Beruflich Dokumente
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Your Working (not marked) - use both the Income and Cash Flow Statements
$193,000 / $160,000 = 1.20625
(16)
Plus Borrowings
70 *
Closing Balance
54 *
Part B CVP
(i)
10 marks
2 marks
3 marks
(iii)
(1 mark)
3 marks
(1 mark)
(iv)
2 marks
It draws focus on fixed cost which is the challenge for businesses to
cover.
Businesses need an increased level of activity to cover fixed costs. The
contribution margin allows the accountant to directly compare the
portion of the sales revenue that goes towards covering Fixed Costs.
10 marks
(i)
5 marks
We apply overhead because it is difficult to capture the actual overhead
costs incurred during the period. There is too much variability.
Therefore, in the interest of consistency, the budgeted overhead rate is
applied to actual production. This amount is adjusted at the end of the
period.
On top of this, students who provide the example of one advantage and
a disadvantage should be given a mark each.
(ii)
5 marks
It allows businesses to prepare for various levels of activity.
Static budgets are prepared only for one level of activity
Calculation of variances will be clearer as it is not confounded by
differences in activity levels.
On top of this, students who provide the example of one advantage and
a disadvantage should be given a mark each.
(4 marks)
PART B
(8 marks)
Provide two examples of how management can manage earnings (2
marks). In each case, explain how managers further their self-interest.
For example, using a certain accounting method may result in higher
asset numbers this year; why would this be in managements interest? (6
marks).
Make different estimates e.g. estimating bad debts or residual values
Use different methods e.g. FIFO, Weighted Average or straight-line vs accelerated
Expenditure capitalise or recognise expense
PART C
Given the incentives managers have to manipulate numbers, what
prevents managers from just reporting any numbers they like?
(4 marks)
SACs
GAAP
Accounting Standards
Trying to make statements useful relevant, reliable, understandable etc.
Auditors