Asmt - Acc 501 PDF

CHARLES STURT UNIVERSITY
Master of Commerce Program
ECONOMICS AND FINANCE INSTITUTE

Phnom Penh, Cambodia
Intake 20
ACC501 Business Accounting and Finance
Assignment 1, 2, 3
Facilitator : Mr. Petrus Gimbad
Student Name : Khan Sokumchhorvy
Due Date : June 16, 2014
TABLE OF CONTENTS
Page No.
List of Abbreviations.......................................................................................................... I
Assignment 1
Questions and exercises
Solution 1.......................................................................................................................... 1
Solution 2.......................................................................................................................... 1
Solution 3, (a) and (b)....................................................................................................... 2
Solution 4.......................................................................................................................... 3
Assignment 2
Solution 1, Part (a)........................................................................................................... 4
Part (b) ......................................................................................................... 5
Solution 2, (a)................................................................................................................. 5
(b)................................................................................................................. 6
Solution 3, Part (a).......................................................................................................... 7
Part (b) ......................................................................................................... 8
Assignment 3
Solution 1, (a)................................................................................................................. 9
(b)................................................................................................................. 10
Solution 2, (a)................................................................................................................. 11
(b) (d)......................................................................................................... 12
(e) (g)......................................................................................................... 13
Solution 3: Part (a).......................................................................................................... 14
Part (b).......................................................................................................... 16
List of References.............................................................................................................. II
List of Abbreviations
1. BE : Break-even
2. BEP : Break-even point
3. CF : Cash flow
4. CM : Contribution margin
5. DCF : Discounted cash flows
6. DL : Direct labor
7. DM : Direct material
8. FSA : Financial statement analysis
9. NCF : Net annual cash flows
10. NPV : Net present value
11. PPWSA : Phnom Penh Water Supply Authority
12. PV : Present value
13. ROA : Return on assets
14. ROCE : Return on common shareholders equity

15. WACC : Weighted average cost of capital

- I-
Charles Sturt University/M.Bus Program ACC 501 - Business Accounting & Finance
ACC 501 - BUSINESS ACCOUNTING AND FINANCE

ASSINGMENT 1
Solution 1:
In any kind of business, the cornerstone of any budgetary system is the sales or revenue
forecast. Since the level of sales is extremely difficult to forecast, it could be argued that the master
budget which is based on this forecast is fundamentally flawed. This argument is not always true; it is
dependable due to types of product the business is operating.
In a simple business, for example, PPWSA (Phnom Penh Water Supply Authority) running
only one type of product, supplying water to all people around Phnom Penh city and some provinces.
This may not drive PPWSA hard to predict number of sales during each period of time since they
already have density data of population who are living or operating business in their supplying zone.
Moreover, their product is a primarily need (high demand) in social life, then they can realize how
much to supply to the demand at what price in the market, somewhat the degree of accuracy is high
as well. Therefore, it would lead the overall master budget plan going smoothly.
On the other hand, if there is a complex business with numerous types of product selling to
the market, it tends to create difficulty in sale forecasting. For instance, Sony Electronics Company
sells various electronic products such as computers and tablets, cameras, televisions, mobile phones,
and audios...etc. The more the company sells many different types of product with different models
and specifications, the more the complexity in determining sales volumes and preparing budget plan.
Hence, the degree of sale estimation will be low and inaccuracy because of non-realistic and accurate
assumptions such as change in customers demands, change in market shares among competitors
and new arrivals, shift in electronics market trend and so on.
According to the above discussion, finally, it is dependable to a simple or a complex business.

When any complex business faced with inaccuracy sales or revenue forecast, it will lead the overall
master budget plan such as sales budget, production budget, direct material budget, direct labor
budget, and also manufacturing overhead budget is fundamentally flawed.
Solution 2:
Financial statement is a primary and basic guide of financial data which generally represent
picture of the whole companys financial position, financial performance, change in stockholders
equity, and cash-flow position from a business activities. After all type of relevant users achieve the
financial picture, next step they can apply FSA which is a fundamental tool and should be merely the
beginning of a thorough investigation of a reporting entity for a number of reasons:
To determine companys profitability through the profitability ratios which measure a
companys managerial effectiveness in generating earnings from total sales, total assets, and total
equity.
By: Khan Sokumchhorvy - Assignment 1- Page 1

