Financial Analysis

& Cost Acct

FWA Made with LOVE by:
Anood
 Accounting for Managers CLO1

• Bookkeeping is the process of recording financial transactions.

• Accounting is a process of Identifying, recording, communicating.
• Users of accounting information/ data:
1. Internal users: Management, HR, Finance, Marketing,
2. External users: Customers, Government, shareholders, Investors, bank, suppliers, creditors.
• Accounts department is responsible to prepare a company’s final accounts: income statement, Balance Sheet.
• Accounting principles: business is allowed to produce only one set of financial statements that must be relevant
(useful ‫ )صله مفيدة‬and reliable ‫(موثوق‬believable ‫التصديق‬, verifiable ‫ )التحقيق‬to enable the users to make decisions.
• Generally Accepted Accounting Principles (Basic Accounting concepts)
1. Economic Entity Assumption / Business entity concept.
▪ Accounting records for the business should be kept separately from the owner’s private transactions, it
will include if its new capital in business or they take drawings out of it.
2. Monetary Unit Assumption / Money-measurement concept.
▪ Only transactions which can be measured in monetary value should be recognized in the financial
statements.
3. Historical Cost concept
▪ Accounting transactions (assets) should initially be measured at their historical cost to the business
4. Accounting period concept
▪ Covers the period for which the income has been measured.
5. Revenue recognition concept
▪ revenue is recognized when an exchange has taken place, and not matter when the money is received.
6. Expense Recognition / Matching principle
▪ all expenses incurred by the business should be included regardless of when money is paid for them.
7. Classification of Accounts.
▪ Assets, Liabilities, Owner’s Equity, Revenue & Expenses.

• Assets: something you owned it, and have value, can sell it.
o Current Assets: converted into cash within one year
▪ Cash, Accounts receivable, Inventory, Marketable securities, Prepaid expenses.
o Fixed Assets: converted into cash within more than one year
▪ Land, Buildings, Machinery, Equipment, Motor vehicles.
• Liabilities: paying back for service, amounts owed by the business to others.
o Current liabilities: short-term (within one year)
▪ Examples: Accounts payable, Unearned revenue, Expense payables.
o Long-term Liabilities: (more than one year)
▪ Examples: Long-term loan from banks.
• Revenues: something improve your financial situation
o Main sources: Fees earned, sales revenue.
o Other sources: interest earned, Rent received, Commissions earned.
• Expenses: money is spent, loss money
o Salaries expense, Utilities expense, rent expense, Interest expense, insurance.
• Owners’ Equity
o capital invested by the owner, Amount of your money in business.
• The Accounting Cycle:
1. Journal Entries
2. Posting to the Ledger
3. Trial Balance
4. Financial Statements
• Accounting equation, balance sheet equation: n must always remain in balance- the two sides must always be
equal.
o Assets = Liabilities + Owner’s Equity
• Double entry rule: means that in recording a transaction at least two changes must be made in the assets,
liabilities, or owner’s equity.
• Rules of record keeping: Debit = Credit
Increase Decrease

Asset Debit Credit

Expense
Revenue
Liability Credit Debit
OE
 Financial Statements
1. Journal Entries 2. Leger
Accounting
Accounting Category + or - Dr Cr
Dr Cost Cr Cost

Total Total
Balance = |Dr – Cr|

3. Trial Balance ( Total Dr = Total Cr) 4. Income Statement (R, E) (Cr is high is profit),
jjhjlljlhjhlkjfgjdshfljghsdlfjgsdjkfhglisdghbsdghgblhadflghaldhfgsdhghsdlglkkdjfglkjdflk(Dr is high loss)
Accounting Dr Cr
Revenue Dr Cr

Total
Less Expenses
Total
Total
Profit/ loss = |R – E|

5. Balance Sheet (A = L + OE)

A Cost L Cost

Total Total
OE Cost

Profit/ loss
Total
A L + OE
Q.1: Prepare journal entries, ledger accounts and trial balance.

