Swinton Industries operates in the IT industry, producing and selling computer and IT equipment. It is structured along functional lines (research and design, production, marketing and so on) and, for most of its history, has operated with a fairly authoritarian management style. This management style is reflected in the budget-setting process, whereby the accounting staff set budget targets in conjunction with the CEO and budgets are presented to departmental managers as non-negotiable reports. Recently there has been a change of CEO with the appointment of Wendy Ambrose. Wendy has embarked on a reorganisation aimed at a more decentralised decision-making structure. The budget-setting process is also to be conducted with a higher level of participation by departmental managers. Accounting staff have been instructed to work more closely with departmental managers on the setting of budget targets. Required (a) Outline the advantages of the move to a more participative-style budget process. (b) What is the likely impact of this change on accounting staff?
> Squeezers Juice and Tea Company manufactures organic juices and chai teas that are sold at whole foods stores. Several of its products have been featured in movies because the company’s products are popular with celebrities. The owners and employees valu
> Refer to the information in problem 19.25. Dyggur Equipment wants to offer weekend servicing of heavy equipment. None of its competitors offer this service, and management believes this service will bring in new business and help retain current customers
> Dyggur Equipment manufactures and sells heavy equipment used in construction and mining. Customers are contractors who want reliable equipment at a low cost. The entity’s strategy is to provide reliable products at a price lower than its competitors. Man
> Curry House owns a number of stores that sell fast food. As part of its compensation packages, Curry House provides employees with bonuses based on customer satisfaction surveys. Recent analysis of the data shows a positive correlation between survey rat
> Sunshop Books is a multi-divisional book company that listed on the stock exchange about three years ago. Like many in the industry, Sunshop started out in the 1980s as a single-site suburban bookstore. Company CEO Lewis Negus has been in the role for th
> The ATCO Company purchased the Dexter Company three years ago. Prior to the acquisition, Dexter manufactured and sold plastic products to a wide variety of customers. Since becoming a division of ATCO, Dexter only manufactures plastic components for prod
> Strong Welding Equipment Company produces and sells welding equipment nationally and internationally. Following is information about two divisions in US dollars. Required (a) Calculate each division’s ROI. (b) Calculate each division
> Explain why not-for-profit entities do not always set prices so that their operating costs are recovered.
> Identify three products for which target costing and kaizen costing could be used. Identify three products for which target costing and kaizen costing would be inappropriate.
> Soft Mats produces exercise mats for use in fitness centres. Production capacity is 40 000 mats per year. Due to a chain of fitness centres closing, Soft Mats now has spare capacity of 4000 mats per year. An international hotel chain, Mini Break, has rec
> The management of Kayla Industries have been aggressive in trying to build market share. The price was set at $5 per unit, well below the existing market price. Variable costs were $4.50 per unit and annual fixed costs in the first year were $600 000. R
> Tartan Company is a single-product entity and provides the summary data shown below relating to its product for 2020. Selling price per unit……………………………………………………………….. $ 50 Variable manufacturing costs …………………………………………………….. 24 Annual fixed manufacturing
> Magic Dusters has also identified that another ingredient, Delta D (500 litres required), will also be used in the special order for Stay Clean Ltd (see problem 10.47). Unlike Alpha A, Delta D is currently used in normal production for Magic Dusters. The
> Magic Dusters is considering a special order from Stay Clean Ltd for a special cleaning product for windows. One ingredient required for the product is Alpha A, which Magic Dusters has in its inventory. Magic Dusters’ current products do not use Alpha A;
> Lavender Plantations Pty Ltd manufactures three lavender-based products, candles, soaps and detergents. On average 75 000 candles, 50 000 soaps and 125 000 detergents are sold. Next year, the company has a restricted advertising budget of $40 000, which
> Coffee House sells specialist coffee drinks from a rented cart on the beachside on the Sunshine Coast. Provided below is a summarised version of its statement of profit or loss for July 2019. The costs of beverages and napkins are classified as variable
> Waffle House sells ice-cream cones in a variety of flavours. Financial data for a recent week are shown below. Revenue (2000 cones @ $2.00) …………………. $4 000 Cost of ingredients ………………………………………. 1 200 Rent ……………………………………………………………… 700 Store attendant ……………
> Lavender Plantations Pty Ltd manufactures and sells candles, soaps and detergents, and distributes them to stores located in Australia and New Zealand. The normal selling price per carton of candles is $25; the variable cost of a carton of candles is $15
> Briefly outline some of the key qualitative risk considerations with respect to outsourcing decisions.
> Explain the meaning of the term ‘fixed cost’ and give five examples of fixed costs.
> ‘If an entity has the objective of profit maximisation, break-even analysis is not necessary.’ Discuss this assertion.
