Level 3 Accounting, 2008

Transcription

1 For Supervisor s Level 3 Accounting, Explain and prepare information for management decision making Credits: Three 2.00 pm Thursday 27 November 2008 Check that the National Student Number (NSN) on your admission slip is the same as the number at the top of this page. You should answer all the questions in this booklet. If you need more space for any answer, use the page(s) provided at the back of this booklet and clearly number the question. Check that this booklet has pages 2 9 in the correct order and that none of these pages is blank. YOU MUST HAND THIS BOOKLET TO THE SUPERVISOR AT THE END OF THE EXAMINATION. For Achievement Explain management decision making. Achievement Criteria Achievement with Merit Fully explain management decision making. Achievement with Excellence Fully explain management decision making. Prepare financial information for management decision making using financial and non-financial information. Prepare financial information for management decision making using a range of financial and non-financial information. Prepare financial information for management decision making using a wide range of financial and non-financial information. Evaluate information for management decision making. Overall Level of Performance (all criteria within a column are met) New Zealand Qualifications Authority, 2008 All rights reserved. No part of this publication may be reproduced by any means without the prior permission of the New Zealand Qualifications Authority.

2 2 You are advised to spend 30 minutes answering the questions in this booklet. Part A Dipak is the owner / manager of Keep in Shape Ltd, a gym that offers weight training, exercise equipment, personalised training programmes and a variety of aerobics classes. Only people with gym membership are allowed to use the gym s facilities. The gym currently has 500 members, which represents an increase of 25% in the last three years. The maximum number of members the gym can take is 600, and the annual membership fee is $1 200 per gym member. (a) On the break-even analysis graph below, draw and label a total annual revenue curve for Keep in Shape Ltd based on its current membership of 500 people. The total annual cost curve has already been drawn for you Keep in Shape Break-even Analysis Cost / revenue ($) Total annual cost Gym membership (people)

3 (b) State the gym membership required by Keep in Shape Ltd to break even. 3 Membership required to break even: members (c) Explain the relationship between the contribution margin and fixed costs in order for Keep in Shape Ltd to break even. (d) State the profit for the year earned by Keep in Shape Ltd with a gym membership of 500 people. Show your working. Profit: $ Keep in Shape Ltd, with its current gym membership of 500 people, has total variable costs of $ (e) (i) Calculate the contribution margin per gym member for Keep in Shape Ltd. Show your working. Contribution margin: $ (ii) Use the contribution margin per gym member from (i) to determine the gym membership required to achieve a profit of $ for the year. Show your working. Gym membership required: members

4 (f) Use your answer from (e) (ii) to explain whether an annual profit of $ is an attainable goal for Keep in Shape Ltd within three years. 4 Dipak wants to increase membership of the gym to members. To do this he is going to need to expand the gym and the services it offers. A cost-volume-profit analysis associated with the expansion has estimated the following: a break even point of 700 members gym membership of members would have fixed annual costs of $ and total variable annual costs of $ Use the information above and your answers from (b) (f) to answer the following question. (g) Explain whether cost-volume-profit analysis supports a decision to expand the gym. You should include financial and non-financial reasons for your decision. Start your answer by circling one of the options below. Recommendation (Circle ONE) Dipak should OR Dipak should not expand the gym.

5 5 Part B If Dipak does decide to expand the gym, he is going to add an extra aerobics room and expand the weights room. He will also employ a nutritionist to work with the personal trainers when they write training programmes for gym members. Dipak s management team includes Mesha Charles, the personnel manager, and Jared Lima, the sales manager. (a) Explain why a weekly roster that allocates aerobics instructors to classes is a routine decision. (b) Explain why a payment to aerobics instructors of $30 per class they teach is a variable cost. (c) State ONE piece of financial information Mesha will need from Dipak before she interviews candidates for the job of nutritionist at the gym. (d) Explain how a sales budget prepared by Jared will help Dipak make his decision whether or not to expand.

6 6 Part C A cash budget is required to help determine whether Keep in Shape Ltd should expand. The following information assumes all work associated with the expansion is completed by 31 March 2009 and is to be used in the preparation of a cash budget for April and May Membership information Gym members can opt to pay their $1 200 membership in full or in monthly instalments of $100, payable on the 20th of each month. In April, total gym membership is estimated to be 550 members. Of those members, it is estimated that 540 will pay a monthly instalment of $100 in April, while 10 members will pay their full membership fee of $1 200 during the month of April. In May, it is that estimated 50 new members will join the gym before the 20th of the month, with 40 of those paying a monthly instalment of $100. It is estimated that the remaining 10 new members will pay the full membership fee of $1 200 during the month of May. No current gym members are expected to leave the gym in May. Jared is forecasting membership growth of at least 20 members per month over the six months following May. (a) (i) Calculate the cash to be generated by gym membership in April. Show your working. Cash to be generated by gym membership in April: $ (ii) Calculate the cash to be generated by gym membership in May. Show your working. Cash to be generated by gym membership in May: $ Other information Loan repayments are $ per month. New gym equipment purchased in March, costing $20 000, is to be paid for in April, less a 2.5% discount for prompt payment. General gym expenses of $ per month are paid in the month they occur. They include depreciation, which is 10% of the general gym expenses. Other expenses of $ per month are paid in the month they occur. Wages and salaries are paid in the month earned. Gross wages and salaries are $ in March, $ in April and $ in May. 25% of gross wages and salaries are paid to the IRD in the month following. Dipak has budgeted for a $ grant from a local Trust in April to help pay for the new gym equipment purchased in March. Use all of the information above to answer question (b).

7 (b) Use the information on page 6 to prepare Keep in Shape Ltd s cash budget for April and May Keep in Shape Ltd Cash Budget for April and May 2009 April May Receipts Cash from gym membership Trust grant Total cash received Payments Loan Gym equipment General gym expenses Wages and salaries IRD payment Other expenses Total cash payments Surplus / deficit Plus opening bank balance Closing bank balance

8 (c) Explain whether the information in the cash budget and from page 6 supports a decision to expand the gym. Start your answer by circling one of the options below. Recommendation (Circle ONE) Dipak should OR Dipak should not expand the gym. 8

9 9 Extra paper for continuation of answers if required. Clearly number the question. Question number