Accounting for Managers Homework Solution - Semester 1, 2024

This document presents a complete solution to an Accounting for Managers assignment, addressing key concepts in financial and management accounting. The solution begins by comparing and contrasting financial and management accounting reports, classifying items as assets, liabilities, or equity, and distinguishing between cash flow budgets and statements. It then delves into depreciation, owner's equity changes, and the implications of bad debt. Ratio calculations for profitability, liquidity, and solvency are provided, along with a short report analyzing the business's financial health. The assignment further explores break-even analysis, special order decisions, and profit/loss calculations. It concludes with a discussion on factors influencing cash holdings, the costs of low inventory, and the pros and cons of retained earnings. The solution also includes a price quotation for a specific job and considers non-financial information relevant to venture capitalists, offering a comprehensive overview of accounting principles and their practical application.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the University:
Name of the Student:
Authors Note:

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ACCOUNTING FOR MANAGERS
Table of Contents
Question 1:.................................................................................................................................3
a) Comparing and contrasting financial accounting reports with management accounting
reports:........................................................................................................................................3
b) Depicting relevant question regarding public listed company:.............................................3
c) Classifying whether the item falls under asset, liability or equity:........................................3
d) Distinguishing a cash flow budget with statement of cash flow:..........................................4
e) Explaining the term depreciation by using practice examples:..............................................4
f) Depicting whether which part of the pair would be expected be larger:................................5
Question 2:.................................................................................................................................5
a) Discussing the major changes that could increase or decrease the owner’s equity:..............5
b) Depicting the reason why business owners would leave retained earnings in the business:.6
c) Discussing whether financial performance could be affected by not considering bad debt:. 7
d) Depicting the reason behind companies operating cash flow showing negative balance and
whether the company’s management needs to be alarmed:.......................................................7
Question 3:.................................................................................................................................8
a) Calculating ratios for 2015 and 2016:....................................................................................8
b) Writing a short report on profitability, short-term liquidity, and long-term solvency of the
business:.....................................................................................................................................8
Question 4:.................................................................................................................................9
a) Calculating the variable cost per pot for Fancy Terracotta pots:...........................................9
b) Depicting the contribution cost per pot for Fancy Terracotta pots:.......................................9
c) Calculating the breakeven point per month if only plain black pots are made:...................10
d) Depicting whether the order should be accepted or not:.....................................................10
e) Depicting the circumstance, this could change the conclusion for part d:...........................10

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f) Calculating the profit and loss for the month of May:.........................................................10
a) Depicting the factors that influence how much cash a business should hold:.....................12
b) Depicting the cost that might be faced by the business by holding to low inventory:........12
c) Explaining pros and cons of retained earnings:...................................................................12
d) Depicting the non-financial information that would concern a venture capitalist:..............13
Reference and Bibliography:....................................................................................................14

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Question 1:
a) Comparing and contrasting financial accounting reports with management
accounting reports:
The financial accounting report mainly summarizes about the financial position of the
company. On the other hand, management accounting report provides a detailed and
complete report regarding various information of the organisation. The reports provide by
financial accounting consists of the annual report, while the report provided by the
management accounting directly consists details about specific areas in business (Drury
2013).
b) Depicting relevant question regarding public listed company:
The company is mainly owned by shareholders, the person holding the maximum
shares of the company is considered to be the owner.
Apart from shareholders, employees, creditors, suppliers, stakeholders, analyst,
investors and financial institutions are interest in the contents of the financial accounting
report of an organisation (Lobo and Zhao 2013).
c) Classifying whether the item falls under asset, liability or equity:
Items Classification
Paid up capital Equity
Bank loan Liability
Provision for annual leave Liability
Brand names and intellectual property Asset

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Accounts receivable Asset
Prepaid insurance premiums Asset
Deposit paid by a customer for work yet to be done Liability
Retained profit Liability
d) Distinguishing a cash flow budget with statement of cash flow:
Cash low budget is mainly prepared for the forthcoming year as a planning exercise,
whereas cash flow statement is mainly post-mortem of the past activities conducted by the
organisation.
Cash budget is mainly prepared based on requirements, which could be monthly, half
yearly, quarterly and yearly. On the contrary, cash flow statement is mainly prepared for a
financial account year (Megginson, Ullah and Wei 2014).
There is no specific format that is descried for cash budget companies mainly prepare
the cash budget according to their requirements. On the other hand, cash flow statement is
mainly prepared according to the provisions laid down by accounting standard-3.
e) Explaining the term depreciation by using practice examples:
Depreciation is mainly a method, which is used by the organisation for reducing ht tax
by declining value of the assets (Becker 2015). For example, a company buys a machine for
$60,000, which is expected to last for 5 years with no scrap value. This mainly allows the
company to calculate the deprecation amount each year at $12,000, which could be deducted
from the taxable amount and increase profit retention of the organisation.

