Accounting

Attempt ALL questions.

SECTION 1 — 60 marks
Attempt BOTH questions
1. The following information relates to the accounts of Golf Direct, a golfing supplies
business owned by Paul Tay.
Ledger balances as at 1 April Year 3
Equipment £1,200
Bank Overdraft £450
Sales Revenue (Sales) £920
Purchases £520
2 April J Young purchased goods on credit costing £265·50 plus VAT.
5 April J Young returned damaged goods worth £49·50 plus VAT.
7 April Bought a new cash register on credit from Shop Supplies worth £405
plus VAT.
10 April J Young paid £275 on account by cheque.
14 April Received a letter from the accountant of J Young informing that he has
been declared bankrupt and can only pay 25p in the £. This amount
was received by cheque with the letter and the remainder is to be
written off.
Note: VAT is to be applied at 20% where appropriate.
(a) Using the information above, enter the transactions into the ledger accounts of
Golf Direct on Page 2–4 of your Workbook (J Young’s opening ledger balance has
already been entered).
Answer questions (b)-(d) on Page 5 of your Workbook.
(b) Outline two roles of a Financial Accountant.
(c) State a reason as to why businesses may give each other:
(i) Trade Discount.
(ii) Cash Discount.
(d) Describe how Rent Received would be dealt with in the Income Statement
(Trading, Profit & Loss Account).
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2. Use Pages 6–9 of the Workbook to answer this question.
PART A
Pam Daws owns a business that produces sandwich toasters for the catering industry.
The following is the budgeted unit data for Year 3 of the business.
Selling price £70
Raw materials £10
Labour (3 hours) £8 per hour
Variable overheads £4 per labour hour
Total budgeted fixed costs are £96,000
Total production is expected to be 14,000 units
Using the above information, calculate:
(a) Total variable cost per unit;
(b) Contribution per unit;
(c) Break-even point in units and sales value;
(d) Margin of safety (in units and sales value) at a production level of 7,000 units;
(e) Profit/loss if all the expected production units are sold.
PART B
Piotr Czerniak manufactures safety helmets for Equestrian riders. He has provided
the following data.
Contribution per unit £40
Break-even point 1,500 units
(a) Calculate the total Fixed Costs.
(b) Calculate how many units Piotr needs to sell to make a profit of £30,000.
Piotr expects the following changes to take place in the coming year:
• Fixed costs to reduce by 5%
• Selling price to increase by £4
• Variable cost per unit to reduce by £3·50
(c) Calculate the change in break-even point based on the expected changes above.
(d) (i) Outline two advantages of calculating accounting ratios.
(ii) Suggest three actions that could be taken when a negative closing balance
is identified in a Cash Budget.
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SECTION 2 — 40 marks
Attempt ALL questions
3. Ronald MacLean is the owner of Get Outdoors, a small wholesaler of accessories for
retailers and outdoors enthusiasts. He sold the following goods to Hillfoot Cycles on
20 April Year 5:
9 Mountain Bike Helmets (various colours) @ £50·00 each
5 Trail X1 Mountain Bikes @ £270·00 each
Ronald applies the following terms to all sales made to Hillfoot Cycles. Hillfoot Cycles
has agreed in advance to make prompt payment in order to receive the cash
discount. Hillfoot Cycles has requested that the invoice should reflect this.
TERMS DELIVERY
10% Trade Discount
Cash Discount — 7·5% one month
VAT — 20%
£30·00 on all orders of 15 items or less
On the Worksheet provided on Page 10 of your Workbook, complete the Invoice that
should be sent to Hillfoot Cycles. 10
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4. Charlie McTavish is a sole trader. He provides you with the following information.
The Cash and Cash Equivalents (Bank) balance of Charlie is expected to be £30,000 at
31 August Year 2.
1. Sales in units are estimated to be as follows:
Aug Sept Oct
2,300 1,500 2,000
2. The selling price per unit will be £60 but Cash Sales will receive a discount of
10%.
3. Credit customers pay one month after sale.
4. Credit sales account for 60% of total sales each month.
5. Estimated production each month will be:
Aug Sept Oct
2,500 1,100 1,500
6. Raw material costs are £16 per unit and are paid for one month after
production.
7. Wages are £12 per unit and are paid in the same month as production.
8. Charlie buys a new van costing £20,000 and pays a 20% deposit in September.
On Page 11 of your Workbook, prepare Charlie’s Cash Budget for September.
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5. Harry Davidson purchases raw materials which are then manufactured into finished
products and sold to customers. The following information relates to the issue and
purchase of materials for November.
DATE PURCHASES/ISSUES
01 Nov Purchased 500 kg costing £10·25
05 Nov Issued 200 kg to Job 10
07 Nov Purchased 750 kg costing £10·30
12 Nov Issued 350 kg to Job 11
16 Nov Issued 440 kg to Job 12
Complete the Inventory (Stock) Record Card for the month of November, using
Last-In-First-Out (LIFO) on the Worksheet provided on Page 12 of your Workbook. 10
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6. In Year 1 Nicole Dance’s factory produced 2 products — 11,000 units of Product X and
10,000 units of Product Y, in line with consumer demand for the products.
This required 74,000 labour hours.
Annual Fixed Costs are £165,000.
All units produced were sold.
Data for each product is shown below.
X Y
Contribution per unit £20 £18
Labour Hours per unit 4 3
In Year 2, due to employee redundancies as a result of cost savings, there will only be
56,000 labour hours available, although consumer demand will remain the same.
Fixed costs will also remain the same as in Year 1.
Use Page 13, (and the subsequent pages if needed), of the Workbook to answer the
following questions.
(a) For each product calculate the Contribution per Labour Hour.
(b) Justify the order of production in order to maximise profit.
(c) For Year 2, calculate how many labour hours should be allocated to each product
in order to maximise profit.
(d) For Year 2, calculate how many units of each product should be produced in
order to maximise profit.
(e) For Year 2, calculate the Contribution from each product and in total.
(f) Calculate the maximum profit for Year 2.