> The following information has been extracted from the financial statements of Vivid, a social media company. Revenue is generated through advertising on the social media platform, where the number of ‘clicks’ is the dr
> Advantage Tennis Coaching (ATC) has been engaged to provide tennis coaching services to students at a local private girls’ college. ATC has put forward a proposal to the University of Queensland’s School of Human Movem
> Mansfield Ltd has recently expanded its production facility to satisfy a new customer order that will start in six months. As a consequence, it has the opportunity to make use of the spare capacity for the next six months. Financial information on the cu
> Elm Ltd has been manufacturing its own shades for its camping chairs. The company is currently operating at 100 per cent capacity. Variable manufacturing overhead is charged to production at the rate of 50 per cent of direct labour cost. The direct mater
> Flash Pty Ltd manufactures handheld egg-beaters. For the first eight months of 2020, the company reports the following operating results while operating at 80 per cent capacity. Sales (400 000 units) ………………………….. $ 2 000 000 Cost of sales ………………………………………
> Blitz Nails has provided the following financial data for the last two financial periods. The manager, Jonie Matte, is beginning her planning for next year and requires the following information. Required (a) Calculate the break-even level of sales in
> Terrace Company currently manufactures a sub-assembly for its main product. The costs per unit are as follows. Direct materials …………………………………. $ 4.00 Direct labour ………………………………………. 30.00 Variable overhead …………………………………. 15.00 Fixed overhead (allocated) …
> Lavender Plantations Pty Ltd management plan to introduce detergents to its product range in 2022. They have provided the following information relating to the planned activities. Required (a) Calculate the break-even point in total units and units per
> Mermaid Enterprises operates a single-product entity. Data relating to the product for 2019 are as follows. Annual volume ……………………………………………………………….. 64 000 units Selling price per unit …………………………………………………………………… $ 60 Variable manufacturing cost per unit
> How does the calculation of break-even differ between single product and multi-product entities?
> Information for Harbour Industries is provided below. Average selling price per unit ……………………………. $ 10.00 Average variable costs per unit: Cost per unit ………………………………………………………… 5.00 Selling costs ………………………………………………………….. 1.40 Annual fixed costs: Selling …
> IT Equip sells IT equipment, specialising in printers and projectors. The following statement reflects the contribution margin of each activity and overall profit levels. Required (a) Calculate the contribution margin ratios for each of the two areas of
> Nicholas Cash of Advantage Tennis Coaching (ATC) has received an offer from a top-ranked Australian player, Serena Novac, who wishes to spend two months in the beautiful Queensland weather and have 50 private coaching sessions with Nicholas. If the offer
> Gotrack Company produces compasses for cross-country skiing. The production capacity is 45 000 compasses and the company is currently operating at 85 per cent capacity. Variable manufacturing costs are $10 per unit. Fixed manufacturing costs are $425 000
> Lavender Plantations Pty Ltd advertises weekly specials and makes sure that the shelf space (9 metres) at the entrance to the store showcases these specials. For the current week, its three products are being advertised at special prices. Each product mu
> In the Whine Company, it costs $30 per unit ($20 variable and $10 fixed) to make a product that normally sells for $55. A foreign wholesaler offers to buy 3000 units at $35 each. The Whine Company will incur special shipping costs of $2 per unit. Requir
> Emy Fong has been operating a single-product firm for three years. As this product is now well established in the market, Fong is thinking about adding two new products to her range. Outline the impact of her decision on the calculation of her new break-
> Discuss some possible options when the break-even unit target appears too difficult to achieve.
> Yen Rippon is about to commence operations as a beauty technician. She believes her costs can be classified as fixed or variable. (a) Distinguish between fixed and variable costs. (b) Outline how Yen could make use of CVP analysis to help guide her busin
> For each of the following independent situations, calculate the break-even point in units. (a) Variable cost per unit of $3, annual fixed costs of $42 750 and selling price per unit of $9. (b) Variable costs per unit of $10, annual fixed costs of $63 200
> Discuss the concept of operating leverage.
> Find the missing figure for each of the following independent cases. (Reconstruct the statement of profit or loss for each scenario.)
> Find the missing figures for each of the independent cases shown below. (Reconstruct the statement of profit or loss for each scenario.)
> Explain the importance of the relevant range in relation to cost behaviour when considering the costs of expanding business activities.
> Discuss how knowledge of the break-even point and the margin of safety will assist management in its risk assessment of business operations.
> CVP analysis and break-even analysis are underpinned by a range of important assumptions. Briefly discuss four such assumptions.
> If an entity has a mixed cost function, a 10 per cent increase in sales volume should increase income by more than 10 per cent. Explain why.