To determine companys activity and liquidity by using the activity and liquidity ratios that
show how company effectively manage and utilize its assets, current assets, and inventory as well as
the ability to meet its short-term obligation.
To determine companys solvency with debt utilization ratios to analyze how efficiency a
company use of long-term debt financing for capital structure and its ability to pay for long-term
liabilities. Therefore, from the three main reasons above, both external and internal users can apply
FSA which is a necessary tool associated in decision making process. External users such potential
investors, bankers, and suppliers can see and decide whether a company is a good place for
investment, well-performed enough to provide loan as well as to offer buying on accounts and provide
good payable terms... Some beneficial to internal users like employees to see if they can be
promoted, increase in salary or receive bonus...etc. from their company; for top management to see
its strength, weakness, risk, and opportunity. Furthermore, company can also use of FSA to compare
with its history and with the same industry to set a head financial plan, strategy for competition, avoid
risk and create more investment opportunity to boost its profit.
Solution 3:
(a) Discounted cash flows are the best basis with which capital budgeting decision can be made
because it is a main evaluation approach used to determine present value of a businesss
potential investments by discounting projected future of free cash inflows and cash outflows to
arrive at current value and more importantly, this technique is based on the concept of the time
value of money. In analyzing DCF, if the present value of any investment is greater than its initial
cost of capital then that investment choice may be a good one to be selected. Because money is
paid at one period and receive at other period with different amount, thats why a number of
businesses and financial applications employ DCF technique as an essential key in financial
decision making to find out whether their investment choice is likely to be more profitable.
Discounted cash flows can be calculated by this following formula:
Formula source: http://www.investopedia.com/terms/d/dcf.asp
(b) An entitys cost of capital is the amount of additional long-term funds needed for a company to
support, strengthen, or expand their businesss operations. Cost of capital can be acquired from
various sources such as debts by applying bank loan or issuing bonds, internal and external
equity by utilizing retained earnings or issuing new preferred shares and common shares, and
both of combined debt and equity. When company raise more and more money, the new cost of
capital may increase however it should identify the proportion or quantity of each source of fund

intended to use then utilize that capital outlay to get earnings and reach above the require rate of
return as early as possible based on the time value of money.
The cost of capital is very important and be the mechanical tool in capital budgeting decision
because a business want to compare that cost of capital with the future benefits derive from
utilizing capital funds. If an entity produces expected future cash flows or future benefits higher
than the cost of capital then it would be judged as a great investment opportunity and reflects an
efficiency use of capital funds which bring a company's promise to compensate lenders and
shareholders for the use of their money and wealth.
Solution 4: The company should accept the outsourcing (buying) the components.
In order to make decision whether the company should continue to make or buy, we should
consider the relevant (avoidable) production cost with the cost of buying the component and select
the lower-cost option. We can determine the relevant cost as follow:
Make Buy Difference

Direct materials $ 300,000 $ - $ 300,000
Factory overhead
350,000
Indirect labours 80,000 50,000 30,000
Supplies 30,000 10,000 20,000
Allocated occupancy cost 40,000 40,000 -
Purchase (Outsource) - 340,000 (340,000)
Total cost incurred/save: $ 450,000 $ 440,000 $ 10,000
* Relevant (avoidable) costs of making: $ 350,000 or $ 3.50 per unit
* Outsouring total price: $ 340,000 or $ 3.40 per unit
Base on the quantitive analysis, the outsourcing cost is less than the relevant costs of making
($3.40 per unit versus $3.50 per unit), I do not agree with the manager that the company should
continue making the components. Total cost of components would be saved by: $10,000 ($350,000
[$3.40 x 100,000]) if the components were outsourced.

CharlesSturtUniversity/M.BusProgram ACC501BusinessAccountingFinance

ASSINGMENT 2
Solution 1
Part (a):
In order to make decision whether Paul should accept the special order or not, we primarily should identify
what are unavoidable costs and avoidable costs which related to new order.
1). All kind of costs always incurred regardless of the company has many activities or less activities is called
unavoidable cost. This cost is always the same, no matter what alternatives are being considered, and
therefore do not relevant in decision-making process.
In the Electrics Motor Co., unavoidable costs which do not differ between alternative choices are:
Rental $ 21,000
Depreciation 29,700
Light and power 2,100
Other fixed manufacturing costs 6,300
Totalunavoidablecosts: $ 59,100
2). The only concern which effect to decision making process is relevant cost. In this case, we determine all the
relevant costs such as the differential revenues and costs and the opportunity costs of accepting the new
order.
When the order is rejected, no differential revenue and cost incurred. If the order is accepted to produce
12,500 custom-built motors, there will bring in differential profit that we can present as follow:
Differential revenues $ 262,500 (12,500 x $21)

Differential cost- direct cost (212,500) (12,500 x $17)
Differential cost- new tool cost (6,000)
Total differential revenues and costs: $ 44,000
Currently Paul Cheong Electrics Motor Co. is working at full capacity. To accept the new special order, he
could reduce the production of standard motors by half for the next year. This reduction will bring the
company loss half of profit from the standard motor production line. This cost (loss) is called the opportunity
cost of accepting the order. We can find out this cost as follow:
Sales reduced $ 37,500 (75,000 / 2)

Direct material reduced (12,000) (24,000 / 2)
Direct labor reduced (13,500) (27,000 / 2)
Opportunity costs: $ 12,000
From the above determination between all of the relevant costs if the differential revenues and cost of
accepting new order is positive and greater than the opportunity cost of giving up half of standard motors
production, Paul Choeng should accept this new special order because he would gain on differential
By:KhanSokumchhorvy Assignment2 Page4

profit margin by: $32,000 ($44,000 $12,000) and this shown as following:
Order Rejected Order Accepted

