FINANCIAL STATEMENT FOR DIFFERENT COMPANIES
TABLE OF CONTENTS
I. BUDGETING DECISIONS 4
II. COSTING AND PRICING DECISIONS 6
I. INVESTMENT DECISIONS 8
II. KDC 10
1. THE PURPOSE OF THE MAIN FINANCIAL STATEMENTS 10
2. THE DIFFERENCES BETWEEN THE FORMATS OF FINANCIAL STATEMENTS FOR DIFFERENT TYPES OF BUSINESS 11 3. THE INFORMATION NEEDS OF DIFFERENT DECISION 16
4. THE IMPACT OF FINANCE ON FINANCIAL STATEMENTS 18
5. ANALYZE FINANCIAL STATEMENTS 19
The results of a business’s activities are presented in financial terms in the form of what are commonly called the “accounts”. “Account” means three statements: a balance sheet, a profit and loss account, and a cash flow statement. These statements are described and illustrated in which they are usually presented based on the information of Kinh Do Corporation and Kim Cuong LTD.
KIM CUONG LTD
I. BUDGETING DECISIONS
1. The original Budgets
The information per unit
2. The revised budget
After the sales are increased by 30%:
Sales (units) (increased by 30%)
Direct labour hours needed
Direct labour hours available
Because direct labour hours available is less than direct labour hours needed, direct labour hours become a limiting factor. Therefore, we need to calculate contribution per direct labour hour.
3. Calculate the contribution earned by each product per unit of scarce resource
Contribution magin (total $)
Direct labour hours (total hours)
Contribution per DLH
Based on the rank, we can see that product A and B bring higher profits than product C contributes per direct labour hours. Therefore, all the direct labour hours available will be used to produce the Sales units of product B first, then, produce A, alter meet the demand of market, Kim Cuong LTD will produce product C.
4. Allocation of Direct Labour Hours Available
Direct labour hours available
5. Work out the budgeted production and sales
6. Allocate the fixed overhead to the costs of the products
Total sales ($)
Total fixed OVH (Total fixed OVH + Advertising cost)
Fixed overhead per dollar in Sales
After analysis, the fixed overhead is allocated to the cost of the products:
7. The profit of an extra 3,500 direct labour hours
If an extra 3,500 direct labour hours become available, direct labour will be limited to 21,500 hours. The limited time higher than 21,190 hours demanded, therefore, direct labour hour will not become a limiting factor any more. As a result, the company can produce full the sales demand of products. The additional product will require more cost; however, fixed cost will not increase.
Therefore, the company can earn $105,551 additional profit if an extra 3,500 direct labour hours become available. II. COSTING AND PRICING DECISIONS
a) $22,500 of materials would need to be purchased. This is not yet owned. It would have to be bought. Therefore, it is relevant to a decision. b) These materials will be transferred from another contract and they need to be replaced. Relevant cost is therefore at the replacement cost of $14,000. c) For some obsolete stock, they had the cost that is fixed at $20,000. And in the future, they can be sold at $5,000. The relevant cost here is an opportunity cost of sales revenue forgone at $5,000. 2. Labour cost
For labour cost, $55,000 in the total $100,000 is fixed even though the contract was undertaken. The relevant cost is therefore ($100,000 - $55,000) $45,000. 3. Salary
The production manager is paid a salary of $45,000 per year (fixed cost). A bonus of $7,250 is relevant cost in the future of the contract is successful. 4. Administration expenses
In the future, the relevant cost of administration expenses is $4,325. 5. Fix overhead
The company absorbs its fixed overheads at a rate of 12% per machine hour. The variable cost is therefore 4,000 machine hours of 88% per machine hour.
Costing and Pricing Decisions
(ii) from other project
(iii) obsolete stock
b. Labour costs
c. Bonus for production manager
d. Additional administrative expenses
Based on relevant cost, the minimum price that the company should set up is $98,075. KINH DO CORPORATION
I. INVESTMENT DECISIONS
To invest in a machine in order to increase its profitability, Kinh Do Corporation must make several assumptions. Furthermore, the company must estimate annual profit increases after the calculation of straight-line depreciation over the life of the machines.
1. Annual profit increases estimated
Firstly, if the manager just looks at the figures, it can be seen that the profit that machine B brings seems to be more stable than machine A and the residual value of machine B is much less than machine A ($20,000 compare with $60,000). Based on total profit that both of them bring after five years, it can be seen clearly that the total profit of machine A is higher that machine B ($815,000 compare with $715,000). It means that machine A generates cash flow quicker than machine B.
However, in order to make right decisions, the managers must consider carefully based on many factors. ARR and NPV are two methods that can help the managers in making decisions.
2. Calculate the Accounting Rate of Return
Average profits (5 years)
Value of investment initially
Average value of investment (/2)
The accounting rates of return are:
A = B =
The accounting rate of return of machine A is higher than machine B. Therefore, machine B would be chosen.
3. Calculate the NPV with discounting arithmetic
Both investments are positive and they can be acceptable. That means the both machines will earn more than 10% in five years. However, the NPV of Machine A is $ 464,615 and it is higher if compared with $ 391,382 of Machine B. Therefore, the company should choose Machine A to invest for its assembly line.
1. THE PURPOSE OF THE MAIN FINANCIAL STATEMENTS
Financial statements of Kinh Do Corporation present the flow of money into, through and out of a business. Each statement has different purpose and provides the information about the financial situation of the company. There are three main financial statements: profit and loss statement, balance sheet and cash flow statement.
a. Profit and loss statement
Profit and loss statement is also known as an income statement is to summarize the profit and loss during a period such as a month, a quarter or a whole year. This statement documents the revenues and expenses during the given time so that the managers of Kinh Do calculates the net profit. In the income statement, the ability of Kinh Do to make profits and manage costs is shown and from them, pr...