Fixed Cost/WACM per unit
WACM per unit = Total CM of all product/Total units for all product
= (SP-VC)Apple + (SP-VC)Orange + (SP-VC)Cranberry
Apple + Orange + Cranberry
= (1.5-0.5)20,000 + (2-0.5)20,000 + (2.5-0.5)10,000
20,000+20,000+10,000
=1.4

BEP in total Units = Total Fixed Cost/WACM per unit = 84,000/1.4 = 60,000 unit

BEP in sales dollar = Total Fixed Cost/WACM ratio = 84,000/0.74 = 113,514

WACM ratio = 70,000 = 0.74
95,000
b)
BEP Apple = (Apple/(Apple + Orange + Cranberry)) * BEP in total
= 20,000 * 60,000 = 24,000
(20,000+20,000+10,000)
BEP Orange = (Orange/(Apple + Orange + Cranberry)) * BEP in total
= 20,000 * 60,000 = 24,000
(20,000+20,000+10,000)
BEP Cranberry = (Cranberry/(Apple + Orange + Cranberry)) * BEP in total
= 10,000 * 60,000 = 12,000
(20,000+20,000+10,000)
BEP in sales dollar Apple = 30/95*113,514 = $ 35,847
BEP in sales dollar Orange = 40/95*113,514 = $ 47,795
BEP in sales dollar Cranberry = 25/95*113,514 = $ 29,872

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Exercise
COMPREHENSIVE ACCOUNTING CYCLE PROBLEM
For the past several years, Emily Page has operated a part-time consulting business from her
home. Asof June 1, 2010, Emily decided to move to rented quarters and to operate the business,
which was to be known as Bottom Line Consulting, on a full-time basis. Bottom Line
Consulting entered into the followingtransactions during June:

June 1. The following assets were received from Emily Page: cash, $20,000; accounts receivable,
$4,500; supplies, $2,000; and office equipment, $11,500. There were no liabilities received.
1. Paid three months’ rent on a lease rental contract, $6,000.
2. Paid the premiums on property and casualty insurance policies, $2,400.
4. Received cash from clients as an advance payment for services to be provided and
recorded it as unearned fees, $2,700.
5. Purchased additional office equipment on account from Office Depot Co., $3,500.
6. Received cash from clients on account, $3,000.
10. Paid cash for a newspaper advertisement, $200.
12. Paid Office Depot Co. for part of the debt incurred on June 5, $750.
12. Recorded services provided on account for the period June 1–12, $5,100.
14. Paid part-time receptionist for two weeks’ salary, $1,100.
17. Recorded cash from cash clients for fees earned during the period June 1–16, $6,500.
18. Paid cash for supplies, $750.
20. Recorded services provided on account for the period June 13–20, $3,100.
24. Recorded cash from cash clients for fees earned for the period June 17–24, $5,150.
26. Received cash from clients on account, $6,900.
27. Paid part-time receptionist for two weeks’ salary, $1,100.
29. Paid telephone bill for June, $150.
30. Paid electricity bill for June, $400.
30. Recorded cash from cash clients for fees earned for the period June 25–30, $2,500.
30. Recorded services provided on account for the remainder of June, $1,000.
30. Emily withdrew $5,000 for personal use.

Instruction
1. Journalize each transaction in a two-column journal, referring to the following chart of
accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers
in the journal at thistime.)
11 Cash 31 Emily Page, Capital
12 Accounts Receivable 32 Emily Page, Drawing
14 Supplies 41 Fees Earned
15 Prepaid Rent 51 Salary Expense
16 Prepaid Insurance 52 Rent Expense
18 Office Equipment 53 Supplies Expense
19 Accumulated Depreciation 54 Depreciation Expense
21 Accounts Payable 55 Insurance Expense
22 Salaries Payable 59 Miscellaneous Expense
23 Unearned Fees
2. Post the journal to a ledger of four-column accounts.

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3. Prepare an unadjusted trial balance.
4. At the end of June, the following adjustment data were assembled. Analyze and use these
data tocomplete parts (5) and (6).
a. Insurance expired during June is $200.
b. Supplies on hand on June 30 are $650.
c. Depreciation of office equipment for June is $250.
d. Accrued receptionist salary on June 30 is $220.
e. Rent expired during June is $2,000.
f. Unearned fees on June 30 are $1,875.