Additional revenue 0 $ 262,500
Additional direct cost 0 (212,500)
New tool cost 0 (6,000)
Opportunity cost 0 (12,000)
Differential Profit Margin 0 $ 32,000
Part (b):
Past costs are indeed relevant in most instances because they provide the point of departure for the entire
decision process.
I do not agree with this statement because past cost or a sunk cost is a cost that has already been incurred
and cannot be avoided regardless of what a manager decides to do (Garrison & Noreen,.2006). Even though
they said past cost is a point of departure for decision but its not really relevant at all since money is already
spent no matter we choose option A, B, or C, we cannot change this cost. Rental fee, depreciation expense,
and executive salary are the examples of past cost or sunk cost which cannot be eliminated if the company
decides to drop or reduce production line or acquiring new asset, because these costs are still continued
under either alternative. Then, it should be ignored in consideration for decision making. Besides, in terms of
decision making process we refer to future estimation, predict of costs needed (or budgeting) for expenditure
and investment to get beneficial gain to a business. Only data from future costs and opportunity costs (cash
inflow or outflow, or beneficial forgone) that differ between the alternative choices are relevant in making
decision. Therefore, all relevant costs should be the most concerned in any decision making process to
analyze and select the useful investment choice which bring a company preferable incremental contribution
margin.
Solution 2:
(a). Compute the following variances of Cambodian Pottery (CP)
Direct marterial price variance = (Actual price Standard price) x Actual quantity
= ($0.60 $0.50) per kg x (60,000 x 1.1kg)
= $0.10/kg x 66,000kg = $6,600 Unfavorable
Direct material quantity variance = (Actual quantity Standard quantity) x standard price
= ([1.1kg x 60,000] [1kg x 50,000]) x $0.50/kg
= (66,000kg 50,000kg) x $0.50/kg = $8,000 Unfavorable
Direct labour rate variance = (Actual rate Standard rate) x Actual hour
= ($12 $13) per hour x (1/4 hour x 60,000)

Direct labour hour variance = (Actual hour Standard hour) x Standard hour rate
= ([1/4 hour x 60,000] 10,000 hours) x $13/hour
= $65,000 Unfavorable
(b). Base on each variance, determine who in CP's organisation is most likely responsible
* Direct Material Price Variance
Responsibility: Generally, price is mostly related to purchasing manager who responsible
for price of material purchased. However, he cannot be held much control over the price due
to the external factors change in market prices which outside of individual control.
Interpret variance: DM price variance is unfavorable because of inefficient management
and some external changes such as:
1. They couldn't purchase materials (clay) as the standard set, maybe in higher quality
2. Fail to get purchase discounts due to small sizes ordering.
3. Affect from suppliers increase bargaining power
4. Price can be higher by exchange rate if the materials are imported.
5. Change in market price of materials, rates of purchase tax or excise duty...
* Direct Material Quantity Variance

Responsibility: Normally, this variance is kind of controllable variance, under responsible of
production/operating manager. He controls over the quantity of materials used in the
manufacturing process and able to take the remedial action.
Interpret variance: DM quantity variance is unfavorable due to internal operating that
produce cookie jars by using materials in excess of the standard budget. This happen from:
1. Use of substitute materials and change of material's quality
2. Use of old machine to produce or defect in plant and equipment
3. Hire lower-skill labours and lack of manufacturing guiding or supervision,
causing excessive materials consumption
4. Change in product design and adjust specification different from the standard set
5. Interrupt of manufacturing technique, faulty material processing
* Direct Labour Rate Variance

Responsibility: Not different from the material price variance. Human resource manager is
responsible for setting hourly rate for labour work, but not have much control because labour
rates tend to fluctuate due to demand and supply in the labour market.
Interpret variance: Cambodian Pottery got favorable DL rate vairance because of:
1. Recruit lower-skill labours can also cause poor direct labour efficiency variance
2. Good in negotiating lower wage-rate with stuffs and labor unions
3. Decrease wage-rate in labour market due to high labour supply than demand
4. Manager over estimates the standard labour rate
* Direct Labour Hour Variance

Responsibility: this variance is fall on production/operating manager who determine and
control over operating hours in manufacturing department.

Interpret variance: DL efficiency variance is unfavorable and the reasons from this variance
is not much different from DM quantity variance. Some problems arise from:
1. Using substitute materials or its quality is different from standard using, which require
more hours than the standard hours for processing
2. Poor training or incompetent supervision to workers, use inexperienced labours
3. Change in manufacturing method/technique
4. Poor ordering management and waste time in waiting for materials, tools, or equipments
5. Defective or out-of-date tools, machinary, and equipments.
Solution 3:
Part (a):
1. Calculate the payback period for the equipment
Payback period is the length of time/year required for an investment to generate cash inflows sufficient
to recover its initial cost of investment. The payback period is calculated as follow:
Payback period = Initial cost of Investment / Net annual cash flows

= 49,115/15,000 = 3.27 Years
The company need to wait the cumulative net cash flows for 3.27 years (the payback period) to recover
the initial cost of investment.
2. Calculate the net present value (NPV) of the equipment

NPV is calculated by the present value of the equipment (PV) subtract the initial cost.
1 1 r
NPV Net annual cash flows Initial Investment
r
where NCF : $15,000, r (cost of capital): 12%, n: 5 years
1 1 0.12
NPV 15,000 49,115
0.12
54,075 49,115 $4,960
Net present value (NPV) of the equipment is $4,960
3. Should the firm purchase the equipment? Why or why not?