Journal Entries
1. Mariam started her business with $200,000 in Jumeria.
Affected Accounts Category (A, L, OE, R, E) Increase or decrease Debit Credit
Bank A + ☐

capital OE + a

2. She purchased office furniture for $30,000 on cash

Affected Accounts Category (A, L, OE, R, E) Increase or decrease Debit Credit
furniture A + D
Bank a -
c
3. She purchased office supplies on credit for $5,000
Affected Accounts Category (A, L, OE, R, E) Increase or decrease Debit Credit
office supplies E + D
AIP , + c

4. She borrowed $20,000 from a local bank

Affected Accounts Category (A, L, OE, R, E) Increase or decrease Debit Credit
Bank A 1- D
, + c.
Loan
5. She sold all furniture on credit for $30,000 to another company
Affected Accounts Category (A, L, OE, R, E) Increase or decrease Debit Credit
AIR A + D
furniture A -

C
6. She paid $2,500 to accounts payable
Affected Accounts Category (A, L, OE, R, E) Increase or decrease Debit Credit

AM L D
=
Bank A C
7. She received $15,000 from accounts receivable.
Affected Accounts Category (A, L, OE, R, E) Increase or decrease Debit Credit
Bank D
A
I
AIR A a
8. She received $3,000 in advance from a customer.
Affected Accounts Category (A, L, OE, R, E) Increase or decrease Debit Credit
Bank A + D
Unearned revenue R + C
 Ledger
l

Bank
Debit Cost Credit Cost
Capital 200,000 Furniture 30,000
Loan 20,000 A\P 2,500
A\R 15,000
Unearned Revenue 3,000
Total 238,000 Total 32,500
Balance: 205,500 Dr
Capital
Debit Cost Credit Cost
Bank 200,000
Total Total 200,000
Balance: 200,000 Cr
Furniture
Debit Cost Credit Cost
Bank 30,000 A\R 30,000
Total 30,000 Total 30,000
Balance: 0
Office Supplies
Debit Cost Credit Cost
A\P 5,000
Total 5,000 Total
Balance: 5,000 Dr
Account Payable
Debit Cost Credit Cost
Bank 2,500 Office Supplies 5,000

Total 2,500 Total 5,000

Balance: 2,500 Cr
Loan
Debit Cost Credit Cost
Bank 20,000
Total Total 20,000
Balance: 20,000 Cr
Account Receivable
Debit Cost Credit Cost
Furniture 30,000 Bank 15,000
Total 30,000 Total 15,000
Balance: 15,000 Dr
Unearned Revenue
Debit Cost Credit Cost
Bank 3,000
Total Total 3,000
Balance: 3,000 Cr
 Trial Balance
Account Debit Credit
Bank 205,500
Capital 200,000
Office Supplies 5,000
A\P 2,500
Loan 200,000
A\R 15,000
Unearned Revenue 3,000
Total 225,500 225,500
Q2 .

The accounting record of Ajman Fitness Center at July 31 shows the following accounting
balances:
Accounts
Dr. Cr
A Cash 19,000

R Service revenue 113,000

A Accounts receivable 25,000
A Supplies 4,000
E Depreciation expense 27,000

E Insurance expense 6,000

A Building 180,000

E Salary expense 30,000

E Supplies expense 9,000
E Utilities expense 12,000

t Accounts payable 19,000

OE
Owner’s capital 195,000
of Owner’s drawings 15,000 ________
Total 327,000 327,000
 Income Statement CR , E)

Revenue Dr Cr
Service revenue 113,000
Total 113,000
Less Expenses Dr Cr
Depreciation 27,000
Insurance 6,000
Salary 30,000
Supplies 9,000
Utilities 12,000
Total 84,000
Profit or loss Profit due to revenue lager than less expenses by 29, 000

Balance sheet CA =L +0 E)

Assets Cost Liabilities Cost

Cash 19,000 A\P 19,000
A\R 25,000
Supplies 4,000
Building 180,000
Total 228,000 Total 19,000
OE Cost
Capital 195,000
Drawings -15,000 or
115,ooo)→ Dr = -

Profit or loss (Income) 29,000

Total 209,000
Total 228,000 Total 228,000

'

-
Of → we can do it as alone table named Cstatement of Owners
Equity)

or we can add it to Balance sheet

 contribution income statement CLO2

contribution income statement.

