Key information for the Plant City Division (PCD) of Barkley Industries for 2019 are as follows: Revenues $15,000,000 Operating Income 1,800,000 Total Assets 10,000,000 PCD managers are evaluated and rewarded on the basis of ROI defined as operating income divided by total assets. Barkley Industries expects its divisions to increase ROI each year. Next year, 2020, appears to be a difficult year for PCD. PCD had planned a new investment to improve quality but, in view of poor economic conditions, has postponed the investment. ROI for 2020 was certain to decrease if PCD had made the investment. Management is now considering ways to meet its target ROI of 20% for next year. It anticipates revenues to be steady at $15 million in 2020.

Required: (a) Calculate PCD’s return on sales and ROI for 2019.

(b) (1) By how much would PCD need to cut costs in 2020 to achieve its target ROI of 20%, assuming no change in total assets between 2019 and 2020?

(2) By how much would PCD need to decrease total assets in 2020 to achieve its target ROI of 20%, assuming no change in operating income between 2019 and 2020?

(c) Calculate PCD’s Residual Income (RI)* in 2019, assuming a required rate of return on investment of 15%.

(d) PCD wants to increase RI by 50% in 2020. Assuming it could cut costs by $45,000 in 2020, by how much would PCD need to decrease total assets in 2020?

(e) Barkley Industries is concerned that the focus on cost cutting, asset sales and no new investments will have an adverse long-run effect on PCD’s customers. Yet Barkley wants PCD to meet its financial goals. What other measurements, if any do you recommend that Barkley use? Explain briefly. * Residual Income = Operating Income – (Total Assets x Required Rate of Return) [Residual Income as a performance measure has the advantage of motivating managers to act in the best interest of the company as a whole.]

Sarah is a CFO at PT Kembang Gula, a FMCG company which manufactures and sells products necessities of the day which consist of:

1. Foods like: Chili sauce, soy sauce, tea etc.

2. Personal Care such as: shampoo, soap, moisturizer, toothpaste, etc.

3. Home Care such as: detergent, fabric softener, washing kitchen soap, floor cleaners, etc.

One day Sarah received an email from the CEO, the email content :

Seeing more and more not sure the business situation, national and global economy, and also still the length of travel Pandemi COVID19, then please give reviews and recommendations on the subject matter as follows:

QUESTIONS :

1. With many variables that continue to change rapidly and significantly, how do we regulate the profitability and fundamental financial conditions of the company (the balance of loss/profit, balance sheet, cash flow) so that we remain healthy in the company and at the same time can still take any opportunities that arise in the market?

2. Please provide what is the example of business action that can be done by each section: Consumer & Market Insight, Marketing, Sales, Supply Chain and R&D, which is a unity with the corporate action above?

You are considering an audit engagement with a new, privately held entrepreneurial company (Moxy, Inc.) headed by Ryan Morris, a charming CEO. The company specializes in chemical lawn treatments. Ryan indicates that his business has really taken off, and he shows you last year’s financial statements, which show a sales growth increase from $1,200,000 to $4,500,000 and gross profit growth from $575,000 to $2,800,000 in just one year. He has had to finance this growth with an $850,000 short-term promissory note, but would like to go public and attract investors. He also gives you the following limited information from his balance sheet:

Required:

(a) Discuss why engagement risk, professional skepticism, and assessment of fraud risk are important in this scenario.

(b) Calculate the current ratios for year one and year two. What concerns do these calculations raise?

(c) Present at least three questions you would like to ask Ryan about the information provided, before making your decision about accepting the client.

You are considering an audit engagement with a new, privately held entrepreneurial company (Moxy, Inc.) headed by Ryan Morris, a charming CEO. The company specializes in chemical lawn treatments. Ryan indicates that his business has really taken off, and he shows you last year’s financial statements, which show a sales growth increase from $1,200,000 to $4,500,000 and gross profit growth from $575,000 to $2,800,000 in just one year. He has had to finance this growth with an $850,000 short-term promissory note, but would like to go public and attract investors. He also gives you the following limited information from his balance sheet:

Required:

(a) Discuss why engagement risk, professional skepticism, and assessment of fraud risk are important in this scenario.

(b) Calculate the current ratios for year one and year two. What concerns do these calculations raise?

(c) Present at least three questions you would like to ask Ryan about the information provided, before making your decision about accepting the client.

1. Robert started an accounting firm in 2020 and organized as a partnership. Performance of services began on July 1, 2020. The following expenditures were associated with the partnership’s activities in 2020:
   
   

1. What is the total amount of the start-up costs expenditures? What is the total amount of organizational expenditures?
2. Ignore your answer in a. Assume that the total amount of start-up costs expenditure is $48,200 and the total amount of the organizational expenditure is $17,900. What amount of the start-up costs may the partnership immediately expense in 2020? What amount of the organizational expenditures may the partnership immediately expense in 2020?
3. Ignore your answer in a. Assume that the total amount of start-up costs expenditure is $48,200 and the total amount of the organizational expenditure is $17,900. Also, assume that the company immediately expensed $5,000 of start-up costs and $5,000 organizational cost. What amount can the partnership deduct as amortization expense for the organizational expenditures for 2020 (not including the amount it immediately expensed)? What amount can the partnership deduct as amortization expense for the start-up costs for 2020 (not including the amount it immediately expensed)?

Blue Company sold 30,000 units of its only product and incurred a $85,000 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2020’s activities, the production manager notes that variable costs can be reduced 25% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $175,000. The maximum output capacity of the company is 55,000 units per year. Blue Company Contribution Margin Income Statement For Year Ending December 31, 2019 Sales $900,000 Variable $680,000 Contribution Margin $220,000 Fixed Cost $305,000 Net Loss $(85,000) Compute the break-even point in dollar sales for year 2019. (Round your answers to 2 decimal places.) Compute the predicted break-even point in dollar sales for year 2020 assuming the machine is installed and there is no change in the unit selling price. (Round your answers to 2 decimal places.)

In 2020, Oriental Company sold 800 units at RM500 each. Variable costs were RM250 per unit, and fixed costs were RM200,000. The selling price is expected to increase by 10% for 2021 and unit sold is 1,250 units. Oriental Company is tentatively planning to invest in equipment that would increase fixed costs to RM255,000, while decreasing variable costs per unit by 12%.
Instructions
(a) Compute the break-even point in Ringgit Malaysia (RM) for the year 2020 by using mathematical equation. (Show all workings).                                    
(b) Compute the break-even point in Ringgit Malaysia (RM) for the year 2021 by using mathematical equation. (Shows all workings).                                            
(c) Compute the total sales in Ringgit Malaysia (RM) that the company need to generate, if the company wish to earn net income of RM900,000 in the year 2021 by using mathematical equation. (Shows all workings).                                                                                                                
(d) Compute margin of safety in Ringgit Malaysia (RM) and in ratio for the year 2021. (Show all workings).