Accounting for managers Question 1 3 a) Current ratio current asset/current liabilities 1.06 1.01 Stability ratios Formula 2018 2019

Accounting for managers Question 1 3 a) 3 b) 3 c) 3 Question 2 3 Question 3 4 a) 4 b) 5 c) 5 d) 5 e) 5 References 7 Question 1 a) Liquidity ratios Particulars Formula 2018 2019 Current ratio current asset/current liabilities 1.06 1.01 Quick ratios Quick asset/current liabilities 0.88 0.78 Stability ratios Particulars Formula 2018 2019 Debt ratio Total liabilities/total assets 0.78 0.80 leverage ratio total assets/total equity 4.59

Accounting for managers

Table of Contents
Question 1..................................................................................................................................3
a).............................................................................................................................................3
b)............................................................................................................................................3
c).............................................................................................................................................3
Question 2..................................................................................................................................3
Question 3..................................................................................................................................4
a).............................................................................................................................................4
b)............................................................................................................................................5
c).............................................................................................................................................5
d)............................................................................................................................................5
e).............................................................................................................................................5
References..................................................................................................................................7

Question 1
a)
Liquidity ratios
Particulars Formula 2018 2019
Current ratio current asset/current
liabilities
1.06 1.01
Quick ratios quick asset/current liabilities 0.88 0.78
Stability ratios
Particulars Formula 2018 2019
Debt ratio Total liabilities/total
assets
0.78 0.80
leverage ratio total assets/total equity 4.59 4.91
b)
The liquidity is required to be maintained in the company so that all of the obligations can be
met appropriately. The current ratio for the industry is 1.7 and in the given case this is not
maintained by the company and it is declining from 1.06 in 2018 to 1.01 in 2019. The quick
ratio for the industry is at 1 and the same is also not maintained (Delen, Kuzey and Uyar,
2013). It is lower than this level and so it can be said that liquidity is not maintained by the
company.
For the stability purpose, there are various ratios that are calculated and in respect of the debt
ratio the industry manages 60% and the same is higher for the company which shows the
company is not maintaining its debt position and this will be affecting its stability (Babalola
and Abiola, 2013). The leverage ratio is at 2.5 and the ratio of the company for the same is
much higher at 4.91. This is increasing and the company is required to increase its equity
investment.
c)
As an unsecured investor, the investment shall not be maintained in the company as there is
not much of the liquidity maintained and it will be facing difficulty in making the payments
related to bonds. The debt ratio is high and by that company is currently having a high
amount of obligation to be met.

Question 2
Particulars Origina
l
option
1
option 2 option 3
3
months
9
months
Sales (in units) 20000 20000 25000 10000 14000
Selling price (per unit) 130 140 130 120 130
Variable manufacturing cost 50 50 55 50 50
variable selling and administration
cost
30 30 30 30 30
Fixed manufacturing cost 400000 400000 400000 400000
Fixed selling and administrative cost 300000 425000 350000 340000
Total fixed cost 700000 825000 750000 740000
Total variable cost 80 80 85 80 80
Contribution per unit 50 60 45 40 50
Breakeven point 14000 13750 16666.6
7
18500 14800
Total contribution 100000
0
120000
0
1125000 400000 700000
Profit 300000 375000 375000 360000
The available proposals have been considered and for that, the breakeven and profit are
calculated. It can be noted that in proposal 1 there will be an increase in the selling price and
with that fixed cost is also increasing (Jones, Moura and Domingos, 2014). It is beneficial to
increase the selling price but with that sales, the quantity shall also be affected as the
additional cost is being incurred.
In the case of proposal 2 the sales quantity is increasing and with that variable cost is also
rising which will help in improving the quality (Alnasser, Shaban and Al-Zubi, 2014). There
is an additional fixed cost also which is not beneficial as the cost will be rising.
The proposal 3 increases the sales in the first 3 months and after that, there is no impact but
the cost is increasing. This is making an adverse impact on profits which is not beneficial.
The breakeven is calculated and it is least in proposal 1 and so the same shall be selected as
profits will be made from an early stage.
Question 3
a)
a) Overhead allocation rate
Particulars Amount

Indirect cost 98400
Direct labour hours 25795
Allocation rate 3.81
b)
b) Total cost of special order
Particulars Amount
Material cost 33810
Labour cost 17780.19
Indirect cost 5340.57
Total cost 56930.76
c)
Particulars Amount
Material
cost
33810
Labour cost 17780.19
Indirect cost 5250
Total cost 56840.19
d)
Particulars with labour
rate
With machine rate
Number of trailers 350 350
Total cost 56930.76 56840.19
Minimum selling price 162.66 162.40
e)
In the business, there are various overheads that are incurred and it is required that they shall
be involved in the process of project evaluation. This will be possible when the costs
associated with them are involved in the calculation of the final cost of the product. The
segmentation is required as by that they are allocated appropriately to the product by
considering the relevant factor (Chiang, 2013). The overheads can be manufacturing and
administrative and it is required that they are classified accordingly to ascertain the prime
cost and other costs separately. The allocation of the overhead can be made on basis of labour
hours or machine hours which are involved and by that, it will be reliable to calculate the
amount of overhead which is incurred in relation to a particular product.

The number of labour or machine hours which are involved in the production process will be
determining the amount which is involved in the form of overheads (Accounting tools, 2020).
The decision-making process will be improved with this as there will be a proper cost that
will be calculated and the selling price will also be decided on the basis of that. Due to this, it
can be said that by segmentation the overheads will be allocated to the job they belong to.

References
Accounting tools. (2020) Overhead allocation. [Online] Available at:
https://www.accountingtools.com/articles/2017/5/14/overhead-allocation [Accessed: 26
January 2020]
Alnasser, N., Shaban, O.S. and Al-Zubi, Z. (2014) The Effect of Using Break-Even-Point in
Planning, Controlling, and Decision Making in the Industrial Jordanian
Companies. International Journal of Academic Research in Business and Social
Sciences, 4(5), p.626.
Babalola, Y.A. and Abiola, F.R. (2013) Financial ratio analysis of firms: A tool for decision
making. International journal of management sciences, 1(4), pp.132-137.
Chiang, B. (2013) Indirect labor costs and implications for overhead allocation. Accounting
& Taxation, 5(1), pp.85-96.
Delen, D., Kuzey, C. and Uyar, A. (2013) Measuring firm performance using financial ratios:
A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
Jones, H., Moura, F. and Domingos, T. (2014) Transport infrastructure project evaluation
using cost-benefit analysis. Procedia-Social and Behavioral Sciences, 111, pp.400-409.