Vol. 1 – Financial Accounting – Chapter 3

Preparation of journal entries

The following information is provided for the first month of operations for Legal Services Inc.:

A.  The business was started by selling $100,000 worth of common stock.

B.  Six months’ rent was paid in advance, $4,500.

C.  Provided services in the amount of $1,000. The customer will pay at a later date.

D.  An office worker was hired. The worker will be paid $275 per week.

E.  Received $500 in payment from the customer in “C” .

F.  Purchased $250 worth of supplies on credit.

G.  Received the electricity bill. We will pay the $110 in thirty days.

H.  Paid the worker hired in “D” for one week’s work.

I.   Received $100 from a customer for services we will provide next week.

J.   Dividends in the amount of $1,500 were distributed.

Prepare the necessary journal entries to record these transactions. If an entry is not required for any of these transactions, state this and explain why.

Preparation of financial statements

Shown below are the balances extracted from the ledger accounts of Shining Star Ltd, a company providing maintenance services, for the year ended 30 June 20XX after the adjusting journal entries have been completed. The account names are listed in alphabetical order and each account shown had a normal balance.

Required:

(a)     Prepare an Adjusted Trial Balance as at 30 June 20XX and calculate the ending balance of the

Cash account.

(b)    Prepare an Income Statement for the year ended 30 June 20XX.

(c)     Prepare a Statement of Retained Earnings for the year ended 30 June 20XX.

(d)    Prepare a Balance Sheet as at 30 June 20XX.

Vol. 2 – Managerial Accounting – Chapter 3

Cost-volume-profit (CVP) analysis

Geelong Gardening Tools Ltd (GGT) manufactures a line of electric garden tools that are sold in general hardware stores. The company's accountant, Tim Brown, has just received the sales forecast for the coming year for GGT's three products: A, B and C.

GGT has experienced considerable variation in sales volumes and variable costs over the past two years, and Brown believes that the forecast should be carefully evaluated from a CVP viewpoint. The preliminary budget information for the coming year is as follows:

For  the  coming  year,  GGT's  fixed  manufacturing  overhead  is  budgeted  at  $6,000,000,  and  the company's fixed selling and administrative costs are estimated at $1,800,000. GGT pays a tax rate of 40 per cent.

Required:

(a)    Determine GGT's budgeted net profit for the coming year.

(b)    Assuming the sales mix remains as budgeted, determine how many units of each product GGT

must sell in order to break even in the coming year.

(c)    After preparing the original estimates, management would like to keep the current selling prices and review the break-even situation by revising the following estimates:

•   Variable manufacturing cost of Product C would increase by 20 per cent.

•   Variable selling cost of Product B could be expected to increase by $3.00 per unit.

•   Product C is highly valued by customers in the market and the management expects to sell three times as many Product C as each of their other products.

For the above changes of estimates, determine how many units of each product GGT would have to sell in order to break even in the coming year.

Vol. 2 – Managerial Accounting – Chapter 6

Product costs based on traditional and activity-based costing systems

Sydney Equipment Ltd manufactures two products, basic and superior, and applies overhead on the basis  of  direct  labour  hours.  For  the  next  accounting  period,  the  estimated  total  amount  of manufacturing overhead is $1,920,000. Information about the two products is available as follows:

Superior

Estimated production volume Direct material cost

Direct labour hours

Direct labour rate

3 000 units

$50 per unit

3 hours per unit

$24 per hour

4 000 units

$80 per unit

4 hours per unit

$24 per hour

The estimated manufacturing overhead can be identified with three major activities: order processing ($360,000), machine processing ($1,344,000) and product inspection ($216,000). These activities are driven by number of orders processed, machine hours worked and inspection hours, respectively. Below is the activity data relevant to the two products:

Superior

Orders processed

Machine hours worked

Inspection hours

330

19,800

2,200

220

24,200

8,800

The top management is very concerned about declining profitability despite a healthy increase in sales volume after recent plant renovation and automation with significant investments.

Required:

(a)     Using traditional costing method applying manufacturing overhead to production based on direct

labour hours, calculate the product costs per unit of the two products.

(b)    Using activity-based costing method, calculate the product costs per unit of the two products.

(c)     Based on your calculations in (a) and (b) above, explain which product is overcosted and which product is undercosted AND briefly discuss the impact of overcosting and undercosting to the organisation.