5. Enter the unadjusted trial balance on an end-of-period spreadsheet (work sheet) and
complete thespreadsheet.
6. Journalize and post the adjusting entries.
7. Prepare an adjusted trial balance.
8. Prepare an income statement, a statement of owner’s equity, and a balance sheet.
9. Prepare and post the closing entries. (Income Summary is account #33 in the chart of
accounts.) Indicate closed accounts by inserting a line in both the Balance columns
opposite the closing entry.
10. Prepare a post-closing trial balance

Solution - 1
Date Description Dr Cr
Jun-01 Cash 20,000
Account Receivable 45,000
Supplies 2,000
Office Equipment 11,500
Emily Capital 38,000
1 Prepaid Rent 6,000
Cash 6,000
2 Prepaid Insurance 2,400
Cash 2,400
4 Cash 2,700
Unearned Revenue 2,700
5 Office Equipment 3,500
Account Payable 3,500
6 Cash 3,000
Account Receivable 3,000
10 Miscellaneous Expense 200
Cash 200
12 Account Payable 750
Cash 750
12 Account Receivable 5,100
Fees Earned 5,100

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14 Salary Expense 1,100
Cash 1,100
17 Cash 6,500
Fees Earned 6,500
18 Supplies 750
Cash 750
20 Account Receivable 3,100
Fees Earned 3,100
24 Cash 5,100
Fees Earned 5,100
26 Cash 6,900
Account Receivable 6,900
27 Salary Expense 1,100
Cash 1,100
29 Miscellaneous Expense 150
Cash 150
30 Miscellaneous Expense 400
Cash 400
30 Cash 2,500
Fees Earned 2,500
30 Account Receivable 1,000
Fees Earned 1,000
30 Withdrawal 5,000
Cash 5,000
4 - Adjustment Entries
a Insurance Expense 200
Prepaid Insurance 200
b Supplies Expense 2,100
Supplies 2,100
c Depreciation Expense 250
Accumulated Depreciation
Expense 250
d Salary Expense 220
Account Payable 220
e Rent Expense 2,000
Prepaid Rent 2,000
f Unearned Revenue 825
Fees Earned 825

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Exercise
1. Derby Co. has the following accounts in its ledger: Cash; Accounts Receivable; Supplies;
Office Equipment; Accounts Payable; Bell, Capital; Bell, Drawing; Fees Earned; Rent
Expense; Advertising Expense; Utilities Expense; Miscellaneous Expense.

Mar. 1. Paid rent for the month, $3,000.

2. Paid advertising expense, $1,800.
5. Paid cash for supplies, $900.
6. Purchased office equipment on account, $12,300.
10. Received cash from customers on account, $4,100.
15. Paid creditor on account, $1,200.
27. Paid cash for repairs to office equipment, $500.
31. Fees earned and billed to customers for the month, $26,800.
31. Paid electricity bill for the month, $315.
31. Withdrew cash for personal use, $2,000.
Required:
Journalize the above selected transactions for March 2015 in a journal.
Solution:
March 1, Rent expense ………………………………………… 3,000
Cash……………………………………….……………. 3,000
2, Advertisement expense……………………………. 1,800
Cash………………………………………………………1,800
5, Supplies……………………………………………. 900
Cash ……………………………………………………….900
5, Office Equipment………………………………… 12,300
Accounts Payable ………………………………………12,300
10, cash………………………………………………. 4,100
Accounts receivable ………………………………………4,100
15, Accounts payable…………………………………. 1, 200
Cash………………………………………………………1,200
27, Miscellaneous expense………………………………. 500
Cash……………………………………………………….500
31, Accounts receivable …………………………….… 26,800
Fees Earned ……………………………………………26800
31, Utility expense………………………………………. 315
Cash…………………………………………………….…315
31, Bell Drawing ……………………….……………. 2,000
Cash ……………………………………………….……2,000

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 2. Currently Yonas’s Cellular Shop manufacture and sells phones at a unit price of 15,000.
The unit variable cost per phone is birr 7,000 and fixed manufacturing costs total birr
600,000 per year.

