COSTING COURSEWORK

Costing Coursework

Costing Coursework

Question 1

(1) Statement of Financial Position as at 30th June, 2011

Current Assets 30th June, 2011 $

Cash at Bank 19,250

Prepaid Expenses 2,000

Trade Debtors 41,750

Inventory 64,400 127,400

Non-Current Assets

Motor Vehicles at cost 28,000

Less: Accumulated Depreciation 5,000 23,000

Plant & Machinery at cost 75,000

Less: Accumulated Depreciation 32,000 43,000 66,000

Total Assets 201400

Current Liabilities

Accrued Expenses 3,000

Trade Creditors 30,250 33,250

Owner's Equity

Capital 150,000

Plus Accumulated Profits 35,150

Less: Drawings 25,000 160,150

201400

(2) Financial Ratios

Gross Profit Margin 0.34

Net Profit Margin 0.04

Return on Total Assets 0.069

Average Inventory Turnover Period 616

Average Settlement Period 3008

(3)

The ratios propose that the profitability ratios illustrate that this is not occurring—particularly one time a Nelson has shifted after the start-up phase—then the entrepreneur should address trading the enterprise and reinvesting his or her cash elsewhere. However, it is significant to note that numerous components can leverage profitability ratios, encompassing alterations in cost, capacity, or costs, as well the buy of assets or the scrounging of money. The effectiveness ratios is displaying that the business is assembling cash for its borrowing sales or how numerous times inventory turns over in a granted time period. This data can assist administration conclude if the company's borrowing periods are befitting and if its buying efforts are managed in an effective manner.Question 2

In contrast, the fresh produce area has the most deliveries and consumes a large percentage of shelf-stocking time. It also has the highest number if individual sales items. The simple costing system assumed that each product line used the resource in each activity area in the same ratio as their respective individual cost of goods sold to total cost of goods sold. Clearly, this assumption is incorrect. The sample costing system as an example of averaging that as too broad.

General Managers can use the ABC information to guide decisions such as how to allocate a planned increase in floor space. An increase in the percentage of space allocated to soft drinks is warranted. Note, however, that ABC information should be hut one input into decisions about shelf-space allocation. GM may have minimum limits on the shelf space allocated to fresh produce because of shoppers' expectations that supermarkets will carry products from this product line. In many situations, companies cannot make product decisions in isolation but must consider the effect that dropping a product might have on customer demand for other products.

Pricing decisions can also he made in a more informed way with ABC information. For example, suppose a competitor announces a 5% reduction in soft-drink prices. Given the 10.77% margin ES currently earns on its soft-drink product lane, it has flexibility to reduce prices and still make a profit on this product line. In contrast, the simple costing system erroneously implied that soft drinks only had a 1.70% margin, leaving little room to counter a competitor`s pricing initiatives

Question 3

The accounting controller has a responsibility to perform his duties in a competent manner, one that is in accordance with relevant laws, regulations, technical standards, and generally accepted accounting ...