Accounting for Managerial Decision Making Calculations Exercise

This document presents a comprehensive solution to an accounting assignment focused on managerial decision-making. The assignment covers a range of topics, including calculating the price and value of rights issues, analyzing discount offers, managing working capital, and determining internal rates of return. It also includes calculations for net present value, payback period, and cash budgets. Furthermore, the solution addresses overhead recovery rates, providing quotations, and evaluating external acquisitions. The assignment concludes with a classified statement of cash flows, a reconciliation of profit with cash flow, and a discussion of the company's cash position.

Running head: ACCOUNTING FOR MANAGERIAL DECISION MAKING
Accounting for Managerial Decision Making
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Question 1:.................................................................................................................................3
a) Calculating the price of a share following the rights issue:...................................................3
b) Calculating the value of the rights offer on a per share basis:...............................................3
Question 2:.................................................................................................................................3
2.1) Analysing the annual percentage discount forgone if discount offer in not taken:............3
2.2) Actions taken by the management to reduce working capital requirements:.....................4
2.3) Calculating the average accounts receivable balance:........................................................4
2.4) Calculating the internal rate of return for the new machine:..............................................4
2.5) Indicating about the internal return of the project:.............................................................4
Question 3:.................................................................................................................................5
Question 4:.................................................................................................................................5
4.1.a) Net present value:.............................................................................................................5
4.1.b) Payback period:................................................................................................................5
4.2) Preparing cash budget:........................................................................................................6
Question 5:.................................................................................................................................6
a) Prepare a schedule of receipts from accounts receivable for July to September:..................6
b) Preparing a cash budget for Bluebird Ltd for the three months July to September:..............6
Question 6:.................................................................................................................................7
6.1.a) Calculating the overhead recovery rate for the month using direct labour hours:...........7
6.1.b) Compute how much of the month's overhead will be charged to each job:....................7
6.2.a) Calculate the overhead recovery rate to apply overhead to jobs:....................................7
6.2.b) Providing a quotation for the job:....................................................................................8
Question 7:.................................................................................................................................8
7.1.a) Indicating whether external acquisition is needed:..........................................................8

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7.1.b) Identifying the other factors need to be taken into account:............................................9
7.2.a) The best advice to the management:................................................................................9
7.2.b) The best advice to the management:................................................................................9
Question 8:...............................................................................................................................10
8.1) Showing the financing section of the Cameron Screensavers:.........................................10
8.2) Outlining the essence of the balance scorecard approach:...............................................10
Question 9:...............................................................................................................................11
a) Preparing a classified statement of cash flows:...................................................................11
b) Preparing a statement reconciling profit with cash flow from operating activities:............12
c) Commenting on the statement of cash flows cash situations:..............................................12
Question 10:.............................................................................................................................12
References and Bibliography:..................................................................................................14

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Question 1:
a) Calculating the price of a share following the rights issue:
Particulars Number of shares Share price Total value
Actual shares 10,000,000.00 1.60 16,000,000.00
Right issue 10,000,000.00 0.13 1,250,000.00
Price of right issue 1,250,000.00 1.50 1,875,000.00
Total value 11,250,000.00 1.59 17,875,000.00
Value of the Share after right issue is at $1.59.
b) Calculating the value of the rights offer on a per share basis:
Particulars Number of shares Share price Total value
Market value of the shares 10,000,000.00
$
1.60 $ 16,000,000.00
Price to be paid per share 1,250,000.00
$
1.50 $ 1,875,000.00
Total shares 11,250,000.00
$
1.59 $ 17,875,000.00
Average price $ 1.59
Value of the right per share $ 0.01
The value of the offer on a per share basis is at $0.01.
Question 2:
2.1) Analysing the annual percentage discount forgone if discount offer in not taken:
Particulars Value
Discount rate 2%
Months 12
Annual percentage discount forgone 24.00%

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2.2) Actions taken by the management to reduce working capital requirements:
The management can increase the exposure in accounts payables and utilise the
available cash to buy fixed assets to reduce the working capital. However, the working capital
requirements can be reduced by reducing the accounts receivable days that allotted to
creditors for collecting the payment and increase the accounts payable days. This process will
allow the management to adequately acquire the required level of cash for conducting its
operations and reduce the working capital requirements of the organisation.
2.3) Calculating the average accounts receivable balance:
Particulars Value
Days 365
Total sales 3,65,00,000
average collection period 45
average accounts receivable 45,00,000
2.4) Calculating the internal rate of return for the new machine:
Particulars Value
0 (1,50,000.00)
1 35,000.00
2 35,000.00
3 35,000.00
4 35,000.00
5 35,000.00
IRR 5.37%
2.5) Indicating about the internal return of the project:
The internal rate of return is higher than the discount rate, as the overall NPV value is
not zero. Internal rate of return is used to detect the level of income that can be generated
from an investment.

