BUSINESS 114
Accounting for Decision Making
SEMESTER TWO 2022
SECTION A: MULTIPLE CHOICE QUESTIONS
QUESTION 1 - Module 1 (Professional Emails)
You would like to request an extension from your supervisor, Jacky, on one of your work projects as you have been ill after having caught COVID-19.
Which is the most appropriate request based on your knowledge of the PAPER model used for writing professional emails?
(a) Hey Jacky, please can you give me an extension on that project as I have been ill after having caught COVID-19.
(b) Hello Jacky. I understand the importance of completing the project on time; however, I have been ill due to having caught COVID-19. Are you happy to approve an extension for this?
(c) Unfortunately, I have been ill with COVID-19 symptoms and have been delayed in completing the work on the project. Please can you give mean extension. Thankyou!
(d) Dear Jacky. I need an extension on the project. Thankyou.
(Total for question 1: 1 mark)
QUESTION 2 - Module 2 (Budgeting)
Which of the following describes away in which budgeting can assist in decision making?
(a) Identifying expected revenue shortages.
(b) Managing production.
(c) Determining inventory levels.
(d) All of the options listed.
(Total for question 2: 1 mark)
QUESTION 3 - Module 3 (Time Value of Money)
Your friend is considering a 6-year investment costing $21,000 with a required rate of return of 10% per year. What is the minimum annual cash inflow at the beginning of each year that the investment must provide in order to satisfy your friend’s required return?
(a) $4,384.
(b) $3,850.
(c) $4,822.
(d) $5,680.
(Total for question 3: 1 mark)
QUESTION 4 - Module 4 (Sources of Finance)
Which of the following is not a source of debt finance from the New Zealand market?
(a) Corporate bonds.
(b) Grants.
(c) Unsecured notes.
(d) Debentures.
(Total for question 4: 1 mark)
QUESTION 5 - Corporate structures, Fiduciary obligations and Agency
Jamie is a director and shareholder of Aqua Ltd. Aqua Ltd sells diving equipment through multiple retail stores. On the 6th of September, Jamie became aware of an opportunity to purchase discounted diving equipment from Stephen an importer of sports goods. Jamie thinks this will be a very good opportunity for Aqua Ltd to obtain and resell quality diving equipment. However, Jamie decides that she wants to profit from the opportunity.
On the 19th of September, Jamie buys the diving equipment from Stephen at the discounted price through a company she wholly owns and controls, Thalassa Ltd.
On the 21st of September, Thalassa Ltd on sells all the diving equipment bought from Stephen to Aqua Ltd. Thalassa Ltd makes a profit of $10,000 from the sale. The $10,000 is then distributed to Jamie through dividends from the shares Jamie owns in Thalassa Ltd.
At the time of the purchase by Aqua Ltd, no one at Aqua Ltd knew that Jamie was also a director/shareholder of Thalassa Ltd. However, on the 23rd of September, another director of Aqua Ltd finds out that Jamie is also a director of Thalassa Ltd.
Which of the following statements is incorrect?
(a) Jamie may have to pay $10,000 to Aqua Ltd as the $10,000 from the sale of diving equipment from Thalassa Ltd to Aqua Ltd is a ‘secret profit’ .
(b) Jamie has breached her fiduciary obligations to Aqua Ltd by not disclosing her conflict of interest.
(c) Separation of legal and beneficial ownership. As a shareholder of Thalassa Ltd, Jamie has limited liability and Thalassa Ltd cannot ask Jamie to contribute to her personal assets to pay off Thalassa’sdebts.
(d) Aqua Ltd is a separate legal entity and does not need any agents to acton its behalf if Aqua Ltd wants to sue Jamie for making a secret profit.
(Total for question 5: 1.5 marks)
QUESTION 6 - Partnerships, Property Law and Agency
Juniper, Zoe and Manish are accountants who run an accounting firm together in a partnership arrangement. Each of them had settled their personal homes in a trust ten years ago when they set up the partnership. The trustees for each respective family home are accountants and each partner has only a beneficial interest in their respective homes.
