1. The following information has been extracted from the financial reports of ABC Ltd.
|Sales 25,000 units @ £20 per unit||500,000|
|Rent per annum||30,000|
|Rates per annum||10,000|
|Insurance per annum||15,000|
|Other variable costs||245,000|
- The annual rent, rates and insurance costs are fixed.
- It has been estimated that 50% of the overhead costs are variable and 50% are fixed.
- Show how many units must be sold to break-even using CVP Analysis.
- How many units must be sold to obtain a profit of $30,000 (Target profit)?
- Calculate the break-even point (units) if fixed costs (including the fixed cost portion of overhead cost) increased to $70,000.
- Explain the effects of relatively high fixed costs & low variable costs, and relatively low fixed costs & high variable costs.
2. Excellent Ltd.’s sales budget in units for 6 months ending December 2020 is as follows:
The price per unit will be $20 for the three months to 30 September 2020 but will be increased to $22 from 1 October.
This company manufactures its goods one month before the goods are sold. Monthly production is 110% of the following month’s sales. Budgeted sales for January 2020 are 2,000 units.
- Prepare the company’s sales budget for the six months ending December 2020.
- Prepare the company’s production budget.
- Explain the reason(s) of a company in conducting budgeting.
3. The HKSCE company produces and sells a product, named Success, at $30 per unit. Each year 6,000 of this product are sold. The marketing director suggests that, if the price is reduced to $28, sales will increase to 8,000 units. The sales manager thinks that sales will increase to 11,000 units if the price is further reduced to $25.
The following information is available for 6,000 units.
Direct materials $48,000
Direct labour $66,000
Variable selling expenses (commission) $12,000
Fixed expenses $48,000
- Calculate the profit or loss from the sale of (i) 6,000 (ii) 8,000 and (iii) 11,000 Recommend which option should be adopted.
- Evaluate the usefulness of marginal costing.
4. ABC Company started their business on January 1, the following were the transactions in January:
Jan 1 – Issued capital stock in exchange for $500,000 cash
Jan 1 – Purchased an equipment with original value $100,000, paid $50,000 in cash and $50,000 will be paid in February. The estimated residual value and useful life are $10,000 and 5 years respectively.
Jan 5 – Paid January office rent expense $8,000 in cash.
Jan 8 – Client A made $8,000 cash payment in advance for some services.
Jan 10 – Provided services to client B and billed him $10,000.
Jan 15 – Paid January utilities of $2,000 in cash
Jan 18 – Received $7,000 cash from client B.
Jan 19 – Services valued $8,000 were rendered to client C but not yet billed.
Jan 23 – Consulting services valued $3,000 were rendered to client A.
Jan 31 – Recorded salary expense of $9,000 which to be paid on February 1.
a) Prepare journal entries for the above transactions (excluding those on Jan 19 , 23 and 31)
Possible accounts involved are: Capital Stock, Cash, Equipment, A/C Payable, A/C Receivable, Rent Expense, Unearned Fee Income, Fee Income, Utilities Expense, etc. Use the following format of the General Journal in your answer book:
|Date||Account Title & Description||Dr. Amt.||Cr. Amt.|
b) For activities on Jan 1 , 19 , 23 , 31 , state the adjusting journal entries on 31st. (copy the following table and complete it in your answer book)
|ABC Company General Journal December 31, 20XX.|
Accumulated Depreciation: Equipment
** January depreciation adjustment
** January accrued fee income adjustment
|3||Unearned Fee Income
** January unearned fee income adjustment
** January accrued salary expense adjustment
c) Post the above entries to the appropriate ledger accounts.
Use T-account format and possible ledger accounts involved are:
Capital Stock, Cash, Equipment, A/C Payable, A/C Receivable, Rent Expense, Unearned Fee Income, Fee Income, Utilities Expense, Retained Earning, and the accounts included in all the adjusting entries, etc.
Example (use this T-account format in your answer book):
d) Base on the answers in part b) and c), prepare the adjusted Trial Balance on January 31. Listing sequence: Asset items, Liabilities items, Equity items, Revenue items, Expense items.
e) Prepare the closing entries for Revenue account, Expense accounts and Retained Earnings account.
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