Business Finance
accounting assignment

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ASSIGNMENT 2 (20 MARKS) Question 1 Total marks for Q2. (15 marks) a) Explain, using examples, why it is essential to create and use flexible budgets when evaluating past performance of a profit centre which manufactures and sells a product. What might be the objective of such a performance evaluation. 3 marks b) When preparing a cash budget for a manufacturing business for the following year, there may be many other budgets that will need to be produced before the cash budget is completed. List three (3) other budgets that must be prepared at the same time or before the cash budget is prepared, and for each one, explain the likely timing of cash flows that will occur and how this will impact a cash budget. 3 marks c) Explain what is meant by the ‘operating cycle’ for a manufacturing business and how this differs from the ‘cash cycle’. How does understanding all of the elements of the operating and cash cycle help in managing working capital efficiently? In you answer, explain the ratios and data we use to analyse the efficiency of managing working capital. 3 marks d) Accounting isn’t as important in the government organisations as it is in private enterprises, since the government does not have to worry about earning a profit. Do you agree? Explain. 3 marks e) What is the essential purpose of any costing system? Explain. 3 marks ACC00724 Accounting for Managers, Assignment 2 S2 2017 Page 1 of 3 Question 2 Total marks for Q4. (5 marks) Wonder Products Pty Ltd builds beautiful things to order for customers. When quoting prices on jobs Wonder Products allocate manufacturing overheads on the basis of estimated machine hours to complete the job. They allocate administrative overhead costs on the basis of direct labour hours estimated to complete the job. Below is a budget for the current year showing budget total figures. Budget for the year Direct labour costs for the year Manufacturing overheads for the year Administrative overheads for the year Direct labour hours for the year Total machine hours for the year $537,600 598,080 695,520 14,000 7,000 a) Calculate a manufacturing overheads allocation rate for Wonder Products. 1 mark b) Calculate an administrative overhead allocation rate for Wonder Products. 1 mark c) Bushy George has asked Wonder Products Pty Ltd to make an especially wonderful creation to his specifications that will require the following inputs: Direct materials Direct labour Machine usage $19,000 750 hours 400 hours Assuming a mark up of 40% on total costs, what price should be quoted to Bushy to build him this especially wonderful creation? 1 mark d) Why is it so important to carefully allocate overhead expenses when quoting on jobs or when generally deciding on prices? Discuss problems that are encountered with overhead allocation methods and alternative approaches that might be taken. 1 mark e) Why do companies use predetermined (budgeted) overhead allocation rates rather than using actual overhead costs in allocating overhead costs to units of product? Explain. 1 mark ACC00724 Accounting for Managers, Assignment 2 S2 2017 Page 2 of 3 ACC00724 Accounting for Managers, Assignment 2 S2 2017 Page 3 of 3 ...
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Accounting Questions
Student Name
Professor Name
28th September 2017

a) Question No 1

The Managers can gain better insight when evaluating the past performance by using a
flexible budget. The flexible budget is based on the actual activity level means the budget
reflects the actual unit produced or sold in an accounting period. The company makes
assumptions when they use static budget therefore to evaluate the performance the profit center
use a flexible budget. The objective of evaluating the past performance is to ensure that
production cost must remain within the budget (, 2017). When the flexible budget is
prepared for product cost the cost is separated such as variable cost and fixed cost. The flexible
budget is used as the use of unit sold or produced depends upon the nature of the budget.
Question No 1 (b)
The cash budget is prepared to estimate the sources of cash in the organization. The three
other budgets that are to be prepared with the cash budget are listed below.
1. Sales Budget
2. Production Budget
3. Material Budget
The company uses the sales budget to estimate the sales for a specific accounting period that can
be for a month, quarter, semiannual or annual. The estimated revenue from the sales budget is
used for the projection of cash inflows in the cash budget that the company will use during the
accounting period. The production budget is prepared according to the sales budget as the
company produces as per the demand of the product. The last budget that is prepared before the
cash budget is the material budget. The material budget is prepared after the sales and production
budget as the direct material and labor cost is estimated in this budget.

Question No 1 (c)
The operating cycle of production focuses on the purchase and sale of assets. The
manufacturing cycle for the production firms starts when an organization spends money for
purchasing the raw material that will be used in the production process. There are three phases in
the operating cycle of the manufacturing firm that comprise acquisition of resources,
manufacturing of the product and the last phase is about the sale of the product. The operating
cycle of the firm indicates the time company takes to acquire inventory, sell that inventory and
receive the cash from sales whereas the cash cycle indicates that the time company takes to
convert its resources into cash (Sakevych, 2017). The cash cycle starts when a company pays
cash for the purchase of assets and the cycle end when the company receives the cash from its
customers. The ratio analysis helps to determine the how efficiently a company is managing its
working capital. There are different ratios that indicate whether the company has the enough
cash for managing its operations, current assets to pay off its current liabilities, profitability
ratios help to determine whether the company is earning handsome profit from its core product
(eFinanceManagement, 2017). The understanding of all these elements is important in order to
manage the working capital.

Question No 1 (d)
The accounting is not important in the government organizations because the government
organizations are not operating for profit, however, the operation of government organizations
affects stakehol...

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