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Question 3:
Particulars Project A Project B Project C
Initial cash outlay
$ (40,000.00) $
(40,000.00)
$ (40,000.00)
Year 1 $ 3,000.00 $ 16,000.00 $ 12,000.00
Year 2 $ 7,000.00 $ 13,000.00 $ 12,000.00
Year 3 $ 11,000.00 $ 10,000.00 $ 12,000.00
Year 4 $ 15,000.00 $ 7,000.00 $ 12,000.00
Year 5 $ 27,000.00 $ 4,000.00 $ 14,000.00
Salvage value $ 8,000.00 Nil $ 2,000.00
Discount rate 10% 10% 10%
Net Present Value $ 3,786.94 $ 67.18 $ 6,731.28
Question 4:
4.1.a) Net present value:
Year Cash flows
0 $ (220,000.00)
1 $ 50,000.00
2 $ 50,000.00
3 $ 50,000.00
4 $ 50,000.00
5 $ 50,000.00
6 $ 50,000.00
7 $ 50,000.00
8 $ 50,000.00
9 $ 50,000.00
10 $ 50,000.00
Discount
rate 16%
NPV $ 21,661.37
4.1.b) Payback period:
Year Cash flows Cum-cash flow
0
$
(220,000.00)
$ (220,000.00)
1 $ 50,000.00 $ (170,000.00)

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2 $ 50,000.00 $ (120,000.00)
3 $ 50,000.00 $ (70,000.00)
4 $ 50,000.00 $ (20,000.00)
5 $ 50,000.00 $ 30,000.00
6 $ 50,000.00 $ 80,000.00
7 $ 50,000.00 $ 130,000.00
8 $ 50,000.00 $ 180,000.00
9 $ 50,000.00 $ 230,000.00
10 $ 50,000.00 $ 280,000.00
Discount rate 16%
Payback period 4.4 years
4.2) Preparing cash budget:
Particulars July
Opening balance $ 35,000.00
Cash inflow sales $ 3,000.00
Cash inflow sales $ 10,500.00
Cash inflow sales $ 64,000.00
Total cash inflow $ 112,500.00
Cash outflow purchases $ 24,750.00
Operating expense $ 8,000.00
Total cash outflow $ 32,750.00
Closing balance $ 79,750.00
Question 5:
a) Prepare a schedule of receipts from accounts receivable for July to September:
Schedule of receipts from accounts
receivable July August September
Cash sale $4,550.00 $4,900.00 $5,250.00
Credit sales May $2,002.00
Credit sales June $2,600.00 $1,820.00
Credit sales July $2,535.00 $3,380.00 $2,366.00
Credit sales August $2,730.00 $3,640.00
Credit sales September $2,925.00

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b) Preparing a cash budget for Bluebird Ltd for the three months July to September:
Cash Budget July August September
Cash sale $ 4,550 $ 4,900 $ 5,250
Credit sales May $ 2,002
Credit sales June $ 2,600 $ 1,820
Credit sales July $ 2,535 $ 3,380 $ 2,366
Credit sales August $ 2,730 $ 3,640
Credit sales September $ 2,925
Old machine sale $ 7,000
Total cash inflow
$
11,687
$ 19,830 $ 14,181
Bad Debt $ 143 $ 130
Purchase $ 9,400 $ 8,000 $ 10,000
Operating expense $ 2,700 $ 5,500 $ 4,100
Purchase new machine $ 9,500
Total cash outflow
$
12,100
$ 13,643 $ 23,730
Cashflow $ (413) $ 6,187 $ (9,549)
Opening balance $ 5,700 $ 5,287 $ 11,474
Closing balance $ 5,287 $ 11,474 $ 1,925
Question 6:
6.1.a) Calculating the overhead recovery rate for the month using direct labour hours:
Particulars Value
Over head $ 20,000.00
Direct labor 1,600.00
Overhead recovery rate 12.50
6.1.b) Compute how much of the month's overhead will be charged to each job:
Particulars Job 1 Job 2
Overhead recovery rate
$
12.50 $ 12.50
Direct Labor hours
700.0
0 900.00
Month's overhead 8,750.00 11,250.00

