NCEA Level 3 Accounting (90505) 2011 — page 1 of 5

Assessment Schedule – 2011

Accounting: Explain and prepare information for management decision making (90505)

Evidence Statement

Question / Evidence / Code
ONE
(a) / The costs increase as output increases
The more jumps made, the higher the total costs of photo pack materials for Adventure Bungee. Or material costs vary directly with the photos produced
Judgement
First eStating costs rise as output increases
Second eAn explanation in context using souvenir photo pack materials /
number of bungee jumps taken
Note: Not to link to sales or purchases of photo packs / e e
(b) / Adventure Bungee
Schedule of Accounts Receivable
for the two months ended 28 February 2011
January / February
Cash from invoices issued in November / 6 568
Cash from invoices issued in December / 154 755 / 18 100
Cash from invoices issued in January / 246 240
Total cash received from invoiced customers (Accounts receivable) / 161 323 / 264 340
Judgement
CCorrect figure
C# Correct totals for both months / C
C C
C
C#
Question / Evidence / Code
(c) / Adventure Bungee
Cash Budget
for the two months ending 28 February 2011
January / February
Estimated receipts
Cash from accounts receivable / 161 323 / 264 340 / Cf
Cash sales / 432 000 / 240 000 / CC
Total cash received / 593 323 / 504 340
Estimated payments
Souvenir photo pack materials / 25 000 / 15 000
Other expenses including cost of goods sold / 350 000 / 310 000
Interest on loan / 750 / 750 / C
OSH safety checks and certification / 20 000 / 12 000 / C C
Total cash payments / 395 750 / 337 750
Net surplus/(deficit) of cash / 197 573 / 166 590 / C*
Judgement
CfTWO correct amounts –allow follow-through from (b)
CCorrect amount(s)
C*Correct process for surplus
(d) / They should (for example):
Financial
  • There is plenty of cash surplus from Jan and Feb
    ($197573 in Jan and $166590 in Feb) to afford to loss the sales
    ($100 000 in Jan and $60 000 in Feb)
Non Financial
  • Could attract more customers to do a bungy jump there (where they get a free photo) instead of somewhere else (where they don’t)
  • Spillover sales into the café and souvenirs
They should not (for example):
Financial
  • Receiving $30 on each sale of souvenir photo packs sold to cover fixed costs and make a profit ($40 –$10 materials)
  • There is a loss of sales from photos in Jan/Feb of $160000
Non Financial
  • Most people purchase one anyway (80%), so it may not attract more customers
Judgement E plus E
EAny one valid financial reason
EAny one valid non-financial reason / E
E
Question / Evidence / Code
TWO
(a) / Break-even point = Fixed costs/contribution margin per unit
ie 2 100 000/($155 – $35) =
Break-even in units per annum:17 500 jumps
Judgement
Correct answer only / C
(b) / Level of sales = (Fixed costs + profit)/Contribution margin per unit
ie (2 100 000 + 180 000)/(155 – 35)
Number of jumps required to achieve profit target: 19 000 jumps
Judgement
Correct answer only / C
(c) / Margin of safety in units = Actual sales – Break-even sales
ie 20 000 – 17 500
Margin of safety in units: 2 500 jumps
Judgement
Correct answer only / C
(d) / The margin of safety shows management of Adventure Bungee:
  • The relationship between break-even (where total costs and revenues are equal and profit is zero) and the current number of bungy jumps
  • Enough customers are doing bungy jumps to ensure a profit
  • They could lose up to 2 500 bungy jump customers before not making a profit
  • Sales can drop 12.5% before breakeven is achieved
Judgement
eAny appropriate description of margin of safety in context of
Adventure Bungee / e
Question / Evidence / Code
THREE
(a) / The decision to introduce a Flying Fox attraction is strategic because it is a decision with a long-term impact on Adventure Bungee
OR
An impact beyond one accounting period OR involves top level management decision
Long term impacts
Will provide an additional attraction for visitors benefiting the business over a number of periods /repayments are made over a number of years/or any suitable flow on effect beyond one accounting period.
Judgement
One eFor idea of long-term/beyond one accounting period/top-level management of
Adventure Bungee
One eFor relevant link to the long-term impact of the purchase of the Flying Fox / e e
(b) / Capital expenditure budget will show the outlay and the time frame of when funds to purchase the flying fox attraction (totalling $780 000)
How much finance will be needed and when it will be needed, when cash will be drawn on in the budget to meet the costs of the capital purchase
Judgement
One eDescribing the capital expenditure budget as a plan of outlays to purchase the
equipment
One eImportance for management, eg making payments/financing decisions / raise
the loan / use cash, to purchase the Flying Fox forAdventure Bungee / e e
(c) / Should
Financial
  • There is sufficient surplus in the cash budget, and even though less in Feb (as numbers fall off after school holidays/summer) enough to meet additional interest costs on loan ($500 000 × 9% = $45 000,OR $3 750 per month) and over
    $280 000 that can contribute to the difference required ($780 000 – $500 000)
  • Adventure Bungee close to relevant range for bungy jumps
    (20 000 last year, and relevant range only 25 000 jumps, so an additional source of sales could help to increase profits once relevant range met)
Non-financial
  • New flying fox is an additional attraction so greater customer satisfaction
  • New flying fox should attract a new customer base / expanded market
  • Opportunity for additional sales in café and souvenir shop
Should not
Financial
  • Cash budget is only for Jan and Feb, which are the high sales months – Nov was much lower, and winter months might not generate enough cash to cover additional expense
  • Any valid increase in costs to operate the Flying Fox,
    eg wages to staff/maintenance/ costs of health and safety

Non-financial
  • No Market Research to justify the outlay to predict sales / uncertainty about expanding customers
  • Training is required for staff / time delay before operational
  • Fying Fox also summer seasonal so does not solve problem of lower numbers in winter months
  • Disruption to current operations with construction
Judgement
One EAny valid financial reason – should be expressed in dollars, or clearly indicate
a financial aspect, eg additional expenses must be paid for
One EAny valid non-financial reason in context of flying fox/bungy attractions / E E

Overall Judgement Statement

Criteria / Achievement / Merit / Excellence
One / 2e / 4 e / 6 e
Two / 7 C / 11C / 14 C
Three / 3 E