Priscilla White is planning a new business venture business called “Moreton Bay Bags”. She
intends making customised handbags bags with designs based on local scenery and wildlife
to sell to tourists.
Prior to opening the business she is doing some analysis of her expected costs.
She would be able to lease premises, where she can both make and sell the bags, for $17,400
per annum. She expects advertising costs to be another $4,000 per annum. She would also
need to lease machinery costing $300 per month. She intends ‘bundling’ her telephone line
rental and internet access which will cost a fixed amount of $30 per month and then $0.4 per
call if she makes calls in excess of those covered in the ‘bundling’ package. She does not
expect that she will make sufficient calls to be charged for any excess calls, however.
The materials to make one bag cost $5. Labour will be $20 per hour and two bags can be
made per hours. Electricity for running the machinery is expected to be $4 per hour.
She expects to sell the bags for $40 each and to make bags for six hours per day, 5 days per
week, (Mon-Fri), although the shop will be open six days per week. She expects that she will
be able to sell all the bags that she makes within a month of making them, as the new shop is
in a prime location and sales in other stores in the area for fashion items are strong.
She will employ her niece at a total cost of $15 per hour for two hours on Saturdays, as this is
expected to be the day when the shop will be most busy.
Pricilla will need to give up her current job in order to start this business, and she requires the
monthly profit to be at least equal to her previous salary of $3,000 per month.
1. Calculate the contribution margin per bag.
2. Calculate the monthly fixed costs.
3. Calculate the number of bag sales per month needed to break even (round up to
nearest bag if required).
4. Calculate the number of bag sales required per month to attain a target profit equal to
Priscilla’s previous monthly salary. Will the expected production levels be sufficient
to achieve this?
5. Assuming Priscilla achieves her planned selling price of $40, and production levels
are as expected, with all bags sold in a month, prepare a projected monthly Profit and
Loss Statement (Income Statement) for the new business. There will be no stocks of
material at the end of each month, as all material is used in the month for the
production of that month’s bags.
6. Pricilla is unsure whether she will achieve the expected selling price. How would the
results for (3) and (4) above change if the selling price had to be reduced by 20%?
Would the expected production levels be sufficient to achieve this?
The following are the transactions for June 2015 of John George Home Repairs, a sole trader
undertaking household repairs, improvements and general carpentry.
The ledger accounts of John George Home repairs are given below with their balances as at
1st June 2015.
1. Enter the transactions above in a General journal (including the adjusting entries
required on 30th June). (see example Exhibit 5.3 p. 189) (closing entries are not
2. Post the journal entries to the General Ledger Accounts (see example Exhibit 5.7 p.
3. Balance the accounts and prepare a trial Balance as at 30th June (see example Exhibit
5.11 p. 207)
4. Prepare a Profit and Loss/Income statement for the year ended 30th June 2015. (see
Exhibits 5.12 p. 208 but remember that this is a service business not retail, so the
revenue will be service revenue and there will be no cost of goods sold).
5. Prepare a Statement of Changes in Owner’s Equity for the year to 30th June (see
6. Prepare a Balance Sheet as at 30th June 2015. ( Use the format in Exhibit 5.14 p.211
i.e. A = L + OE)
Tiny Toes Ltd imports and sells petite shoes. Tiny Toes Ltd has forecast the following sales
in pairs of shoes for October – December 2015.
Oct 3,000 ; Nov 4,000 Dec 5,000 (and it is assumed sales will remain at this level until March
Actual sales for August and September 2105 were each 3,000 pairs.
The average selling price for a pair of shoes is $150 and the cost to buy and import them is
$100, and purchases are paid for in the month following purchase. Sales are 80% cash (to
retail customers) and 20% credit (to department stores). Credit customers pay 70% in the
month following the sales and 30% in the month following that.
Tiny Toes Ltd has a policy of maintaining a closing stock of shoes equal to 10% of the
following month’s sales (in units).
1. Prepare the sales budget for the quarter October – December 2015 (showing each month
and the total for the quarter) and include a schedule of expected cash collections (see format
p. 101 Exhibit 3.6)
2. Prepare the purchases budget for Tiny Toes Ltd (see format p. 105 Exhibit 3.8)
3. Why do you think a business plans for an ending inventory level?
Accountants do not only engage in the preparation of financial statements and transactions.
They are also required to have knowledge and skills in a number of other areas (see exhibit
1.13 p. 30).
Two key skills are communication and teamwork and self-management skills.
An example of this would be interpreting accounting information for other members of a
management team in order to help the team make decisions about a project. After working on
a tam project a critical think exercising good self-management would spend some time
reflecting on the experience and his/her performance as a team member. Reflection is a
starting point for self-improvement.
Watch the following you tube clip on a team building exercise. What were the rules and
limitations imposed on participants? What do you think was the objective of the exercise (in
terms of teamwork promotion) and did it work? How do you think that you would perform in
a similar situation? Can you identify any strengths and weaknesses you might have as a team
member (you may have a previous experience of a team exercise to reflect on as well)? (300-