> A university student, Barry Ward, plans to sell atomic alarm clocks with a music function over the internet and in person during the semester to help pay his study expenses. He buys the clocks for $35 and sells them for $55. If payment by cash accompanie
> According to Telstra’s 2018 Remuneration report, 40 per cent of the executive variable remuneration plan (EVP) was based on customer performance measures. Discuss the reasons why the board has linked executive remuneration to customer satisfaction rating
> Best Beef Burgers operates a store in Melbourne and the following is its average monthly statement of profit or loss. The owner is currently preparing the budget for next year and is considering the following alternatives. 1. Reducing the cost of sales
> How can the margin of safety be used to assess risk associated with sales?
> Go to the website for JB Hi-Fi Ltd and examine its latest annual report. Write a report to the finance manager explaining how you would prepare the sales budget.
> John Wilson is the owner/manager of Overnight Courier Solutions, a small transport and courier company that provides logistic services to business. John is about to start the budget process for 2021. His marketing manager has contacted customers and anal
> Quality Goods Company operates antique and second-hand goods stores throughout Victoria. Such stores are currently very popular and sales are increasing each month. It has budgeted the following sales for the indicated months. Quality Goods Company&acir
> Bullen & Company makes and sells upmarket carrybags for laptop computers. John Crane is responsible for preparing Bullen & Company’s master budget and has assembled the data below for 2021. The direct labour rate includes wages,
> Willow Health provides a range of healthcare services to the local community, including home visits by nurses to elderly patients. An allied health worker, who performs a range of tasks such as housework and showering for patients, accompanies the nursin
> Glenn Stone, manager of Jarrett Car Repairers, has requested that you prepare a cash budget for the months of December and January. He has provided the following information to assist in this task. • Projected cash balance at the end of
> At a recent finance committee meeting, the Chief Operating Officer advised the marketing department that a 10 per cent increase in sales is expected for the coming year. The increase is to apply to all product lines. Required (a) How will this directive
> Realty Company prepares monthly cash budgets. Provided next is a set of relevant data extracted from existing reports and the sub-budgets for the two months of September and October 2021. All sales are on credit. Collections from accounts receivable nor
> M20 Company has presented the following estimates relating to 2021 activities. Sales in the December quarter of 2020 are $345 000. All sales are on credit, of which 55 per cent are collected in the quarter of sale and 45 per cent in the following quarte
> ‘Nobody ever seems to be able to hit our sales targets. Why is that?’ (John Lyons, Chief Accountant of Clocktower Fashions). John is showing his frustration at the failure of the company’s store managers to meet their specific targets for sales and expen
> Discuss the circumstances in which CVP analysis might be useful.
> Betty Wu is the manager of a large retail store specialising in children’s clothing and accessories. As Betty is the longest serving employee, she believes that she knows what is best for the store. She does not consult with her departmental managers in
> Veronica Shan owns and operates the Quality First printing company. Veronica and her staff do not engage in planning or budgeting, as they consider the business too small to warrant their attention to such matters. Recently, it has been necessary for the
> As a consequence of the global financial crisis, many airlines have cut back services to various locations around Australia. Identify other entities or groups of entities that might be reviewing their budget targets during the budget period due to this r
> Holiday Manor has a dining room with the capacity to seat 100 guests. It is open for breakfast and lunch seven days a week. During January 2019, management forecast the seat turnover for breakfast to be 2.5 times and for lunch 2 times, with the average b
> Holiday Manor has twenty rooms available for rent. During the month of December, its average room rate is expected to be $180 and its room occupancy 80 per cent. Due to the holiday season, the room rate is to be increased by 20 per cent and the occupancy
> Database Service’s management expressed surprise that the budgeted profit was achieved despite actual sales being under by $75 000. Give reasons why the actual profit may have been able to match the budgeted profit.
> Mona Little, the accountant for Trailers 4 Hire, is currently preparing the budget for the coming year. One of the agenda items for next week’s finance meeting is consideration of whether an outstanding loan of $250 000 should be refinanced, paid out in
> Dairy Australia Ltd’s annual operating plan for 2017–2018 outlines its three-year plan following revision of its strategic direction. Access the plan (available at www.dairyaustralia.com.au) and outline how budgeting techniques have been used by Dairy Au
> Johnny Castles is the operational manager for Tru Blue Tours. Johnny’s bonus is dependent upon the reduction of his department’s operating expense budget by 10 per cent in the coming year. One initiative he has taken is to cut staff training expenditure.
> Michael Wallis is the marketing manager for a chain of stores specialising in electric tools for home renovators. Michael’s department is preparing a sales budget for the coming year and he has issued a memo to his staff that includes a requirement for a
> Using examples, distinguish between fixed and variable costs.