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6.2.a) Calculate the overhead recovery rate to apply overhead to jobs:
Fixed expenses Amount
Rent of Premises 10,000
Administration expenses 12,000
Advertising for
Business 4,000
Total fixed cost 26,000
Direct cost 60,000
Overhead recovery rate 43.33%
6.2.b) Providing a quotation for the job:
Annual Budget Forecast Amount
Sales (as per invoices) 45,452.00
Direct Materials 9,000.00
Direct Labor 6,000.00
Variable Overheads 2,400.00
Advertising for Business 400.00
Rent of Premises 1,000.00
Depreciation 20,000.00
Administration expenses 1,200.00
Total cost 40,000.00
Profit 5,452.00
Profit mark-up 12.00%
Question 7:
7.1.a) Indicating whether external acquisition is needed:
Particulars Amount
Direct materials $30
Direct labour $18
Variable manufacturing overhead $9
Total cost $57
External acquisition price $54
Additional benefit $3

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The company should use external acquisitions, as it is providing an additional benefit
of $3 on each cost.
7.1.b) Identifying the other factors need to be taken into account:
There are relevant factors that needs to be taken into consideration are the relevant
availability of adequate machinery or methods that can reduce the overall expenses further
for the organisation. In addition, the competitive conditions of the market also need to be
taken into consideration, as the using the external acquisition will reduce the company’s
ability to compete in the market if purchase price increases (Schaltegger and Burritt 2017).
7.2.a) The best advice to the management:
Particulars International Interstat
e
Packages Total
Revenue $200,000 $200,000 $400,000
Variable costs $50,000 $60,000 $110,000
Contribution $150,000 $140,000 $- $290,000
Fixed costs $90,000 $90,000 $90,000 $270,000
Net Profit $60,000 $50,000 $(90,000) $20,000
The management of Travel Made Easy Ltd should not close the Holiday packages, as
the service will only allow the organisation to involve a cost savings of $40,000. However,
the fixed cost remains same, where the overall profit of the company will reduce to $20,000,
where the profit has declined from $80,000 to $20,000.
7.2.b) The best advice to the management:
Particulars International Interstat
e Packages Total
Revenue $200,000 $200,000 $50,000 $450,000
Variable costs $50,000 $60,000 $110,000
Contribution $150,000 $140,000 $50,000 $340,000

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Fixed costs $90,000 $90,000 $90,000 $270,000
Net Profit $60,000 $50,000 $(40,000) $70,000
The above table indicates about the overall change in net profits of Travel Made Easy
Ltd from $80,000 to $70,000 after subletting the space occupied by the Holiday Packages.
Thus, the management should not close Holiday Packages and continue the operations to
generate higher net income from operations.
Question 8:
8.1) Showing the financing section of the Cameron Screensavers:
Statement of cash flows Amount Amount
Cash flows from Operating Activities
Net earnings $ 17,000.00
Cash flows from Financing Activities
Revaluation $ 40,000.00
Payment of dividend
$
(7,000.00)
Bonus
$
(50,000.00) $ (17,000.00)
Cash flows from Financing Activities $ -
8.2) Outlining the essence of the balance scorecard approach:
One of the strategy performance management tools is balanced scorecard, which is
used by organizations to increase the level of control in the activity by their staff. With the
help of Balanced scorecard companies are able to focus on the strategic agenda that is
highlighted by the management. In addition, the balanced scorecard allows the organization
to select a small number of data items that can be monitored by the management. Moreover,

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the balanced scorecard provides team management adequate advantage to evaluate both
financial and non-financial data.
Question 9:
a) Preparing a classified statement of cash flows:
Particulars Amount Amount
Cash flows from Operating Activities
Net profit $ 13,480.00
Depreciation of equipment $ 3,600.00
Increase in trade receivable $ (150.00)
Increase in creditors $ 1,900.00
Decrease in inventory $ 2,000.00
Cash Inflows from Operating Activities $ 20,830.00
Cash flows from Investing Activities
Purchase of new equipment $ (9,300.00)
Cash used in Investing Activities $ (9,300.00)
Cash flows from Financing Activities
Drawings
$
(25,000.00)
Repayment of bank loan $ (3,000.00)
Cash Inflows from Financing Activities $ (28,000.00)
Net increase in Cash & Cash Equivalents $ (16,470.00)
Cash and Cash Equivalents in the beginning $ 20,500.00
Cash and Cash Equivalents in the end $ 4,030.00
Workings
Particulars Amount
Accounts receivable 2017 $ 1,500.00
Accounts receivable 2018 $ 1,650.00
Increase in trade receivable $ 150.00
Particulars Amount
Inventory 2017 $ 5,500.00
Inventory 2018 $ 3,500.00
Decrease in inventory $ (2,000.00)