What is miriams average contribution margin per lunch and

Question

Learning outcome:

Financial Processes
- Develop financial strategies.
- Identify opportunities to improve financial performance.
- Analysis and Interpretation
- Analyse and interpret an entity's financial report

ASSIGNMENT INSTRUCTIONS

For this assignment you will provide answers and calculations for all parts A, B, and C. You are required to engage in some research into the theories underpinning accounting practices in order to successfully complete this assignment. You will have to substantiate your findings by referencing to source materials including your textbook and Study Guide where needed.

Part A

1) ‘Miriam's Munchies' prepares lunches for sale each day, 6 days a week, from Miriam's lunch bar.
The variable costs to make each lunch average $2.50 per lunch.
The average sale price for each lunch is $8.70.
Miriam's weekly fixed costs (advertising, rates, mortgage interest and others) total $310 per week.
a) What is Miriam's average contribution margin per lunch?
b) Calculate the average number of lunches Miriam must make and sell each week to break even.
c) Miriam has a target profit of $2,400 per week. How many lunches must she sell on average each week to achieve this goal?

2) Miriam's sister also has a business called Jasmine's Munchies' that prepares lunches for sale each day, 5 days a week, from Jasmine's lunch bar.
The variable costs to make each lunch average $3.00 per lunch.
The average sale price for each lunch is $8.99.
Miriam's weekly fixed costs (advertising, rates, mortgage interest and others) total $410 per week.
a) What is Miriam's average contribution margin per lunch?
b) Calculate the average number of lunches Miriam must make and sell each week to break even.
c) Miriam has a target profit of $3,100 per week. How many lunches must she sell on average each week to achieve this goal?

Part B

1) Miriam's Income Statement for the previous (20X1) year was as follows:

	Budget	Actual	Variance	Favourable/ Unfavourable	%Variance = (Budget - Actual)/Budget x100
Sales price per unit	$40	$35
Sales units	15,000	19,000
	$	$
Sales	600,000	665,000
Less Cost of Sales	210,000	232,750
Gross Profit	390,000	432,250
Less Other Expenses
Accounting Fees	5,000	7,000
Advertising	24,000	30,000
Bad Debts	3,000	4,100
Delivery (Out)	30,000	40,500
Electricity Office)	8,000	7,500
Packaging	6,000	8,100
Rent (Premises)	38,000	35,000
Sales Bonuses	12,000	15,300
Telephone & Internet	6,000	4,500
	132,000	152,000
Net Profit	258,000	280,250

a) Calculate the variances from budget (and designate as favourable or unfavourable).

b) Explain possible reasons for the 3 most significant revenue or expense item budget variances (ignore profit and subtotal variances).

2) Jasmine's Income Statement for the previous (20X1) year was as follows:

a) Calculate the variances from budget (and designate as favourable or unfavourable).
b) Explain possible reasons for the 3 most significant revenue or expense item budget variances (ignore profit and subtotal variances).
In addition to this please explain a possible reason for the telephone and internet variance.

Part C

1) The following financial statements are for Rupert's Appliances, a sole trader, for the years ending 31 March 20X3, 20X4 and 20X5.

INCOME STATEMENTS
	20X3		20X4		20X5
	$	$	$	$	$	$
Sales (all on credit)		200,000		320,000		480,000
Cost of Sales		79,000		114,800		153,600
Gross Profit		121,000		205,200		326,400
Selling Expenses
Advertising	10,000		20,000		40,000
Sales Bonuses & Delivery	7,000	17,000	11,200	31,200	16,800	56,800
Admin. Expenses
Insurance	8,000		8,000		8,000
Wages & Other	91,950	99,950	93,390	101,390	94,150	102,150
Financial Expenses
Bad Debts	3,000		9,600		28,800
Interest	7,050	10,050	11,010	20,610	16,050	44,850
Net Profit		-6,000		52,000		122,600

BALANCE SHEETS
	20X3		20X4		20X5
	$	$	$	$	$	$
Current Assets
Cash - Bank	5,000		-		-
Accounts Receivable	20,000		48,000		96,000
Inventory	6,000	31,000	19,200	67,200	57,600	153,600
Fixed Assets
Land	60,000		60,000		60,000
Buildings	300,000		300,000		300,000
less Accum Depreciation	-12,000	348,000	-18,000	342,000	-24,000	336,000
Total Assets		379,000		409,200		489,600
Current Liabilities
Bank Overdraft	0		12,000		25,000
Accounts Payable	16,000	16,000	38,400	50,400	103,200	128,200
Term Liabilities
Mortgage	60,000		60,000		60,000
Bank Loan	5,000	65,000	25,000	85,000	55,000	115,000
Total Liabilities		81,000		135,400		243,200
Owner's Equity
Capital, start	349,000		298,000		273,800
Net Profit	-6,000		52,000		122,600
Drawings	-45,000		-76,200		-150,000
Capital, end		298,000		273,800		246,400
Total OE + Liabilities		379,000		409,200		489,600

NB: Average market Accounts Receivable for this type of business is 30 days.