On the 12th of October, Manish enters into a contract with Star Software Ltd to purchase new accounting software for the partnership. The new software costs $40,000. As of the 14th of October, the debt has not been paid. Manish, unfortunately dies in a car accident that same day. The partnership is automatically dissolved upon Manish’sdeath.
The joint bank account for the partnership had only $10,000 in it when Manish died. The partnership had no other assets. (Ignore any lawson succession (inheritance)).
Which of the following statements is the most accurate?
(a) Manish was not acting as an agent of the other partners when he entered into the contract with
Star Software on the 12th of October. Thus, Juniper and Zoe are not bound to the contract.
(b) Star Software Ltd can only get $10,000 as that is all the money the partnership has in the partnership joint bank account when Manish died.
(c) Star Software Ltd has a personal right against Juniper and Zoe for the $40,000.
(d) As Juniper and Zoe are the legal owners of their homes, Star Software Ltd can force Juniper and Zoe to sell their homes to payoff the total amount owing to it.
(Total for question 6: 1.5 marks)
QUESTION 7 - Module 7 (Balance Sheet)
What are the effects on the balance sheet when a business buys a machine for $75,000 but pays a deposit of $20,000 now and promises to pay the supplier the balance in the coming 60 days?.
(a) Increase non-current asset machinery by $75,000; increase current liability accounts payable by $75,000.
(b) Increase non-current asset machinery by $20,000; decrease current asset bank by $20,000.
(c) Increase non-current asset machinery by $75,000; decrease current asset bank by $20,000; increase current liability accounts payable by $55,000.
(d) Increase non-current asset machinery by $75,000; decrease current asset bank by $20,000; increase non-current liability loan by $55,000.
(Total for question 7: 1 mark)
QUESTION 8 - Module 8 (Income Statement)
At balance date, an amount of $2,400 for electricity was still owing and had not been recorded. This will result in an:
(a) Understatement of liabilities and an overstatement of profit and equity. (b) Overstatement of liabilities and an understatement of profit and equity.
(c) Overstatement of assets, profit, and equity.
(d) Understatement of assets, profit and equity.
(Total for question 8: 1 mark)
QUESTION 9 - Ethical Dilemma
Having a budget that directly links employee bonuses with sales targets may lead to a culture among sales staff where the sales targets are changed to build in budgetary slack.
Which of the following statements is the most accurate?
(a) Budgetary slack can be viewed as unethical behaviour as it is beneficial to other organisational units and to investors.
(b) Budgetary slack can be viewed as unethical behaviour as it changes the focus of sales staff towards that of customer satisfaction.
(c) Budgetary slack can be viewed as unethical behaviour due to the misrepresentation of the sales staff capabilities.
(d) All of the options listed.
(Total for question 9: 1 mark)
SECTION B
QUESTION 10 - Financial Statement Analysis
(a) Identify two ratios a bank lender would be particularly interested in when evaluating whether to approve a loan and explain why these would be of interest to the bank lender. (4 marks)
(b) Here are two extracts from the annual report of Burger Fuel Group Limited (BFG) :
Burger Fuel Group Limited (BFG)
Required:
Using the extracts from Burger Fuel Group Limited's annual report, calculate the following ratios for 2022:
• Return on equity; and
• Current ratio. (2 marks)
(c) Referring to the extracts from the financial statements given in part (b) of this question, analyse and comment on two possible reasons as to why the net profit attributable to shareholders is lower in 2022 than in 2021. (2 marks) (Total for question 10: 8 marks)
QUESTION 11 - Cost Understanding
Megatron Ltd manufactures handheld beaters. In July 2022, the company reported the following operating results:
Sales revenue (4,000 units)
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$100,000
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Cost of goods sold
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$60,000
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Gross profit
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$40,000
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Less: Operating expenses
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$30,000
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Profit
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$10,000
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Cost of goods sold was 80% variable and 20% fixed. Operating expenses were 40% variable and 60% fixed.
