Accounting Homework

Week 12
Question 1

Schedule of Cost of goods manufactured

W. W. Phillips Company
For the year ended on Dec 31, 1998
Direct materials
Beginning Inventory
ADD: purchases
Raw Materials Available
LESS: Closing inventory
Total Direct Materials Used:
Direct Labour
Manufacturing Overhead
Indirect Labour
Rent, factory building
Depreciation, factory equipment
Utilities, Factory
Total Manufacturing Overhead
Total manufacturing costs
Add Beginning WIP
Total cost for WIP
Less ending WIP
COGM

46 800
320 000
366 800
66 800
300 000
200 000
40 000
42 000
60 000
11 956
153 956
653 956
13 040
666 996
14 996
652 000

Question 2
Vincents Cappuccino Express
Discussion Questions:
1. What factors can be expected to have a major impact on the
success of The Cappuccino Express? Which success factors can be
influenced by Vincent himself and why?
Location: cost of rent as well as the amount of customers and the
ease with which they can access the store. This also determines the
amount of competition in the area.
The wage: with higher wages, Vincent may be able to attract more
experiences barristers and therefore offer higher quality coffee
The cost of the coffee: With more experienced staff and better
location, the rent and wage will force the price to increase in order
for Vincent to make a profit. However with increasing costs, the
amount of coffee bought may decline
The cost of equipment: Vincent may choose to buy experience
coffee machines or cheaper ones; this would affect coffee quality
and thus the amount of money Vincent is about to charge for his
coffee.
2.

What major tasks does Vincent have to undertake in managing The

Cappuccino Express? Can he do all tasks by himself?

To manage a business, Vincent needs to evaluate key aspects of his

business to ensure efficiency. Such things include determining
weather the business is profitable and if yes which site is more
profitable? He also needs to consider weather, with continued
increase in profit, he wish to expand the scale of his business such
as opening another store. He also needs to determine the pricing
and evaluating weather there is a need for promotions and if these
promotions will be beneficial to the profitability of the business. He
will also need to monitor employee turnover and consider if the
current employ benefits and working environment is conducive to
profitable, valuable and committed employees. Additionally he also
needs to maintain the quality of the product, ensuring coffees are
made to a set standard.
3.

What are the major costs of operating The Cappuccino Express?

How might the figures be different from the expenses as reported in
the financial statements?
Major costs include indirect and direct costs. These costs include
wages for supervising and barista staff, rent, utilities such as water
and electricity, raw materials such as coffee beans and milk, rent,
insurance and equipment. The actual costs may differ from those
shown in the expense section as Vincent may incur non-financial
costs such as opportunity cost had he done a different job and the
psychological costs such as stress which results from running the
business.

4.

Vincent would like to monitor the performance of each site

manager. Profitability is one measure he could use but what might
cause a problem here? Do you think alternative performance
measures such as employee turnover, service and product quality,
and customer satisfaction would reflect managers performance
more accurately?
Profitability is a measure, which can be used to depict the efficiency
of the coffee stores at each site. However, Profitability information
as shown on the income statement is often very delayed as they are
prepared per financial period, thus within a financial period, any
signs of store inefficiency cannot be pinpointed. Sometimes, when
financial information has been prepared and an error in
management has been found, it may be too late to act on the issues
which the financial statements indicate.
Turnover similarly suffers from the same issue as profitability as
employees only seek alternative employment when the situation is
considerably undesirable if at all. Product quality however can be
effectively used to measure performance, if the performance is
poor, then it reflects poor management strategy employed by that
site and thus solutions must be devised to improve quality to
prevent a decline in sales.

5. Looking at the performance measures suggested in (4), which of

these should Vincent select if he could use only one? (Think about
what information would be useful)

Using measures such as customer satisfaction may result in a much

quicker indication of problems. This is because customer
satisfaction i.e. measured through customer feedback is given
quickly and directly will directly highlight to Vincent what the issue
is.

6. Suppose that last year, the original site had yielded total revenues
of $146,000, total costs of $120, 000, hence a profit of $26,000.
Also assume that Vincent had judged this profit level to be
satisfactory. For the coming year, Vincent expects that due to
factors like increased name recognition and demographic changes;
the total revenues of this site will increase by 20 percent to
$175,200. What amount of profit should he expect from the site?
What actions can a site manager take to increase his/her site's
profitability?
The profitability of a business is contingent upon its costs such as
fixed, variable and mixed costs. Fixed costs are only fixed to a
certain extent, and with increased sales, the business may require
expansion and thus increase in fixed costs. For variable costs, the
increase in labour may increase in sales, however this increase in
sales may also result in increase in raw material. Additionally whilst
promotions may increase sales by increasing the amount of
customers who may purchase the coffee, however we must
determine the overall profitability of such a tactic i.e. due to the
extra profits earned from the promotion cover the cost incurred to
make the promotion happen. Thus whilst actions such as
promotions, increasing staff and expansions increase revenue, they
also carry with them a series of costs, therefore we need to
determine how much extra net revenue does it attract to accurately
determine the new profit.