STATEMENTS OF FINANCIAL POSITION
	20X3		20X4		20X5
	$	$	$	$	$	$
Current Assets
Cash - Bank	-		-		10,000
Accounts Receivable	50,000		22,800		12,000
Inventory	17,500	67,500	16,700	39,500	15,900	37,900
Fixed Assets
Land	50,000		50,000		50,000
Buildings	250,000		250,000		250,000
less Accum Depreciation	-12,000	288,000	-17,000	283,000	-22,000	278,000
Total Assets		355,500		322,500		315,900
Current Liabilities
Bank Overdraft	15,000		7,000		-
Accounts Payable	17,500	32,500	19,950	26,950	21,000	21,000
Term Liabilities
Mortgage	120,000		120,000		150,000
Bank Loan	24,000	144,000	25,000	145,000	77,000	227,000
Total Liabilities		176,500		171,950		248,000
Owner's Equity
Capital, start	141,650		179,000		150,550
Net Profit	81,440		42,290		5,570
Drawings	-44,090		-70,740		-88,220
Capital, end		179,000		150,550		67,900
Total Funds (OE + L)		355,500		322,500		315,900

Other information:

The bank overdraft limit is $20,000.
The mortgage is due for repayment in 20X7.

a) Identify the formula and explainin detail what each of the following ratios measure or mean: (You are not required to interpret the results from the financial statements at this point.)
i) Net profit %,
ii) Return on equity %,
iii) Inventory turnover (days),
iv) Accounts receivable turnover (days),
v) Liquidity ratio (= Quick ratio), Debt ratio %.

b) Calculate the following ratios for the 20X3 (if applicable), 20X4, and 20X5 years. Show a full breakdown of your calculations (formula, calculations and answers).
i) Gross profit %,
Net profit %,
Return on equity %
ii) Inventory turnover (times per year),
Inventory turnover (days)
iii) Accounts receivable turnover (times per year),
Accounts receivable turnover (days)
iv) Current ratio,
Liquidity ratio,
Equity ratio %.

c) Comment on the ratios calculated above, and the financial statement results for Rupert's Appliances during the years 20X3-20X5 inclusive, in the following areas:
- Profitability (question b) i) above)
- managerial performance (question b) ii) and iii) above)
- financial stability (question b) iv) above).

d) Recommend to Rupert what you consider to be the 6 most important things to do to correct his financial position and performance. Justify your reasons with full explanations using the information above over the 3 years and carrying out further research as required. Take into account the type of business, performance in today's market, and being proactive to future market trends.

2) The following financial statements are for Sioux Appliances, a sole trader, for the years ending 31 March 20X3, 20X4 and 20X5.

INCOME STATEMENTS
	20X3		20X4		20X5
	$	$	$	$	$	$
Sales (all on credit)		500,000		380,000		300,000
Cost of Sales		175,000		133,000		105,000
Gross Profit		325,000		247,000		195,000
Selling Expenses
Advertising	40,000		20,000		10,000
Sales Bonuses	5,000		3,800		3,000
Delivery	12,500	57,500	9,500	33,300	7,500	20,500
Admin. Expenses
Insurance	8,000		9,000		10,500
Office Wages	130,000		118,000		110,000
Other	25,000	163,000	22,000	149,000	19,000	139,500
Financial Expenses
Bad Debts	5,000		5,700		6,000
Interest	18,060	23,060	16,710	22,410	23,430	29,430
Net Profit		81,440		42,290		5,570

NB: Average market Accounts Receivable for this type of business is 30 days.

Other information:
20X2 Accounts receivable were 52,000
20X2 Inventory were 19,000
20X2 Total assets were 360,000
20X2 Sales were 490,000
The bank overdraft limit is $20,000.
The mortgage is due for repayment in 20X7.

a) Identify the formula and explainin detail what each of the following ratios measure or mean: (You are not required to interpret the results from the financial statements at this point.)
i) Net profit %,
ii) Return on equity %,
iii) Inventory turnover (days),
iv) Accounts receivable turnover (days),
v) Liquidity ratio (= Quick ratio), Debt ratio %.

b) Calculate the following ratios for the 20X3 (if applicable), 20X4, and 20X5 years. Show a full breakdown of your calculations (formula, calculations and answers).
i) Gross profit %,
Net profit %,
Return on equity %,
ii) Inventory turnover (times per year),
Inventory turnover (days)
iii) Accounts receivable turnover (times per year),
Accounts receivable turnover (days)
iv) Current ratio,
Liquidity ratio,
Equity ratio %.

c) Comment on the ratios calculated above, and the financial statement results for Sioux's Appliances during the years 20X3-20X5 inclusive, in the following areas:
- Profitability (question b) i) above)
- managerial performance (question b) ii) and iii) above)
- financial stability (question b) iv) above).

d) Recommend to Sioux what you consider to be the 6 most important things to do to correct his financial position and performance. Justify your reasons with full explanations using the information above over the 3 years and carrying out further research as required. Take into account the type of business, performance in today's market, and being proactive to future market trends.