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f) Depicting whether which part of the pair would be expected be larger:
EBIT and Net profit EBIT needs to be larger than Net profit, as from EBIT after
deducting interest and tax net profit is derived.
Paid up capital and
Owner equity
Owners equity mainly needs to be larger, as it consists of the value
of paid up capital provided by the owner.
Dividends per share
and earnings per share
Dividends are higher, as it needs to be paid by the company.
Whereas, earnings per share is derived after deducting the
dividends paid by the organisation.
Current assets and
current liabilities
Adequately current assets need to be higher than current liabilities,
as it allows the organization to function properly. If current
liabilities of the company are higher than current assets then the
organisation will not be able to function properly and become
insolvent.
Net profit and gross
profit
Gross profit needs to be higher than net profit, as after deducting
administrative expenses, tax and interest from gross profit net
profit is derived.
Question 2:
a) Discussing the major changes that could increase or decrease the owner’s equity:
Moreover, major changes in retained income, Common stock, and preferred stock
could directly decrease or increase the owner’s equity (Geng, Wang and Shao 2013). From
the evaluation of below two tables it can be see that changes in retained income directly
decreases the owner’s equity.

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Example 1
Particulars Amount
Preferred stock 12,000
Common Stock 8,000
Retained earnings 3,500
Total stock holders’ equity 23,500
Example 2
Particulars Amount
Preferred stock 12,000
Common Stock 8,000
Retained earnings 1,5000
Total stock holders’ equity 21,500
b) Depicting the reason why business owners would leave retained earnings in the
business:
The retained earnings are mainly left in the business to support future financial needs
of the organisation. However, owners do withdraw from business in form of dividends, salary
etc. The whole retained income is not withdraws, as it is saved for future activities of the
organisations (Saez and Zucman 2016). For examples small business needs to have higher
retained earnings so that they could save for their expansion purpose and increase their
productivity and profitability.

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c) Discussing whether financial performance could be affected by not considering bad
debt:
Organisation mainly use allowance for doubtful debts for making the required
provisions of the bad debt. If the bad debt is not recorded as the expenses of the organisation
in the financial account then it will directly increase its performance. This is mainly because
expense is not recorded, while adequate revenues are been stated, which will improve
financial performance of the organization (Saeidi et al. 2015). For example a bad debt of
$10,000 is generated from customer, which is not recorded in the financial account. The sales
will show the increased revenue, whereas the actual payment from the customer is not
received. This directly increases the overall profits and improves performance of the
organisation
d) Depicting the reason behind companies operating cash flow showing negative balance
and whether the company’s management needs to be alarmed:
The negative cash from operating activities mainly indicates that the cash balance of
the company is going to be negative, which is why the management needs to have positive
financing or investing activities cash flow. This will mainly nullify the negative cash balance
from operating activities. Moreover, the management needs to be concerned regarding the
negative cash balance, as it might directly affects its cash at hand balance (Collins, Hribar
and Tian 2014). For example an organisation having negative operating cash flow, will have
paid more cash than it has received, which is why it mainly needs to sells its current assets to
support the short term obligations.

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Question 3:
a) Calculating ratios for 2015 and 2016:
Particulars 2015 2016
Net profit margin 15.00% 6.67%
Rate of return on owners equity 15.52% 9.09%
Current ratio 7.00 5.00
Acid test ratio 4.00 1.33
Gearing 10.00% 54.17%
Inventory turnover ratio 2.36 2.47
b) Writing a short report on profitability, short-term liquidity, and long-term solvency
of the business:
Profitability:
The overall profitability is mainly depicted by net profit margin and owner’s equity,
which has declined rapidly from 2015 to 2016. This rapid decline is mainly due to the low
profits incurred by the company in 2016.
Short-term liquidity:
The short-term liabilities mainly identified from current assets and acid text ratios,
which has drastically declined in 2016, as compared to 2015. This only indicates that the
company’s current assets have significantly declined in the fiscal year (Lartey, Antwi and
Boadi 2013).
Long term solvency:

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With the help of gearing and inventory turnover ratio solvency condition of the
company could be identified. The increased gearing ratio only indicates that more debt is
being used than equity to support activities of the organisation. Moreover, higher inventory
ratio also indicates that long time is taken to clear our inventory. This indicates that
organisation financial condition is deteriorating, which could directly affect its solvency
condition in future.
Question 4:
a) Calculating the variable cost per pot for Fancy Terracotta pots:
Particulars Amount
Plastic raw materials $ 1.50
Electricity $ 0.10
machine operator labour $ 1.00
Transport and distribution $ 0.40
Variable cost for Fancy Terracotta pots $ 3.00
b) Depicting the contribution cost per pot for Fancy Terracotta pots:
Particulars Amount
Sales of Fancy Terracotta pots $ 4.80
Variable cost $ 3.00
Contribution Cost $ 1.80