Base on calculation, the NPV is $4,960 positive, shown that the future value of cash flows of the
equipment is higher than its cost. The equipment is expected to add value to the firm, improve
productivity and gain the firm's wealth. Then, a project should be accepted.

Part (b):
I do agree with an accounting student that in making capital budgeting decisions, it is necessary to determine the
relevant cash flows from the proposal because relevant cash flows are adjusted to the time value of money (timing
of cash flow) and it shows the differences of future estimation of free money inflow and money outflow which arised
from alternative choices of capital investment. In addition, understanding relevant cash flows or relevant costs may
help company saving time and effective in analyzing for management decision by ignoring all kind of costs that
are irrelevant such as past cost or historical cost, committed cost, and any future costs that are still incurred no
matter the company accept or reject the proposal. Related to the revenues and expenses based on normal accrual
accounting cannot be taken in consideration for managerial decision because revenues and expenses are the
matching principle which recognize revenues when earned and expenses when incurred on the income statement.
In other word, revenues and expenses do not reflect about actual cash receipts and cash spent which is very
important in business operation and capital budgeting.
Therefore, before company selects any proposals to acquire new asset, replace new machine and equipment, or
expand business operations, company essentially need to gather all relevant information and determine relevant
cash flows from proposal to see how much future net cash flows will be generated to cover the initial cash outlay
(capital expenditure) as well as to analyze whether the choice is a good one and produce profitability.


ASSINGMENT 3
Solution 1:
(a). Calculate Sophiya Ltd's Ratios for 2006 (amount in $'000)
Net profit interest expense 1 tax rate

1. Rate of return on total assets
Average total assets
Tax rate = Income tax expense / Profit before income tax = 1,736 / 4,960 = 35%
3,224 1,440 1 0.35

15.27%
27,744 26,710 /2
ROA = 15.27%
Net profit Preferred dividend

2. Rate of return on ordinary shareholder s equity
Average ordinary shareholder s equity
Net profit Preferred dividned 3,224 50

Average total equity Average preferred stock 13,194 12,000 500 500

2 2
3,174
26.24%
12,597 500
ROE = 26.24%
Net profit 3,224

3. Profit margin 6.45%
Net sales 50,000
Profit margin = 6.45%
Net profit Preferred dividend

4. Earnings per share
Weighted average numbers of ordinary share outstanding
3,224 50 3,174
44.08
7,200 7,200 7,200
2
EPS 44 Cents
Market price per share $ 11

5. Price earnings ratio 25
EPS $ 0.44
Price-earnings ratio 25 times
Dividends per share $0.275

6. Dividend yield 2.5%
Market price per share $11
* Dividends per share = $1,980,000/7,200,000 shares = $0.275/share
Dividend yield = 2.5%

Dividends per share $0.275

7. Dividend payout ratio 62.5%
EPS $0.44
Dividend payout = 62.5%
Current assets 11,824

8. Current ratio 2.2: 1
Current liabilities 5,350
Current ratio = 2.2:1
Quick assets Current assets Inventories 11,824 6,500

9. Quick ratio
Current liabilities Current liabilities 5,350
Quick ratio = 1:1
Credit sales 50,000

10. Receivables turnover 13.7
Average account receivables 3,800 3,500 /2
Receivables turnover 14 times
Cost of goods sold 32,500

11. Inventory turnover 4.96
Average Inventory 6,500 6,600 /2
Inventory turnover 5 times
Total liabilities 14,550

12. Debt ratio 52.44%
Total assets 27,744
Debt ratio = 52.44%
Earnings before interest and income tax expenses

13. Times interest earned
Interest expense
Profit before income tax Interest expenses 4,960 1,440

4.44
Interest expenses 1,440
Times interest earned = 4.44 times
Net sales 50,000

14. Asset turnover 1.84
Averaage total assets 27,744 26,710 /2
Asset turnover = 1.84
(b). Comment on the company's profitability, liquidity, and use of financial gearing
Profitability
Sophiya Co. Industry Average
Profit margin 6.45% 4%

Asset turnover 1.84 times 1.8 times
Return on total assets (ROA) 15.27% 11%
Return on common shareholders' equity (ROCE) 26.24% 20%
Earnings per share (EPS) 44 cents 45 cents
Dividend yield 2.5% 5%