Required: Based on the information given above, answer the following questions:
a) What is the contribution margin per phone?
b) What is the breakeven point in units(phones)
c) What is the breakeven point in sales birr?
d) How many phones must be sold to earn a targeted before tax profit of Birr 600, 000?
e) If the actual sale of the company is 100 phones, what is the margin of safety ratio?
Solution:

CM = SP-VC/unit 8,000
BEQ = TFC/CM/Unit = 75 units

BE is sales birr = BE quantity * SP = 1, 125,000 birr

Quantity to be sold = (TFC + Profit)/ CM per unit = 150 units

MOS ratio = (Actual sales – BE sales)/Actual sales = 25%

3. Lucy Company has the capacity to produce 15,000 units per month. Current regular production
and sales are 10,000 units per month at a selling price of Br. 15 each. Based on the current
production level, the following costs are to be incurred per unit:

Direct materials Br. 5.00

Direct labor 3.00
Variable factory overhead (FOH) 0.75
Fixed FOH 1.50
Variable selling expense 0.25
Fixed administrative expense 1.00

Lucy Company has received special order from a customer that wants to purchase 4,000 units at
Br. 10 each. There would be no selling expense in connection with this special order.
Instructions:

a) Should Lucy Company accept or rejects the special order? Why or why not? Assume that the
special order should not disturb regular business.
b) Suppose that the special order was for 8,000 units instead of 4,000 units. Thus, regular
business would be reduced by 3,000 units to accept the special order because production
capacity cannot be expanded in the short run. What would be the overall profit of the firm
if it accepts this order?

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 Solution:

a) Better to accept the special order because the variable cost incurred is only 9 (5 + 3 + 0.75 +
0.25) birr for the special order but it is offered for birr 10, so the company will get birr one from
each special order, total birr 4,000.

b) Profit from the normal sales 35,000 = 7,000 * (15 – 10) plus profit from the special order 8,000
= 8,000* (10 – 9) = 35,000 + 8,000 = 43,000 birr

4. Alem Company manufactures 30,000 units of part X each year for use on its production line.
The following are the costs of making part X:

Cost per unit Total Costs

Direct material 4 240,000
Direct labor 3 180,000
Variable factory overhead 3 180,000
(FOH)FOH
Fixed 3 180,000
Total manufacturing costs Br.13 Br. 780,000

Another manufacturer has offered to sell the same part to Alem for Br.12 each. The fixed overhead
consists of depreciation, property taxes, insurance, and supervisory salaries. The entire fixed
overhead would continue if the Alem Company bought the component except that the cost of
Br.75, 000 pertaining to some supervisory and custodial personnel could be avoided.

Required: Should the parts be made or bought? Assume that the capacity now used to make
parts internally will become idle if the pats are purchased?

Solution:

Avoidable cost:
DM = 240,000
DL = 180,000
VOH = 180,000
FOH = 75,000
675,000

Purchase price = 12 * 60,000 = 720,000

Therefore, by buying the part the company is going to lose 45,000. So better to continue
making the product internally i.e., 11.25 – 12 = 0.75 lose per product

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 5. Sunny company’s July 2019 Manufacturing overhead costs was 238,000 Birr. Direct labor
cost was 90% of manufacturing overhead costs. During July 220,000 Birr of direct
materials were purchased. Other July’s information are as follows: (10 points)
Inventories July 1 July 31
Direct materials 54,600 50,000
Work in prices 80,000 64,000
Finished goods 219,000 211,800
Required:
1. Prepare the July’s cost of cost of goods manufactured schedule
2. Determine cost of goods sold for July
3. Prepare income statement for the month of July having the following information:
company’s sales revenue was birr 1,200,000 and operating costs were birr 250,000.
Solution:
DM used = BDM + DM purchase - EDM
224,600
TMC = DM used + DL cost
+ MOH
676,800

CGM = BWIP + TMC -

EWIP
692,800

CGS = BFG + CGM - EFG

700000

sales 1,200,000
CGS 700,000
GP 500,000
OE 250,000
OI 250,000

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