Cost with unit
Sales (SP) $ x unit = $
Less: Variable Cost/Expenses (VC) VC= Direct Material (DM) +Direct
Labor (DL)
Contribution Margin (CM) CM= sales – less: VC
Less: Fixed Cost/Expenses (FC) $given
Net Income: loss/ profit Net Income = CM – FC
IF = +, Profit.
IF = - , loss
Should covert all = cost = $ x unit

• Breakeven in unit = FC/CM

• Breakeven in Sales= Sales per unit x Breakeven unit
• how many units sell if profit X = (FC + X)/CM
• If we have new unit, we must do a new contribution income statement.
• Reducing in X by %, XAfter = XBefore – (XBefore x %); x can be FC, VC.
• Extra profit= Profit after- Profit before; if + it increases, if – it decreases.
 Revision Quiz 2
unit -4
Mauro Products distributes a single product, a woven basket whose selling price is $15 and whose variable
expense is $6 per unit DM and $6 DL. The company's monthly fixed expense is $1,000 Rent, $1,200 insurance
and $2,000 for telephone bills.
-
sP= $15
- VC=6 -16=5112
-
FC =
1,000+112001-21000=514,200
-

cM=sp_vc= 15-12=513

Find
a) Breakeven in units
=¥µ
=$
41200=1,400 Unit
$3
b) Breakeven in Sales =sP/unit ✗ unit

$15 -111400=51211000

*
c) If we need $10,000 as profit how many units must we sell =Fc+* Profit
CM
41200-1101000
= 4733-3 units
3

d) What is the sales amount for question c =sP/unitxienit

15×4733.3=70999.5
→ 0.05
e) Assuming that we sold 2,000 units: If we were able to reduce FC by 5% how much extra profit would
we earn I

① Solas -
splunitxunit
-_

before after '

② VC=[DM+D☐xunit
after
③ cM=sdas VC
Sales 30,000 30,000
-

④ FC=fC -
[ FC ,x%]
2 ,

V0 241000 241000 ⑤ Netincome -_ CM -

FC

FC 4200 3990 → flatter __ 4200-[4200×005] ⑥ entrap =p p

,
,
-

Profit Profit by 210 + A

1800 2010
Extra profit =zo,o . ,goo=z,o→ -
it

f) Assuming that we sold 2,000 units: If we were able to reduce VC by 10% how much extra profit would
we earn

before after
sales 30,000 30,000
VCz=V , -

[yx%]
V0 241000 21600 → VC after 2h00
[2400×0-1]
-_ -

FC 4200
4200

Profit
-1800 4200
→
Profitably 2,400
 Quiz 3 revision

ZZZ manufacturing company had a balance of $80,000 in raw materials on the 1st of January. They
purchased $150,000 of materials in the period. At the end of the year, they had $10,000 of raw materials.
Added to that they had $100,000 of direct labor for this year. The labor rate is $50 per hour. The fixed
manufacturing overhead is $200,000 and the variable overhead cost is $1 per direct labor hour.

