Essay Uses of Cost-Volume-Profit (CVP) Analysis for Lock Swift – Management Assignment Help

Assignment Task:

Background and Content:

Your friend Sammy is about to prepare the 31 March balance sheet for her new business, Tasty Cookie shop. This is Tasty Cookie’s first month of operation, and Sammy is also going to calculate the first month’s net income. She needs to prepare the balance sheet and calculate net income so she can pass the information along to her parents. They loaned her $5000 so that she could start the business.

Although Sammy thinks that business is booming, she has a big problem. She does not know enough about accounting to prepare the balance sheet to calculate March’s net income. As a matter of fact, Sammy had never heard the words “balance sheet” and “net income” until her parents asked her to promise to give them these statements every month before they would agree to loan Sammy the $5000.

Luckily, Sammy saves every piece of paper associated with Tasty Cookie. She kept copies of all of the business agreements she signed. She deposited all of the money Tasty Cookie earned in the company’s bank account and retained copies of every deposit slip. Sammy also paid every company bill with a cheque and saved all of the related documents.

Assessment Tasks:

Answer all three questions below:

1. Assume Sammy wants to prepare Tasty Cookie’s 31 March balance sheet and March’s income statement according to AASB. Describe to Sammy, in your own words, how she should organize the information about Tasty Cookie’s March transactions so that she can prepare a balance sheet and an income statement and keep her promise to her parents. 

2. After a week, Sammy is still struggling with all the statements. She has come to you for help (with her parents’ permission). She says, “please describe what financial statements are, what the major financial statements are and what each financial statement includes”. Prepare a written response to Sammy’s request.

3. One year later, Sammy saved some money from her Tasty Cookie business. She has $3500 to invest in the Australian Securities Exchange and is deciding between investment in Lorne Will Ltd or Lily Ltd. In the most recent reporting period, Lily Ltd made a profit after tax of $1 000 000, compared to Lorne Will’s after-tax profit of $500 000. On this basis, your friend believes Lily Ltd is a superior investment. Discuss your friend’s investment choice. In doing so, suggest other financial data that should be considered. Identify the non-financial data that may be of interest to inform your friend’s investment decision.
 

SECTION B: Case Study 

Background and Content:

ABS: 72% of Businesses Expecting Cashflow Reduction as Coronavirus Fallout Materialises

By Matthew Elmas

Almost three-quarters of Aussie businesses fear reduced cashflow over the next two months as fallout from the COVID-19 pandemic continues to ravage the economy, according to the Australian Bureau of Statistics (ABS).

The ABS published the latest edition of its coronavirus business impact survey on Monday, revealing widespread feelings of uncertainty in the last full week of April.

While 72% of firms expect cashflow to reduce heading into July, a further 69% of the 2,014 firms surveyed said they’re anticipating reduced demand for goods and services.

The figures come as the Australian Taxation Office (ATO) prepares to this week start payments for the Morrison government’s $130 billion JobKeeper program.

The survey finds about 60% of SMEs have either signed up for JobKeeper or intend to, with ABS’ head of industry statistics John Shepherd saying only 8% of small businesses will give the scheme a miss because they can’t afford to pay staff.

Answer all six questions below:

1. Calculate the break-even in both dollars and units for 2020.    

2. Calculate the margin of safety in both units and sales dollars.     

3. Calculate the profit achieved in 2020 given the annual volume of 32 000 units.     

4. Changes in marketing strategy are planned for 2021. This would increase variable marketing and distribution costs by $4 per unit, and reduce fixed non-manufacturing costs by $80 000 per year. Calculate the units that would need to be sold in 2021 to achieve the same profit as in 2020.    

5. Would you recommend the change? Explain.    

6. Explain four uses of Cost-volume-profit (CVP) analysis for Lock Swift.