Microsoft Stocks Summary

Contribution Margin Per Unit

Question 1:

A. contribution margin per unit:

The contribution margin per unit is determined as follows:

CM = P – V, where CM is the contribution margin, P is the price and V is the variable cost

Selling price = $9

Direct labour and ingredient costs = $5

Given that

CM = P – V

Then in our case

CM = $9 – $5 = $4

Therefore the contribution margin per unit = $4

Answer: $4

B. contribution margin ratio:

The contribution margin ratio is determined as follows:

Contribution margin ratio = (contribution margin / price) X 100

Therefore in our case

Contribution margin ratio = (4 / 9) X 100 = 44.44%

Therefore the contribution margin is 44.44%

Answer: 44.44%

C. break even point

The break even point is the point where total revenue is equal to total costs

Total cost = fixed cost + variable cost

Fixed cost = 5,000

Variable cost = 5 X 1500 units = 7,500

Total cost = 5,000 + 7,500 = 12,500

Break even point price:

Total cost = total revenue

And total revenue = units X price

Total revenue = 12,500

Price = 12,500/1500 = 8.33

Therefore the break even point is $8.33

Answer: $8.33

D. net profit on current sales:

Total revenue = 1500 X 9 = 13500

Total cost = 12500

Total profit = total revenue – total cost

Total profit = 1,000

Answer: $0

E. monthly profit of $2000

Profit = total revenue – total cost

Profit = (price X units) – (fixed costs + variable costs)

Profit = (9 X units) – (5000 + (5 X units))

2000 = 9u – (5000 + 5u)

2000 = 9u -5000 -5u

7000 = 4u

U = 7000/4

Units = 1750

Answer: 1750 units

Question 2:

Journal entries:

General journal of Don Duo

Date

Particulars

Debit

Credit

Supply expenses

840

Supplies

840

June 30

electricity expense

$ 180

electricity payable

$ 180

June 30

Prepaid insurance

$2880

Insurance expense

$2880

June 30

Unearned service revenue

3,000

Account receivable

3,000

June 30

Salaries expenses

$1800

salaries payable

$1800

June 30

Depreciation expenses

4200

accumulated depreciation – office equipment

4200

June 30

Accrued service revenue

3,600

service revenue

3,600

Trial balance:

Don duo

Adjusted trail balance

June 30 2009

No.

Account title

Debit

Credit

100

Cash at bank

8,000

104

Accounts receivable

4,200

112

Prepaid insurance

2,880

113

Supplies

1,560

115

Accrued Service Revenue

3,600

130

Office equipment

21,000

131

Accum Depn – Office Equip

4200

200

Account payable

5400

213

Unearned service revenue

1800

215

Salaries Payable

1,800

218

Electricity Payable

180

300

Capital

26,100

310

Drawings- Don duo

1,300

400

Service revenue

13080

500

Salaries expense

6600

505

Supplies Expense

840

510

Rental expense

1200

515

Insurance Expense

0

520

Depreciation Expense

4200

530

Electricity Expense

180

600

GST control

3000

55,560

55,560

Income statement:

Income statement

For the month ended 30 June 2009

Revenue

13080

Supplies

2400

Closing stock

1560

Cost of supplies used

840

Gross profit

12240

Other expenses

Insurance Expense

0

Depreciation Expense

4200

Electricity Expense

180

Salaries expense

6600

Rental expense

1200

Total expenses

12180

Net profit

60

Question 3:

The best company to invest in is Microsoft, the following are the reason why this is the best option.

1. The sales turnover ratio indicates the number of times a company sells and replaces its inventory in a given period of time; Microsoft has a ratio value of 11 while goggle ratio value is therefore Microsoft a better option given that it can generate more sales in a given period.

2. The Gross profit percentage for Goggle is 89% while Microsoft has a gross profit percentage of 78%, despite goggle having a higher ratio value it is evident that Microsoft will sell more products and therefore the gross profit level will be higher.

3. The Net profit as a percentage of sales ratios for Goggle is 18% while Microsoft value is 20%, therefore per unit sold Microsoft earns more than goggle.

4. the Times interest earned ratio indicates the ability of a company to meet its debts goggle has a ratio value of 23% while Microsoft has a ratio value of 15%, despite Microsoft having a lower ratio it is still evident that compared to the industry this value is considerably high.

5. the Return on equity ratio indicates equity earnings for a given period, Microsoft has a value 36% while goggle has a value 45%, however given that Microsoft will sell more than goggle and given that its net profit percentage is higher the 36% will yield higher returns than the 45% return for goggle

6. The Return on assets ratio indicates the level of asset usage in generating income, Microsoft has a ratio value of 24% while goggle is 18% therefore Microsoft manages its assets more effectively than goggle.

Question 4:

Thomas Green

Purchases, cost of goods sold and inventory budget

July –Sep 2009

July

August

September

Cost of goods sold

sales

45000

60000

55000

Cost of goods sold

31500

42000

38500

Plus desired ending inventory

Next month 40% cost of goods sold

16800

15400

$14,000

12000

12000

12000

12000

ending inventory

28800

27400

26000

=Total inventory required

60300

69400

64500

Less beginning inventory

24600

28800

27400

=Purchases

35700

40600

37100

Question 5:

a. Triple bottom line:

Social:

Involves practices that are fair and benefit the community labour and stake holders

Economic:

This refers to value created by a firm and it is important in that it enables a firm to realize profits

Environment:

This refers to practices that do not harm the environment.

B. business structure:

Hierarchical structure:

Advantage:

Easy to coordinate activities

Disadvantages:

Communication may take longer

Functional structure:

Advantage:

Encourage specialization

Disadvantage:

Poses coordination problems which may take long

Product structure:

Advantage:

Focuses on market segment and therefore needs of consumers are met

Disadvantage:

Function duplication example several sales departments

C. ethical responsibility of accountant

Competence

Confidentiality

Not to perform acts that discredits the accounting profession

Question 6:

Bank reconciliation 31st August 2009

Amount

Bank balance 31 august 2009

4,766

Add

deposit

500

Less

cherub    1134

550.00

Cherub 1137

160.00

Adjusted bank balance 31 august 2009

4556

Summary of the adjustments to cash at bank 31 august 2009

Cash at bank bal 31 august 2009

4,799

Add

EFT Deposit

300

Less

DD-QBE Ins

480

Bank fees

63

Adjusted cash at bank balance 31 august 2009

4556

Question 7;

Option A: upgrading existing facility

Year

0

1

2

3

4

5

Cash inflows

800,000

900,000

1,000,000

1,100,000

1,200,000

Cash outflows

975,000

350,000

350,000

450,000

450,000

500,000

Net cash flows

-975,000

450,000

550,000

550,000

650,000

700,000

Option B:  build new facility

Year

0

1

2

3

4

5

Cash inflows

1,250,000

1,150,000

1,000,000

900,000

800,000

Cash outflows

1,000,000

500,000

450,000

400,000

350,000

300,000

Net cash flows

-1,000,000

750,000

700,000

600,000

550,000

500,000

a. The payback period is the time taken by an investment to fully payback the amount invested, option A payback period is 2 years and option B payback period is two years

b. rate of return for options A & B

Option A accounting rate of return = 49.14%

Option B accounting rate of return = 63.42%

c. NPV:

Option A: $849,421

Option B: $1,044,832

d. best option:

Option B is the best investment option given that the rate of return is higher and that the net present value is greater than the amount being invested.

Reference:

Stickney, C. and Schipper, K. (2006) Financial Accounting: An Introduction to Concepts, Methods and Uses, New Jersey: Prentice hall press.

Account Summary V.2.6.2.

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