> Amy Turner is the newly appointed chief accountant at Satellite Data Components (SDC), which designs and manufactures data components for the satellite and car industries. One of Amy’s early tasks is to review the budgeting and planning system. From her
> Chalkboard was commenced by Louis Turner. Chalkboard is an innovative technology company that provides a platform for the posting of best-practice teaching videos and commentary. Its strategy is focused around being the number one enabler of teaching bes
> Lavender Plantations Pty Limited produces and sells two types of lavender-based products: soaps and candles. The 2022 sales budget for the two products is as follows. The beginning inventory on 1 January 2022 is expected to be 4200 units of soaps and 12
> Brodie Ltd has undertaken its budget planning for the coming accounting period. Budget item …………….................................………….Budget data Sales …………………………………………………. 60 000 units; selling price $120 Cost of inventory …………. Direct materials: 2 kil
> Middleton Services is preparing a master budget for the coming year. At present senior management are reviewing the inventory policies. Which budgets would be affected by policies concerning the level of inventories? Why?
> Discuss the potential issues arising for an entity if it takes a budgetary approach in which budgetary data are imposed on business unit managers by the CEO. Contrast this with an approach whereby the budgetary data are developed in a more participatory
> Golden Arbours intends to start business on the first day of January. Production plans for its first four months of operations are as follows. January ………………………………… 10 000 units February ………………………………. 25 000 units March ………………………………….. 35 000 units April
> Glenvale Furniture has projected sales of its product for the next six months as follows. January ……………………………….. 80 units February ……………………………... 180 units March …………………………………. 200 units April ……………………………………... 160 units May ………………………………………… 60 units Jun
> Hobby Gardens is a garden design and landscaping business. At 30 June 2021, it has a bank balance of $52 500. Provided below are estimates for receipts and payments for the three months ending 30 September 2021. Required (a) Prepare a monthly cash budge
> Garden Sculptures presents the following data relating to the expected operations for the months of January to March 2021. Required (a) Prepare a cash budget on a monthly basis for the three months ending March 2021. The cash balance at 31 December 2020
> Explain the difference between mixed and variable costs. Provide examples of each.
> Lavender Plantations Pty Limited produces and sells two types of lavender-based products: soaps and candles. Peta Mitchell, the manager, is implementing a new marketing strategy in 2022. Actual sales in 2021 are as follows. Due to the change in sales st
> Budget Travel plans to commence operations on 1 July 2021. The following data and estimates relate to the three months ending 30 September 2021. Required (a) Prepare a monthly cash budget for the three months ending 30 September 2021. (b) The actual num
> Twilight Enterprises has provided the following estimates relating to the first quarter of 2021. Cash sales ……………………………………………………………. $ 88 960 Credit sales ……………………………………………………………. 167 624 Receipts from accounts receivable …………………………… 130 840 Cash payment
> Watson Company makes specially designed coffee mugs. The entity has developed a website and is trying to switch customer behaviour to this medium. Sales for each quarter of 2020 are as follows. Quarter ending 31 March ……………………………… $234 000 30 June ………………
> One of the downsides of using a participative style of budgeting is the possibility of ‘budgetary slack’. Explain whether you consider the strengths of a participative style of budgeting outweigh the problems associated with budgetary slack.
> During late 2019, Ski Lifters commenced a new business in the Alpine region to rent ski gear to tourists. A budget has been prepared for the coming financial year. Prepare a brief report to management on how the budget can be used as a control device to
> Ski Lifters is a business that provides a chairlift for tourists in the Alpine region. The peak season is in winter, with the low season during the summer months. Sales are high during the ski season and then taper off once the season closes. Explain why
> From the following data for Starlight Enterprises, calculate the receipts from accounts receivable for June, July and August of 2021. Credit sales are normally settled according to the following pattern: 70 per cent in the month following sale and 25 pe
> From the following data for Fantastic Sales, calculate the receipts from accounts receivable for September, October and November of 2021. Credit sales are normally settled according to the following pattern: 20 per cent in the month of the sale, 50 per
> Arthur Thomson Lawyers operates in the local neighbourhood and has six solicitors who work on client briefs. For the coming year, each solicitor is budgeted to work 2400 billable hours. The main areas of law work that Arthur Thomson Lawyers specialises i
> The financial controller of Seats R Us has established indirect cost pools and cost drivers for the coming year as follows. The sales team has received an order for 1500 seats and produced them. The order requires the following. Machine set-ups â&
> Explain the meaning of the term ‘budgetary slack’.
> Discuss the typical role of the accountant in the budget process.
> Explain the difference between planning and control.
> Explain the similarities and differences between the cash budget and the statement of cash flows discussed in the statement of cash flows chapter.