In analysing the profitability ratios, we can see Sophiya company shows a profit margin, asset turnover,
and return on total assets higher than the industry average which mean a company generating more sales
dollars by turning over its assets more raidly. High profit margin demonstrates good cost of control, whereas
a high asset turnover indicates efficient use of the assets. Base on Du Pont System, this company's ROA
is achieved through combination of high profit margins and rapid turnover of assets. Other important one,
return on common shareholders' equity is also greater than the industry, thus the owners of Sophiya are
more rewarded than other owners in the industry.
Related to the market shares, company's EPS and dividend yield show less number than the industry
average because company do not pay out all dividends to its shareholders, it prefers to keep some earnings
amount to reinvest in the business to achieve higher sales and profits in the future.
Liquidity
Sophiya Ltd. Industry Average
Receivable turnover 14 times 13 times
Inventory turnover 5 times 6 times
Current ratio 2.2:1 2.5:1
Quick ratio 1:1 1.3:1
Before we can examine the liquidity of the company, we should consider on the company's asset
utilization. Receivable turnover ratio shows that Sophiya collect its receivables faster than does the industry.
However, it replaces its inventory only 5 times per year a bit lower compare to industry 6 times per year,
perhaps the company doesn't have enough cash to purchase more inventory or has less effiecient in
inventory-ordering.
According to the current ratio (2.2:1) and quick ratio (1:1), the company seem to have lower ability
than the industry average in converting the current assets and liquid assets into cash to meet its short-
term liabilities.
Use of Financial Gearing
Sophiya Ltd. Industry Average
Debt to total assets ratio 52.44% 40%
Times interest earned 4.44 times 6 times
Debt to total assets of 52.44% is bigger than the industry average of 40% which measure the company's
overall assets achieved from much of debts over the range of 50%. For its time-interest earned indicates
that the company's income before interests and taxes covers the interest obligation just 4.44 times which is
lower than the industry firm 6 times. The lower the ratio, the weaker is the interest-paying ability of the firm.
Thus, from both ratios we can assume that the company utilizes fund from lots of debt and doesn't have muc
ability in paying for its long-term obligations.
Solution 2:
(a). According to the case study, ethical issues involved in this decision are bad morally and wrong ethical
conduct in business profession that the partners (Joe, Billy, and Bob) create loan application package with
the positive liquidity cash flows and healthier than the actual performance to achieve loan from the bank. In
every type of business transactions no matter a big or a small one, ethics is very essential and be the
application of values to decision making. These values include honesty, fairness, responsibility, respect, and
compassion. (Charles,.T & Gary,.L. 2011, p.37). In this issue, the partners do not focus and produce good
moral and values in business relations. They are acting irresponsible and dishonest, doing whatever they
can to gather sufficient cash for their advantages only without thinking of future risks, performance, and
credit.

(b). If the partners make the revisions, then it will effect on the sales budget, purchase budget, and cash budget
as following:
On sales budget, there will show sales receipts 100% every time their customers make purchase and
remain no sales receivable during the period, whereas the actual sales receipts is just about 85% and remain
15% credit to be collected for the next month.
This may reflect budgeted sales receipts > actual sales receipts for the period
On purchase budget, there will demonstrate purchase payments in each period is lower than the actual
purchase payment because in budgeted plan the partners will take about 2 months period after purchasing
made to off-set their credit purchase. On the other hand, in actual transaction they have to gather sufficient
cash to pay for their suppliers in a month after acquiring clothing inventory.
Thus, there will be budgeted purchase payments < actual purchase payment for the period.
On cash budget, we can identify the cash effect after look through sales budget and purchase budget. It
seems that their business transaction produces of cash inflow higher than cash outflow during the period
because in sales budget they earn all money every time sales happened and spend money for their inventory
in 2 months late.However, their actual operating earns little cash and required to spend money in a month
after buying clothing (inventory).
Therefore, cash budget reveal cash inflow > cash outflow resulted in positive cash flow.
(c). By this budget revision,

The partners stand to gain if their revised financial statement is accomplished and can lobby the bank to
approve them a loan because they can receive money needed to revamp the storefront.
On the other hand, the bank stands to lose in case it trusts on the fake statement and agrees to provide
loan to the partners business which actually has low credit and poor-performance. The bank will face with
partners trouble in paying late for interest payment or do not have sufficient cash to pay back for the loan
principal amount in the future as schedule set.
For the partners gain and the banker loss is temporary or permanently, or is short-term or long-term, it is
dependable. If the partners continue their unethical behavior in well-prepare and go well forward with their
plan of action and the banker do not recheck or observe the company's financial data and actual activities,
then the issue is going to happen permanently or in long-term. In case during the budget period the company
face with much problem about cash flow and couldn't make payment obligation to suppliers and bankers on
time, or the banker had observe and find out the company gave them the fraudulent financial statement,
therefore, the gain or loss might happen just temporary or in short-term period. However, the partners may
confront with the law and broke their credit in business profession.
d By the changed budget,

the bank might be hurt because he will confront with the high risk in getting return of principal money from
the company since the bank believed and approved loan based on the financial statement and cash budget
which are untrue. Moreover, every month the bank may face with opportunity loss on late interest payment
by the company.
the company, even though they can receive necessary cash for their business, they also can be hurt by

