Business Accounting Assignment: Analysing Financial Scenarios Of Business Cases

Question

Task: Write a business accounting assignment addressing the questions below:
Question 1

Wages are not variable; half of the administration costs are variable.
Each of these are separate considerations:
1. Do a quantitative analysis to see if should make a better pizza by incurring $2 in additional costs for better quality ingredients, and increase the selling price by $1. How much would sales have to increase (in units) in order for this to be worthwhile? What are some qualitative considerations?

2. Uber eats has proposed that they can sell pizzas on your behalf. Uber would purchase 10,000 pizza meals at $14/pizza. You currently have total capacity of 40,000 pizzas. Should you accept this offer (provide both a quantitative and qualitative explanation).

Question 2
Pembroke Furniture manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $80 per table, consisting of 70% variable costs and 30% fixed costs, based on a current production level of 15,000. Total capacity is 16,000. The current selling price is $100 per unit.

The company just received a special order for 2,500 tables. This special order will be delivered to the customer as a single delivery, and will require extra shipping and storage costs of a total of $50,000. As well, variable packaging costs will be reduced by $6/unit for the special order.

What is the minimum selling price they should accept for this special order? Identify any possible qualitative considerations.

Question 3
A manager of a manufacturer is considering whether to keep or replace an old machine:

Old Machine New Machine
Original Cost $24,000 $10,000
Accumulated Depreciation $ 9,000 not applicable – not yet acquired
Useful Life 8 years 5 years
Current Age 3 years 0 years
Remaining useful life 5 years 5 years
Current disposal value (FMV) $6,000 not applicable – not yet acquired
Disposal value in 5 years $1,000 $0
Annual operating expenses $10,000 $8,000
Ignore taxes and the net present value of money. Depreciation is straight-lined.

REQUIRED:
Should they replace the old machine? Provide both a quantitative and qualitative assessment.

Answer

Answer 1:
1) Analysis of the new offer
Calculation of profit at the existing level presented in the business accounting assignment:

Calculation of selling units at the new strategy:

The company is required to increase the sales from 32000 units to 45151 units to make orders worthwhile. Several qualitative considerations need to consider in the offer:

• Quality improvement in the Pizza due to increase in the cost of manufacturing.
• Increase in the selling units in the market such as demand for Pizza in the market
• Number of units at which the company has no profit no loss conditions
• The attraction of customers due to change in qualities
• Market competition
• Marketing of Pizza after a change in the quality and price.

2) Uber eats’ offer
Calculation of profit after acceptance of Uber eats offer:

Based on the above calculation, the profit of the company increased from $9600 to $72000 which is beneficial for the company and the company should accept the offer based on the quantitative terms.
The qualitative terms are also required to consider which are as follows:

• Increase use of online order and home delivery facilities
• Increase goodwill of the company
• Advertisement of products without incurring extra cost
• Complete use of the capacity of production (Varma, & Munjal, 2021)
• Reduce crowd in the restaurant which saves other costs such as operational and administration costs.

Answer 2:
The special order received by the company for 2500 units. Currently, the company is manufacturing 15000 units and has a capacity of manufacturing 16000 units. Based on which there is loss of profit on 1500 units. The minimum price at which the special order can be accepted by the company is calculated as follows:

Selling price for special order

Based on the above calculations, the special order can be accepted at the price of $96.4 per unit which is lower as compared to the normal market price. Other than the minimum selling price, the special offer can be accepted based on the other considerations also which are as follows:

• The capacity of the production such as the company has a capacity of 16000 while there are sales made by the company is 15000 units, therefore, there are extra 1000 units and only 1500 units are required to cut from normal sales (Shah, Chaudhari, & Jani, 2017).
• Future orders and goodwill of the company that increases due to special order
• Consider whether the special order is one-time order or there is the possibility of the future expansion of business.
• The acceptance of special orders helps increase public relations and enhances business opportunities in the market.

Answer 3:
For decisions of replacement of machine, there is required to consider relevant cost and net cash flow from the replacement of the machine. The replacement of machines takes place both in qualitative and quantitative terms.

The quantitative terms for deciding on replacement of machine is based on the savings arises due to replacement in financial terms:

Based on the above calculations, it is found that the replacement of machines helps in saving cost and also helps in cash inflow. The replacement of the machine helps in saving expenses of annual operations and also reduces the depreciation expenses over the period. The replacement results in an overall cash inflow of $ 6000 in the next 5 years and the saving in overall expenses are $ 16000 (10000 + 5000) saving of annual operating expenses and depreciation expenses.

Based on the qualitative terms for replacement of machines is considered such as an increase in the efficiency of production, reduction in the number of repairs and maintenance, motivation for employees, reduction in the labor hours and reduction ideal time of production process. The replacement of machines also takes place due to changes in technology and the production process of the company (Shields, 2018). The replacement should be adopted considering the market competition and mitigate the inadequacy of working. The new machine helps in improving the working condition of the company and helps in resolving the technical problems that arise in the production process.

Following are the qualitative factors that motivate the replacement of machines:

• Technical changes
• Changes in the product's requirements
• Increase in the quality of products
• Saving in the space used for machines
• Saving in the labour ideal time
• Reduction in the machine hour and labor hours

The machine should be replaced by the company as the majority of funds are recovered by sale of the old machine and also results in a saving of time, cost and expenses.

References:
Shah, N. H., Chaudhari, U., & Jani, M. Y. (2017). Optimal policies for time-varying deteriorating items with preservation technology under selling price and trade credit-dependent quadratic demand in a supply chain. International Journal of Applied and Computational Mathematics, 3(2), 363-379.

Shankar, R., Bhattacharyya, S., & Choudhary, A. (2018). A decision model for a strategic closed-loop supply chain to reclaim End-of-Life Vehicles. Business accounting assignment International Journal of Production Economics, 195, 273-286. Shields, B. A. (2018). Parallel Machine Replacement: An Analysis in Construction Industry with Considerations of Horizon Uncertainty, Multi-Purpose Machines, and Transportation.

Varma, U., & Munjal, A. (2021). Determinants of payout choice between open market repurchase, tender offer repurchase, and special dividends. Cogent Economics & Finance, 9(1), 193497