Solved by verified expert :Group Assignment (Group
of Four)
BBAC501-Project
Management Accounting
Due date: Session 5.2
Total Marks 25 (18+7)
Problem # 1
Marks (9+9=18)
On 1 January, Johnson set up Valleyview Playgyms Company to manufacture
and sell children’s outdoor playgyms. He was an engineer by profession but he
understood the importance of accounting information and kept his accounting
records meticulously throughout the year. At the end of the year he prepared
the following income statement for the year:
Valleyview Playgyms
Company
Income Statement
for the year ended 31st
December, 2012
Sales
450,000
Less Operating expenses:
Purchase of Raw Material
$200,000
Purchase of factory supplies
10,000
Wages of the factory employees (who worked directly on the playgyms)
75,000
Wages for other factory employees
10,000
Managers’ salary
40,000
Office staff salaries
10,000
Sales Staff salaries
22,000
Advertising
10,000
Administrative Expenses
8,000
Clearing costs
5,000
Rent
25,000
Electricity
4,500
Purchase of factory equipment
140,000
Purchase of Office Equipment
10,000
Purchase of Sales vehicles
15,000
Total Operating expenses
584,500
Net Loss
$(134,500)
Although disappointed, Johnson was not surprised. He knew
that expenses were higher than sales because, throughout the year, he had been
able to generate a cash surplus. His bank overdraft had blown out and his bank
manager has asked him to present his financial statements for 2012 to the bank.
Required:
You are the bank’s accountant and the bank
manager has asked you to:
1. Review the performance of Valleyview Playgyms
in 2012 and make a recommendation as to whether Johnson’s overdraft facility
should be cancelled.
2. Prepare a report for Johnson explaining the
errors he made in his income statement.
To perform this analysis you will need to
recast Johnson’s income statement. The following information may be useful:
·
The factory occupies 80 per cent of the rented
building, the sales area 15 per cent and the administration area 5 per cent.
·
All the company’s fixed assets are estimated to
have a useful life for five years and no salvage value at the end of their
life.
·
Johnson spends 50 per cent of his time as
factory manager and spends the remaining time equally on sales and general
administration.
·
Electricity costs are consumed almost entirely
by the factory.
·
At 31 December 2012, the following inventories
existed:
·
Raw Material
$20,000
·
Work in Process $40 000
·
Finished Goods
$51 500
Problem
# 2 Marks7
Write
a short essay (700 words) on how management accounting can help the managers of
an organization to run their business efficiently?