3
90505
905050
For Supervisor’s use only
Level 3 Accounting, 2009
90505 Explain and prepare information
for management decision making
Credits: Three
9.30 am Thursday 26 November 2009
Check that the National Student Number (NSN) on your admission slip is the same as the number at the
top of this page.
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 2–8 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 Assessor’s
use only
Achievement Criteria
Achievement
Achievement
with Merit
Achievement
with Excellence
Explain management decision
making.
Fully explain management
decision making.
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, 2009
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
You are advised to spend 30 minutes answering the questions in this booklet.
Assessor’s
use only
Part A
Into Hotwater provides a service specialising in the installation of gas and electric hot water
systems. The current break-even number of hot water installations for the business is 32
installations per month. The relevant range is 60 installations per month; in the last month, 41 hot
water systems were installed by Into Hotwater.
(a)
Calculate the margin of safety in units for last month.
Show your working.
(b)
Margin of Safety:
units
Into Hotwater’s break-even number of hot water system installations is calculated using the
fixed costs and contribution margin. Explain the purpose of calculating the contribution
margin.
To cater for the “green” market, the owner / manager has decided to replace the installation of gas
hot water systems with the installation of solar hot water systems. The installation of electric hot
water systems and the relevant range would remain the same.
The following information is available regarding the installation of solar hot water systems:
•
An additional, one-off fixed cost of $234 000 payable over one year, is required to begin the
installation of solar hot water systems.
No changes to existing fixed costs would occur.
(c)
Explain why the existing fixed costs for Into Hotwater have remained unchanged.
•
Accounting 90505, 2009
3
Total variable costs for the installation of solar hot water systems are $2 200, including the cost of
the solar panel.
(d)
(i)
Apart from the solar panel, state ONE other variable cost incurred with the installation
of solar hot water systems.
(ii)
Explain why the solar panel is a direct cost of installing solar hot water systems.
The selling price for each solar hot water system installed is expected to be $3 500.
(e) (i)
Calculate the contribution margin per solar hot water installation for Into Hotwater.
Show your working.
(ii)
Contribution margin: $
Calculate the number of solar hot water systems per month that Into Hotwater needs
to install to break even. Show your working.
Number of installations required:
per month
If Into Hotwater introduces the installation of solar hot water systems, the company expects to see
a demand for 300 installations within the first year.
(f)
Calculate the amount of profit Into Hotwater would make if 300 solar hot water systems were
installed.
Show and fully label your working.
Amount of Profit: $
Accounting 90505, 2009
Assessor’s
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4
Use the information from parts (a) – (f) on pages 2 and 3 to answer the following question.
(g)
Explain whether cost volume profit analysis supports a decision to introduce the installation
of solar hot water systems. You should provide both financial and non-financial reasons to
support your decision.
Start your answer by circling ONE of the options below.
Into Hotwater should OR Into Hotwater should not install solar hot water systems.
Accounting 90505, 2009
Assessor’s
use only
5
Part B
Assessor’s
use only
Into Hotwater has been advised to prepare a monthly cash budget of the company’s likely receipts
and payments from installing solar hot water systems.
(a)
Explain how a cash budget will help Into Hotwater to make this decision.
Into Hotwater has asked you to assist in the preparation of a cash budget. You have the following
information:
•
•
•
(b)
The selling price for each solar hot water system installed will be $3 500.
All installations of hot water systems by Into Hotwater are on credit.
◦◦
70% of fees are received in the month of installation.
◦◦
28% of fees are received in the first month following the installation.
◦◦
Experience shows that 2% of fees are uncollectable. This 2% of fees are to be written
off at the end of the first month following the installation.
Into Hotwater has estimated the number of solar hot water installations to be 24 in April and
28 in May 2009.
Prepare Into Hotwater’s Schedule of Accounts Receivable from solar hot water systems for
the two months ending 31 May 2009.
Into Hotwater
Solar hot water systems
Schedule of Cash from Accounts Receivable for the two months ending 31 May 2009
April
Total cash from accounts receivable
Accounting 90505, 2009
May
6
The following additional information relates to solar hot water systems for April and May:
•
Into Hotwater will receive a $5 000 award from the New Zealand Eco-friendly Society in May
if Into Hotwater implement solar hot water systems.
•
A one-year fixed interest loan of $50 000 with an interest rate of 12% per annum will be
uplifted on 1 April 2009.
•
The interest on the loan will be paid monthly, with the first payment to be made on 30 April
2009.
•
Certification costs including staff training costs are estimated to be $228 000. Half of this is
payable in April; the remaining amount will be settled in equal instalments over four months
starting in May.
•
Purchases of the solar panels costing $1 000 for each installation are paid in the month they
are used, for which a 5% discount is received.
•
Other variable costs of $1 200 per installation are paid in the month in which they occur.
•
General selling and administration expenses including bad debts are expected to be $14 000
in April and $16 000 in May. Cash expenses are paid in the month they occur.
(c)
Use the above information to prepare Into Hotwater’s cash budget from solar hot water
systems for the first two months ending 31 May 2009.
Into Hotwater
Solar hot water systems
Cash Budget for the two months ending 31 May 2009
April
Estimated receipts
Cash from accounts receivable
New Zealand Eco-friendly Society award
Loan
Total cash received
Estimated payments
Interest on loan
Certification costs
Solar panels
Other variable costs
General selling and administration expenses
Total cash payments
Net surplus / deficit of cash
Accounting 90505, 2009
May
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use only
7
(d)
Explain whether the information in the cash budget and the additional information from pages
5 and 6 supports a decision to introduce the installation of solar hot water systems. You
should discuss both financial and non-financial reasons to support your decision.
Start your answer by circling ONE of the options below.
Into Hotwater should OR Into Hotwater should not install solar hot water systems.
Accounting 90505, 2009
Assessor’s
use only
8
Extra paper for continuation of answers if required.
Clearly number the question.
90505
Question
number
Accounting 90505, 2009
Assessor’s
use only