Q1. Calculate the cost of goods manufactured

Direct Materials = 80,000 1- 1501000 -
101000=220,000
Direct Labor 1001000
=

Fixed Overhead 200,000

=

Variable Overhead \ ✗ ( 1001000

) = 21000
50

Total =
5221000

Q2. Direct materials for Job 001 were $800. The direct labor hour was 10 hours with $50 per hour and the
POHR rate is $1
Calculate cost of goods sold to this business using a job order costing system

DM =
800

DL = 10×50=500

overhead = 1×10=10

Total = 1,310
FWA
 Question 1
Dr. Cr.
A Cash 2,500
A Supplies 1,900
A- Prepaid insurance 2,400
A Land 15,000
A Building 70,000
A Furniture 16,800
Accounts Payable 5,300
{ Unearned revenue 3,600

¥ Long term loan payable

Capital
40,000
56,000

÷
Drawing 1,000
Service revenue 9,200
E Advertising expenses 500
E Salaries expenses 3,000
C- Utilities expenses 1,000
Total $114,100 $114,100

Required:

Prepare an income statement, statement of Owner’s Equity for the year ended May 31, 2028. Fill in the following
Tables:

Income Statement [5 marks]

Client Revenue 91200

Expenses: Advertising 500
Salaries 31000
Utilities 11000
Rent 0

total 4,500 91200

Net Income 4700 profit

Statement of Owner’s equity [5 marks]

Capital 561000
Withdrawals -
11000
Net income 41700

Owner’s Equity 59700

- to make sure → A- =L -10£

Total A= 108600

total 1=48900
total of = 59,700
]→ -1=108600
Question 2
The contribution income statement of XYZ Manufacturing Company for the most recent year is given below:
The number
of units
unit
psdde
Sales (15,000 unit x AED 40 per unit) …………………. AED 600,000 SP

Variable expenses (15,000 unit x 20) …………………. 300,000 VE

….
on unit =
SP unit -
VE unit
Contribution margin …………………………………………… 300,000 CM = SP -
VE
= 40 -
20 = 20
Fixed expenses ………………………………………………….. 100,000 FE

Net operating profit ………………………………………….. AED 200,000

Required
More Information
:

a. Compute CM ratio [2 marks]

CM Ratio =
CM
=
3001000 = 0.50 =
50%
VE Ratio =s¥
SP 600,000
CM Ratio
cusp =
or 1- VE Ratio

Break even in Unit sales FE

b. Compute break-even point in unit sales [2 marks] -

cm unit
FE 1001000
Break-even 5000 Unit even in Dollar sales
Break
= = = -

CM Unit zo
or in sales CM Ratio

Degree of
c. Compute the degree of operating leverage [2 marks] operating leverage -=
CM
Net operating
income
.

Degree of
operating leverage = CM
Net .

operating income
Margin d- Safety =
SP -

BE in sales
= 3001000
=
1- 5
2001000

Margin of safety in unit =

margin of safety
or

sp unit
$

profit = CM -

FE
 Question 3
The following contribution income statement of original data of XYZ Manufacturing Company is given as the below
data to select one from two options.

Sales (10,000 unit x AED 500 per unit) …………………. AED 500,000
profit = CM -

FE
Variable expenses (10,000 unit x 30) …..………………. 300,000

….

Contribution margin ……………………………………….…… 200,000

Fixed expenses …………………………………………….…….. 100,000

Net operating profit ………………………………………….. AED 100,000

110/000
1001000 -1101000
=

→ FE =

Option l: the marketing manager believes that AED 10,000 increase in the monthly advertising budget would result
in 1000 unit increase in monthly sales. What should be the overall effect on the company’s monthly net operating
income of this change? [3.5 marks] → 101000 Unit -111000=11,000 Unit

new sales = 11,000×500 = 5501000

new VE =
111000 × 30 = 3301000
new CM = 5501000 -

3301000=2201000
income Chew ) CM FE 220,000 1101000 ÷ 1101000 AED
operating
-
= -
=
Net

old Prof I 1101000 1001000 40,000 AED

pvofi =
- =

New -

the Net operating income increased by 101000 AED

Option ll: refer to the original date when answering this question. The marketing manager would like to cut the
selling price per unit by AED 3 and increase the advertising budget by AED 10,000 per month with decrease the unit
cost by AED 2. The market manager predicts that these two changes would Increase monthly sales by 2000 units
What should be the overall effect on the company’s monthly net operating atoms of the change? [3.5 marks]

