Introduction to Business Accounting

nderstanding the fundamentals of accounting is critical for aspiring business owners. The Introduction to Business

nderstanding the fundamentals of

Accounting IBA102 course assists students in gaining a basic understanding of fundamental accounting principles. Accounting IBA102 course assists students in gaining a basic understanding of fundamental accounting principles.

accounting is critical for aspiring business owners. The Introduction to Businessnderstanding the fundamentals of Accounting IBA102 course assists students in gaining a basic understanding of fundamental accounting principles.

The course is targeted at candidates who have little or no experience with accounting. These particular exam questions are based on Cost Accounting and Budgeting.

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Important Terms used

Predetermined Indirect Cost Rate- A “predetermined rate” is an indirect cost rate that applies to a specific current or future time, usually the fiscal year of the governmental entity. This rate is calculated using an estimate of the costs that will be incurred during the course of the period. A predetermined rate is not susceptible to change unless there are exceptional circumstances.

Types of Costs: Fixed Costs and Variable Costs

Fixed Costs: Fixed costs are the costs that do not vary with the amount of work done. It is constant.
Variable Costs: Variable costs are the costs that vary according to the amount of work done.

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Question 1: Costing and Pricing (20marks)

Narelle clothing design and develops customized linen clothing for their customers using a costing system for their customers. The company utilizes a pre-determined indirect cost rate for allocating overhead costs toward its customer, with operating hours used as the cost driver.
The company has a budgeted allocation base of 700 operating hours, with a budgeted indirect overhead cost of $14,000.

Required:
1. Calculate the predetermined indirect cost rate (PICR) the business used. (show your calculations) (4 Marks)

2. Calculate the total cost to the business for these sessions. (show your calculations) (6 Marks)

3. Assume the business applies a cost-based pricing model to set prices to customers, adding a mark-up of 40%. What price should Narelle Clothing charge customer Anna? Explain your answer and show your calculations. (4 Marks)

4. Explain in your own words, what is the differences between fixed and variable costs. (Please give some examples) (6 Marks)

Question 2: Capital Investment Decisions (30 Marks)

Supertest Pty Ltd is considering investing in a new project to manufacture the Rapid Test kit that can detect Covid 19 within 1 minute, the total cost for the project at the beginning of the project will be $5,000,000 to bring the project to life.
However, it will bring an additional net cash flow for the next 5 years before it has to be scrapped with a $0 value as follow:

Please calculate the following:
1. Calculate the Net Present Value (NPV) of the project at a discount rate of 14%
2. Calculate the Net Present Value (NPV) of the project at a discount rate of 17%
3. Calculate the Payback Period
4. Prove whether the IRR (Internal Rate of Return) is 15.64%
5. Please give your advice on whether we should go ahead with this project if the minimum required rate of return is 16% (Please explain)

Question 3: Budgeting (30marks)

Supercool Pty Ltd manufactured and sold different types of refrigerators, has provided the following information for the year ending 30’th June 2021 and estimates relating to the financial year beginning 1’st July 2021 ((for the whole financial year 2022 from 1’st July 2021 – 30’th June 2022). Sales for the financial year 2021 for each type of refrigerator.

Question 4: Cost Volume Profit Analysis (20 marks)

Required:

1. Calculate total variable cost per unit (Show your calculation) (2 marks)
2. Calculate total fixed cost per unit (show your calculations). (2 marks)
3. Calculate the contribution margin per unit (show your calculations). (2 marks)
4. Calculate the break-even point in units (show your calculations) (2 marks)
5. Calculate the break-even point in Dollars (show your calculations) (2 marks)
6. Calculate the safety margin in Dollars (show your calculations) (4 marks)
7. Calculate the unit sales needed to achieve a target profit of $250,000 (4 marks)
8. Calculate the unit sales needed to achieve a target profit of $150,000, if the cost of direct material decrease by $5 (4 marks)

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