the changed budget as well because they will challenge in preparing two-way look of financial statement and
related budgets in order to keep track and manage of both the actual activities and the make-up one for every
month or period. They may get complexity and trouble in paying interest loan and paying inventory costs to
their suppliers on time. Furthermore, the partners also can face with external and governmental auditors and
authorities when they find out this big mistake associated with unethical dilemma.
(e). Since the budget represents a plan of action, thus during the budget period the changed budget might affects
the activities of the company business operating such as selling and purchasing section and finance section.
Because the budget is not a well-planned which is created just to get the bank loan approval, it seems they
neither have a good roadmap nor operating strategy to direct their business process in accordance to the
actual. They may face difficulty in collecting sales receipts enough for their business expenditure since they
need to wait a month from 15% of customers to pay back for their credit purchases. Moreover, when the
storefront is being revamped, the company cannot sell clothes as usual so sales revenues may also drop at
some amount. With these problems happened during the budget period, it will bring the company to have
small cash on hand and confront with low ability in paying liabilities on time for their operating such as paying
purchased to suppliers, interest expense to banker, and also income tax and other taxes expense to
government.
(f). Besides changing the budget or or not changing the budget, there are other alternatives to collect more cash
for business operation such as provide customers a sales discount to attact for prompt payments, offer good
credit term like 2/10 n/30 (mean discount for 2% if customers pay in 10 days after purchase, otherwise they
may fall in paying full amount). A business also can reduce some operating costs, find other lenders, or
create a new business plan for business expansion to request from bank.
(g). In case the partners come to consult with me, firstly I would recommend them to consistently obey and
respect of good business ethics since it is very essential and the main tool behind the successful business
relations, trustful, and profitable between organizations. They must not creating such a fake inancial report
which is the worst way to get loan approval from bank. They surely will face with law firm in the future, catch
in serious penalty, or loss credit in business profession. There are many variety of good ways to achieve
cash available for business by downsizing the operating costs, collect more cash from customers by
attracting them with the company's wonderful promotion, sales discounts, and good credit term as well as
create new plan for business expansion without lying other entities. By doing these, the partners do not have
much concern, stress, or complex in managing cash flows and work smoothly with their actual business
activity.
Solution 3:
Income Statement for Dine Out as following:
Sales $ 2,098,400 100%
Less: Variable costs of sale 1,246,500
Variable expenses of operating 222,380 (1,468,880) 70%
Contribution margin 629,520 30%
Less: Fixed operating expenses 170,700
Fixed administrative expenses 451,500 (622,200)
Net Income $ 7,320

Part (a):
1. Calculate the daily break-even volume in lunches and dinner
First, find out the contribution margin on lunches and dinner
Contribution margin CM 629,520

Contribution margin ratio 30%
Sales 2,098,400
* Contribution margin on lunches = Contribution margin ratio Lunch price = 30% $20 = $6
* Contribution margin on dinner = Contribution margin ratio Dinner price = 30% $40 = $12
The restaurant serves twice as many lunches as dinners, then let:

X : number of dinners and
2X: numbers of lunches
Total annual fixed cost = 170,700 + 451,500 = 622,200
Net income = Sales - Variable expenses - Fixed expenses

At Break-even point (BEP), Net income = 0
Then, Sales - Variable expenses - Fixed expenses = 0
Or Contribution margin in lunches and dinners - Fixed expenses = 0
12(X) + 6(2X) - 622,200 = 0
24(X) = 622,200 => X = 622,200 / 24 = 25,925 dinners
X = 25,925, There are 25,925 dinners annually to break-even

2X = 51,850, There are 51,850 lunches annually to break-even
Find out the BE volumes on daily basis (305 days/year) :

Dinners to break-even = 25,925 / 305 = 85 dinners daily
Lunches to break-even = 51,850 / 305 = 170 lunches daily
Find out the actual volume:

Let "Y: Combination of 1 dinner and 2 lunches" => Price of Y = $40 + (2 x $20) = $80
Total volumes in unit of Y = $2,908,400 / $80 = 26,230 annually

Daily Y volumes is = 26,230 / 305 = 86
Therefore, actual volume of dinners = 86 dinners daily

actual volume of lunches = 2 x 86 = 172 lunches daily
Compare the break-even volume to the actual volumes:
VOLUME
BE Actual
Lunches 170 < 172
Dinners 85 < 86
Base on calculation the break-even volume and the actual volume reflected in the income statement,
the restaurant serves 1 dinner and 2 lunches above the break-even volume.

2. Prepare an analysis and explain if the annual advertising expense of $15,000 would be disirable
What is the extra annual contribution margin from the 3 dinners and 6 lunches?
* Annual contribution margin in dinner = Daily sales of dinners x Contribution margin ratio x Days
(3 x $40) x 30% x 305 = $10,980
* Annual contribution margin in lunch = Daily sales of lunches x Contribution margin ratio x Days
(6 x $20) x 30% x 305 = $10,980
Then, the total extra contribution margin = $10,980 + $10,980 = $21,960
It would be disirable to add the annual advertising expenditure for the restaurant since the extra
annual contribution margin is $21,960 greater than the fixed expense of $15,000 in advertising.
This expenditure would bring the operating income to increase by $6,960 [$21,960 - $15,000]
3. Find out the drop-off in sales volume that restaurant still maintain the same net income
Again, Let Y = Combination of 1 dinner and 2 lunches, at the price of $80