→ 500-3=497 AED per unit NeW_

SP = 121000 ✗ 497 = 5961400
→ 30 - 2 = 28
VE 12,000 ✗ 28 3361000
12,000 Unit
=

→ 101000+2,000 =
=

100,000-1101000 1101000
→ FE CM =
=

596,400 3361000 2601400

=
- =

Profit =
2601.400 -

1101000 = 1501400
the Net
operating income increased by 501400 AED
which option would you recommend? [1 mark]

option 11 Because the Net

, operating income will increas 1501400 AED)
by .

And that more than opt-in I C 101000 AED

)
Question 4
A manufacturing company has reported the following data concerning December 2019 operations:

Purchases of raw materials $ 50,000

Indirect Materials $ 5,000
Factory Supervisors salary $ 30,000
\

Office Rent $ 80,000

Depreciation - Factory Equipment $ 18,000
Depreciation - Office Equipment $ 9,000
Advertising $ 35,000
Rent - Factory $ 38,000
Wages - Factory employees $ 70,000
Salaries - Office Staff $ 80,000
Sales Commissions $ 10,000

Beginning Ending
Inventories
Raw material $ 20,000 $ 7,000
Finished goods $ 86,000 $ 93,000
Work in process $ 44,000 $ 38,000

Required:

Prepare a schedule of coast of goods manufactured for the month in a good form. [15 marks]

Direct material used:

Beginning raw materials inventory 201000
1-
Purchases 50 sooo
Total raw materials available = 701000 -

Less – End raw material inventory 71000

Raw materials used = 63,000
-

Less indirect materials used 5,000

Direct materials used in production 581000
=
1-
Direct Labor: 701000 1-
Overhead
Indirect Materials 51000
f-
Indirect Labor 0
+
Factory Supervisors salary 301000 +
Depreciation – Factory Equipment 181000 +
Rent - Factory 381000
Total Overheads = 911000 -1
Total Manufacturing Cost = 2191000
Beginning Work in process Inventory *
44 [ 000
Total Work in process = 2631000
•

Less – End Work in process Inventory 381000

Cost of Goods Manufactured =
225,000 §
Question 5
Dubai Company produces prefabricated flooring in a series of steps carried out in production departments. All of the
material that is used in the first production department is added at the beginning of processing in that department.
Data for May for the first production department follow.

Percent Complete
Unit Materials Conversion
Work in process inventory, May 1 5,000 100% 40%
Work in process inventory, May 31 10,000 100% 30%
Materials Cost in Work in Process Inventory, May 1 $1,500
Conversion Cost in Work in Process Inventory. May1 4,000
Units Started into Production 180,000
Unit transferred to the next production department 175,000
Materials cost added during May $54,000
Conversion cost added during May $352,000

Required:

a. Determine the equivalent units of production. [6 marks]

Materials Conversion
Completed 175,000 1751000
+ +
WIP 101000×10070=101000 101000×3070--3,000
Total EU Completed =
1851000 = 178,000

b. Determine the cost per equivalent units. [6 marks]

Materials Conversion
Start Cost 11500
+
41000
+
Added Cost 541000 3521000
Total Cost = 551500 =
356/000
EU 1851000 1781000
Cost per EU = Total cost / EU 0-3 2

c. Determine the cost of ending work in process inventory. [6 marks]

Materials Conversion
WIP 101000 31000
Cost per EU 0-3 2

Cost = WIP x Cost Per EU 31000 + 6,000

Total Cost= MC + CC =
9,000

d. determine the cost of the units transferred to the next department. [6 marks]