Required:
(a) (i) Calculate the monthly breakeven point (for July) in units and the margin of safety (MOS)
as a percentage based on the above financial information of Megatron Ltd. (2 marks)
(ii) Calculate the operating leverage of Megatron Ltd and explain what operating leverage means for the company. (Round your results to two decimal places). (2 marks)
(b) (i) In September 2022, Megatron Ltd is considering a new production and marketing
combination plan. The new plan decreases the selling price by 10% with a result of increasing sales volume by 30% from July. Meanwhile, variable cost per unit increases by $0.50 due to the adoption of higher quality materials. Both fixed parts of cost of goods sold and operating expenses will decrease by 8% and 5% respectively.
Calculate the following based on the above financial information of Megatron Ltd (round your results to two decimal places):
• New profit for September;
• New monthly breakeven point in units; and
• Margin of safety (MOS) as a percentage. (6 marks)
(ii) Comment on the new production and marketing combination plan, considering the expected effects on profit, on the breakeven point, and on the margin of safety (MOS). State any assumptions you need to make. (4 marks, 150 words maximum)
(c) The CEO estimates that the sales volume will increase by around 40% next year due to the growth of online shopping. Therefore, the production manager believes that the total costs will also increase by approximately 40% because only variable costs increase while fixed costs remain unchanged. Do you agree with the production manager’s statement? Explain by considering one assumption related to cost behaviour that was covered in the module. (2 marks, 75 words maximum)
(Total for question 11: 16 marks)
QUESTION 12 - Performance Measurement
Minions Ltd specialises in producing Oodies, an oversized wearable blanket. Demand for Oodies has risen recently due its popularity on Tiktok so management is looking forward to an improvement on last year’s profit of $800,000. At the end of 2021, the manager of Minions Ltd provided you with the following budgeted information for the year ending 31 December 2022:
• The expected selling price for an Oodie is 12% higher than last year’s price of $70.
• Due to afavourable variance for last year’s direct variable costs, management expects 2022’s costs to be $5 below last year’s actual cost of $27 for an Oodie.
• The variable overheads were slightly more adverse than expected so management has decided to increase the expected costs to $13 per Oodie.
• Management was pleased with the accuracy of the budgeted figures for last year’sfixed overhead costs and has kept them at $142,860.
• The number of Oodies expected to be sold for 2022 is 23,600 which is higher than last year’s budgeted volume of 19,400.
Required:
(a) Prepare the master budget for Minions Ltd for the year ending December 2022 using the template below.
Master Budget for the year ending 31 December 2022
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Budget
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Number of units
|
|
Sales
|
|
Less costs:
|
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Direct variable costs
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Variable overhead
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Fixed overhead
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Profit
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(3 marks)
(b) Explain the need for preparing a master budget for management. (1 mark)
(c) Prepare a flexed budget for Minions Ltd for the year ending 31 December 2022 using the template below and calculate the individual flexed budget variances, specifying whether they are favourable or adverse. (5 marks)
Minions Ltd’s Performance Report for Oodies for the year ended 31 December 2022
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Flexed Budget
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Actual
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Flexed Variances
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F/A
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Number of units
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23,980
|
|
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Sales
|
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$1,798,500
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|
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Less costs:
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|
|
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Direct variable costs
|
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$599,500
|
|
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Variable overhead
|
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$263,780
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|
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Fixed overhead
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$140,400
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|
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Profit
|
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$ 794,820
|
|
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(d) Discuss the results obtained in Minions Ltd’s Performance Report based on part (c) of this question and the indication that management expected the results to bean improvement due to the increased media presence and demand for the Oodies.
(4 marks, 150 words maximum)
(e) Minions Ltd is considering developing a balanced scorecard. Management has decided that their focus will be on delivering consistently low prices to customers.
Required:
Provide one goal and one measure for Minion Ltd’s new balanced scorecard based on this strategy of low prices under the following perspectives:
(i) Financial (1 mark for this subpart);
(ii) Customer (1 mark for this subpart); and
(iii) Internal Operations (1 mark for this subpart). Set out each of your answers using a table format as follows:
(3 marks)
(Total for question 12: 16 marks)