Variable cost = Price x Variable cost ratio = $80 x 70% = $56
Food cost is 25% of total variable costs
Food cost = 25% x $56 = $14
Use of average-quality ingredient, the food cost reduced by 20%
Cost reduced = 20% x $14 = $2.80
Variable cost of Y = $56 $2.80 = $53.20
Compute the new contribution margin:

New contribution margin = Price $80 Variable cost $53.20 = $26.80
Or new contribution margin = Old contribution margin + Saving cost = $24 + $2.80
In order to maintain the same net income, the annual volume of Y should be as follow:
Net income = Total new contribution margin Fixed expenses = $7,320
: 26.80 Y 622,200 = 7,320
Y = (7,320 + 622,200) / 26.80
= 23,490 Annual volume or 23,490/305days = 77 daily volume
Daily Volume Annual Volume

Dinners Lunches Dinners Lunches
Premium-quality 86 172 26,230 52,460
Average-quality 77 154 23,485 46,970
Drop-off in Volume (daily) 9 18 2,745 5,490
If the restaurant change to use average-quality ingredients instead of the premium one, they can serve daily
dinners and lunches only at 77 volumes and 154 volumes respectively to reach the same net income of
$7,320 without changing the prices.
What factors in addition to revenues and costs would influence the decision about
the quality of food to use?
Using less cost of food would be desirable and the restaurant will gain more profitability if the serving volume

drop no more than 9 dinners and 18 lunches. The volume may not drop for the short-term business running
but the low quality of food cartering to customers is not warranty and may affect the long-term business
to decline in volume serving. Then it may much depend on other factors such as skill of the chef and good
service performance.
Part (b).
" Companies in the same industry generally have about the same break-even point".
I do not agree with this statement because even each company operates the same type of business with
similar size and activities, they certainly dont have the same management and strategy in utilizing resources
and operating business. Following is the example of the four-star hotel industry which some factors affect
each hotel to reach at different BEP level:
Sale revenues: Among the same standard of hotels, there are variety of revenue lines from the guest room
sales, restaurant service, laundry service, massage, and entertainments.....etc. Their revenues and sales
quantity is higher or lower base on each hotels quality of services, uniqueness, and how comfortable they
provide to their customers as well as base on its internal strategy of marketing, good networking, and hotels
management...etc
Variable costs: are clearly related to hotel occupancy and tend to fluctuate due to sale volumes. Some
variable costs occur in hotel are utilities expense, guest room amenities, food and beverages, cost of
ingredients (restaurant and massage), staff wages, and operating supplies. Costs may be different if each
hotel uses different resources like high quality of material, premium ingredients, good supplies and room
amenities for guests. Moreover, variable costs may be increase or decrease and vary according to each
hotel's sales quantity and line of revenues.
Fixed costs: Unlike variable costs, fixed costs normally do not change as sales and happen no matter the
hotel is operating during high season or low season. Any hotels fixed costs may not be the same too
because some hotels start operating by own money or loan, have own land and building or need to lease
building, different location may incur different rental/lease fee, executives and staffs salary maybe high if
they hire skilled and experienced staffs and managements, and other fixed costs like depreciation expense,
interest payment, advertising expense, land and building taxes to government and so on tend to be differ
as well.
To sum up, companies within the same the industry do not have the same break-even point for each busines
treat and manage their sales, variable costs, and fixed costs differently.

List of References
Text Books and Documents
1. Charles, T, Gary, L, William, O, David, B & Jeff, S (2011), Introduction to management accounting,
15th edn, Pearson Education, Inc., publishing as Prentice Hall, One Lake Street, Upper Saddle
River, New Jersey 07458.
2. John, J, K.R. Subramanyam & Robert, F (2007), Financial statement analysis, 9th edn, McGraw-
Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020, pp. 12-18 & 32-35.
3. Michael, C, Ehrhardt & Eugene, F (2011), Financial management: Theory and practice, 13th edn,
South-Western Cengage Learning, 5191 Natorp Boulevard Mason, OH 45040 USA, pp. 336-345
& pp. 381-387
4. Stephen, A, Randolph, W & Bradford, D (2006), Corporate Finance: Fundamentals, 7th edn,
McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020, pp. 162-302
5. Stanley, B & Geoffrey, A (2008), Foundations of financial management, 12th edn, McGraw-Hill
Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020, pp. 54-61 & 120-124
6. Thomas, P, Cindy, Bor-Yi & Philip, R (2006), Fundamental managerial accounting concepts, 3rd
edn, McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020, pp. 136-
145 & 537-547
7. John Williams, (2012), Study Guide: Business accounting & finance, Charles Sturt University.
Electronic materials
1. Garrison, Noreen & Brewer, (2006), Managerial accounting, Relevant costs for decision making,
th
11 edn, McGraw-Hill Companies
http://novellaqalive2.mhhe.com/sites/dl/free/007000000x/216179/chap13.pdf
2. Elio DAmato, (2010), The top 15 financial ratios, The Australian Shareholders Association, Level
7, NorthTower 1-5 Railway street Chatswood NSW 2067
http://www.lincolnindicators.com.au/content/filestore/research/top-15-financial-ratios.pdf
3. Chapter 13: Financial statement analysis, McGraw-Hill Companies,