Materials Conversion
Completed 1751000 1751000
Cost per EU o -
3 2

3501000
402,500-1
Cost = WIP x Cost Per EU 521500
Total Cost= MC + CC =

I
Question 6
Falkenstein corporation uses ABC costing system and provided the following data for their three acyivity cost pools
as below:

Activity cost pool Cost per activity pool

Assembling products $12 per assembly hours✗8×200
, # 2×150
Designing products $194 per design ✗ U
7 ✗ 12
Setting up batches $47 per batch
✗ 8
1×8
The company produces two producer MX-1 and LX-1. During December 2019, the company received an order for
200 unit of MX-1 and 150 units of LX-1 from Excel Corporation at a selling price of $225 and $180 per unit
respectively. Additional data regarding this order follows:

MX-1 ✗ 200
LX-1 ✗ 150
Direct materials $85.00 per unit $75.00 per unit
✗ I I
Ordering cost $140.00 per order $200.00 per order ✗
Number of orders 1 1
Number of designs 0 1
Number of batches 8 12
Number of assembly hours 8 hours per unit 6 hours per unit
Other costs $25.00 per hour $35 per hour
✗8×200 ✗ 8×150

Required: L

Calculate customer margin for the above orders from Excel Corporation. [15 marks]
Question 7
Abu Dhabi Mechanicals Company plans to design, develop, and produce a medical device. A survey by the marketing
department reveals that similar product in the market sells at a price of AED 300 per unit a believes that the
company would be able to sell 2,000 units per year at a competitive price.

The company believes that it needs to invest AED 2,000,000 in the design and development of the device and
expects to have a 25% return on investment.
-

Per
unit
Required: →
unit
unit sp profit per
Target cost per
= -

a. calculate the Target Cost per unit of the new gadget. [8 marks]
invest ✗ ROI profit = invest ✗ ROI
Target cost per unit =
sp -

✗
Per unit
SP unit
profit per unit
=Ps¥u+

= 300 -
210001000 ✗ 0.25
21000

I 300 -
250

Target cost = so per unit

Discuss under what circumstance companies use Target Costing. [2 marks]

Production / design department must take the Target cost ]

[so per unit

for making a medical device ,

the cost must less or equal the Target
cost if it more than Target cost the
.

design project entirely cancels .

-
to have control on damawd and selling price of a

product of market cost

 Question 8
Magner, Inc, uses the absorption costing approach to cost-plus pricing to set price for its products. The company has
invested $500,000 in this product and expects a return on investment of 9%. Based on budgeted sale of 40,000 units
next year, the budgeted costs are as below:

Per Unit Total

Direct Materials $27.30
Direct Labor 15.40
Variable Manufacturing Overhead 14.30
Fixed Manufacturing Overhead
Variable Selling & Administrative Expenses
4.08
12.60
$163,200 FG
1%01%0-0 =
4-08 Innit
+
Fixed Selling & Administrative Expenses g. 52 $380,800
Annual vs + Fs 8841800
selling =
=
22.12
Required

a. Calculate the unit product cost. [4 marks]

unit Product cost = DM + DL + VMOTFMO
=
27-3+15-40 -114.301-4.08
= 61.08

Product cost = 61.08 Per unit

b. Compute the markup required to achieve the desired ROI. [5 marks]

① Profit per unit invest ✗ ROI
= 5001000 ✗ 9%
= = , ,
, zg
sp unit 401000 -

② Annual selling per unit = 22.12

③ Product cost = 61.08 Per unit

1-125 +"" Z
✗100 100 38.0566 %
markup %= ✗
= =

61 -
08
2 38 .

06%
c. Compute the target selling price to achieve desired profit. [3 marks]
Total Product cost Product
=
cost + Annual selling Per unit

Target selling Price ( Per unit ) = Total Product cost 1- Profit per unit

=
(61-08+22-12) -1 I -125

= 84.325

( or ) Target selling price =

Product cost CI
I
+ markup %)