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c) Calculating the breakeven point per month if only plain black pots are made:
Particulars Amount
Sales of Plain Black pot $ 2.80
Variable cost $ 1.95
Contribution $ 0.85
Fixed cost $ 3,500.00
Number of output needed for breakeven 4,118
d) Depicting whether the order should be accepted or not:
Quantity 2000
Particulars Amount Amount
Sales of Plain Black pot $ 1.90 $ 3,800.00
Variable cost $ 1.55 $ 3,100.00
Profit $ 0.35 $ 700.00
e) Depicting the circumstance, this could change the conclusion for part d:
The overall sales price per pot if reduced could change the overall decision, for
accepting the special offer.
f) Calculating the profit and loss for the month of May:
Particulars Amount Amount
Sales of Fancy Terracotta pots $ 4,320.00
Sales of Plain Black pot $ 4,760.00

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Total sales $ 9,080.00
Variable cost Fancy Terracotta pots $ 2,100.00
Variable cost plain black pots $ 3,315.00 $ 5,415.00
Contribution $ 3,665.00
Fixed cost
Rent on premises $ 1,000.00
Managers salary $ 2,500.00 $ 3,500.00
Net Profitability $ 165.00
Question 5:
Preparing the price quotation of Job No 43:
Particulars Amount Unit per price
Sales revenue on all jobs $ 686,000
Direct labour cost $ 112,000 20.00
direct material cost $ 133,000
manufacturing overheads $ 124,600 44.50
Administrative overheads $ 144,900 25.88
Total cost $ 514,500
Profit before tax $ 171,500 25.00%
Direct labour hours 5,600
Total machine hours 2,800
Job No 43
Particulars Amount Amount
Direct labour hours required 630 $ 16,301.25

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Machine hours required 315 $ 14,017.50
Direct material cost $ 14,000 $ 14,000.00
Total cost $ 44,318.75
Price quotation $ 55,398.44
Question 6:
a) Depicting the factors that influence how much cash a business should hold:
There are relatively five factors that need to be considered how much cash is needed
by an organisation, firstly the net profit, interest expenses, core capital, debt, and taxes. These
five factors mainly need to be evaluated by the organisation, as any increment could directly
affect its cash balance and profitability (Michalski 2013).
b) Depicting the cost that might be faced by the business by holding to low inventory:
There are relevantly three different types of cost, which is incurred due to low
inventory is maintained by the organisation are cost of lost sales, cost of favourable pricing,
and cost from missing out on discounts. The overall missed out benefits and sales are mainly
considered to be a cost, which hampers profitability of the organisation (Kesavan, Kushwaha
and Gaur 2016).
c) Explaining pros and cons of retained earnings:
Yes, retained earnings are mainly considered to be a free source of finance, as it is
been accumulated over time by saving excess profits from the business. Major pros of using
retained income as source of finance is that it helps in reducing the debt and excess burden of

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interest payment on the organisation. However, there is a major con for using retained
earrings as finance source, as it reduces the capability of the organisation to support another
opportunity. In addition, the excessive usage of retained earnings could reduce capability of
the company to continue its current operations (Asgari et al. 2015).
d) Depicting the non-financial information that would concern a venture capitalist:
The overall non financial information that would concern a venture capitalist is
meeting the requirements of current and future legislations. The investing business does not
comply with the rules and regulations then investment will directly be at risk, which in turn
could result in loss of the investment capital. Therefore, venture capitalist will be concerned
if the investment company does not comply with the rules and regulations laid down by the
government (Mio and Venturelli 2013).

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Reference and Bibliography:
Asgari, M.R., Pour, A.A.S., Zadeh, R.A. and Pahlavan, S., 2015. The relationship between
firm's growth opportunities and firm size on changes ratio in retained earnings of listed
companies in Tehran Stock Exchange. International Journal of Innovation and Applied
Studies, 10(3), p.923.
Becker, J., 2015. The Relation of Article 9 Paragraph 1 German Double Taxation Treaties to
Domestic Tax Law and the Consequences for Current Value Depreciation under Section 1
Paragraph 1: Foreign Tax Act. Intertax, 43(10), pp.589-594.
Collins, D.W., Hribar, P. and Tian, X.S., 2014. Cash flow asymmetry: Causes and
implications for conditional conservatism research. Journal of Accounting and
Economics, 58(2), pp.173-200.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Geng, Z., Wang, Y. and Shao, F., 2013. The Logit Model Based on Owners' Equity
Statement in the Use of the Financial Risk Pre-warning. iBusiness, 5(01), p.1.
Kärkinen, E.L. and Laitinen, E.K., 2015. Financial and non-financial information in
reorganisation failure prediction. International Journal of Management and Enterprise
Development, 14(2), pp.144-171.
Kesavan, S., Kushwaha, T. and Gaur, V., 2016. Do High and Low Inventory Turnover
Retailers Respond Differently to Demand Shocks?. Manufacturing & Service Operations
Management, 18(2), pp.198-215.