http://highered.mcgraw-hill.com/sites/dl/free/0073527122/788603/Chapter_13.pdf
4. About.com (Business Finance), (2014), How to calculate break-even point,

http://bizfinance.about.com/od/pricingyourproduct/a/Breakeven_Point.htm
5. European Commission Enterprise and Industry, Break-even analysis,

http://www.businessplantool.org/Dokumenti/Break-even%20point%20analysis.pdf
6. Revised summer, (2010), Chapter 11: Relevant costs for decision making,
http://dept.harpercollege.edu/tutoring/pdfs/ac102_ch11.pdf
- II -
7. Don Hofstrand, (2013), Understanding cash flow analysis, Department of Economics University
Extension, Iowa State University,
http://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html
8. AccountingExplained , (2013), Capital budgeting: Net present value,

http://accountingexplained.com/managerial/capital-budgeting/npv
9. Lee Siu Po & Simon, Relevant to Paper II PBE Management Accounting and Finance,
Incremental Analysis for Decision Making, The Chinese University of Hong Kong,
http://www.hkiaat.org/images/uploads/articles/PBE_Paper_II_Apr10.pdf
10. Pamela Peterson Drake, The cost of capital,

http://educ.jmu.edu/~drakepp/principles/module7/coc.pdf
11. Accounting Education, (June 13, 2009), Cost of capital and methods of calculating cost of capital,
http://www.svtuition.org/2009/06/cost-of-capital-and-methods-of.html
12. Accounting-Simplified, 2013, Current Ratio - Liquidity Ratio - Working Capital,

http://accounting-simplified.com/financial/ratio-analysis/current.html#sthash.VyLDzf56.dpuf
13. Accounting explanation, 2011, Materials Quantity Variance or Materials Usage Variance,
http://www.accountingexplanation.com/direct_materials_quantity_variance.htm
14. Accounting Tools, 2014, Labor rate variance / Direct labor rate variance,
http://www.accountingtools.com/labor-rate-variance
15. Cengage Learning, Business resources for students, case studies: The role of financial analysis,
http://college.cengage.com/business/resources/casestudies/students/financial.htm
- III -

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CHARLES STURT UNIVERSITY

Master of Commerce Program

ECONOMICS AND FINANCE INSTITUTE

ACC501 Business Accounting and Finance

Facilitator : Mr. Petrus Gimbad

Student Name : Khan Sokumchhorvy

Due Date : June 16, 2014

2. BEP : Break-even point

5. DCF : Discounted cash flows

8. FSA : Financial statement analysis

9. NCF : Net annual cash flows

10. NPV : Net present value

11. PPWSA : Phnom Penh Water Supply Authority

12. PV : Present value

13. ROA : Return on assets

14. ROCE : Return on common shareholders equity

ACC 501 - BUSINESS ACCOUNTING AND FINANCE

According to the above discussion, finally, it is dependable to a simple or a complex business.

By: Khan Sokumchhorvy - Assignment 1- Page 1

Discounted cash flows can be calculated by this following formula:

Formula source: http://www.investopedia.com/terms/d/dcf.asp

By: Khan Sokumchhorvy - Assignment 1- Page 2

Make Buy Difference

* Relevant (avoidable) costs of making: $ 350,000 or $ 3.50 per unit

* Outsouring total price: $ 340,000 or $ 3.40 per unit

By: Khan Sokumchhorvy - Assignment 1- Page 3

ACC 501 - BUSINESS ACCOUNTING AND FINANCE

Differential revenues $ 262,500 (12,500 x $21)

Sales reduced $ 37,500 (75,000 / 2)

By:KhanSokumchhorvy Assignment2 Page4

Order Rejected Order Accepted

By:KhanSokumchhorvy Assignment2 Page5

* Direct Material Quantity Variance

* Direct Labour Rate Variance

* Direct Labour Hour Variance

By:KhanSokumchhorvy Assignment2 Page6

Payback period = Initial cost of Investment / Net annual cash flows

2. Calculate the net present value (NPV) of the equipment

54,075 49,115 $4,960

Net present value (NPV) of the equipment is $4,960

3. Should the firm purchase the equipment? Why or why not?

By:KhanSokumchhorvy Assignment2 Page7

By:KhanSokumchhorvy Assignment2 Page8

ACC 501 - BUSINESS ACCOUNTING AND FINANCE

Net profit interest expense 1 tax rate

3,224 1,440 1 0.35

Net profit Preferred dividend

Net profit Preferred dividned 3,224 50

Net profit 3,224

Profit margin = 6.45%

Net profit Preferred dividend

Market price per share $ 11

Price-earnings ratio 25 times

Dividends per share $0.275

* Dividends per share = $1,980,000/7,200,000 shares = $0.275/share

Dividend yield = 2.5%

By:KhanSokumchhorvy Assignment3 Page9

Dividends per share $0.275

Current assets 11,824

Quick assets Current assets Inventories 11,824 6,500

Quick ratio = 1:1

Credit sales 50,000

Cost of goods sold 32,500