NCEA Level 3 Accounting (90505) 2010 — page 1 of 5
Assessment Schedule – 2010
Accounting: Explain and prepare information for management decision making (90505)
Evidence Statement
Q
Evidence
Part A
(a)
Code
Month
July $
May estimated credit sales $210 000
37 800
June estimated credit sales $200 000
156 000
July estimated credit sales $220 000
Total cash from accounts receivable
193 800
August $
C
36 000
CC
171 600
C
207 600
C#
Judgement
C
each correct amount
C#
correct totals in both months
(b)
July $
August $
Raw materials
50 000
60 000
Factory overheads
23 000
17 000
Other expenses
22 000
26 000
Cash Payments
C*
C
C
Judgement
(c)
C*
both correct
C
correct amount
Examples of routine decisions made by the production manager include (but not limited
to):
A decision about:

which flavour ice-cream to produce on a given day / which retailers order to fill first

whether to change the supplier of the raw materials (milk, containers, sugar,
flavours etc)

how much ice-cream to produce each day/week
e
 how many / when to order more raw materials
NOT: not a decision that is strategic, or made by another manager, or a description of
the production manager’s job)
This is a routine decision the production manager of Coldzone Industries would make
because:

it is a decision that is made each day / on a day to day basis

it has a short term impact on Coldzone Industries, and only affects the current
financial year

it doesn’t require Coldzone Industries board approval / doesn’t involve a capital
outlay
Judgement

First e is for an appropriate routine decision made by a production manager

Second e is explaining why this decision is routine for the production manager /
Coldzone Industries in context
e
NCEA Level 3 Accounting (90505) 2010 — page 2 of 5
Examples include:
(d)

Any new competition because if there is new competition, sales targets in the budget
may need to be lowered as competition may capture some of Coldzone Industries’
market share.

Any existing competitors leaving the market because it provides an opportunity to
gain market share and, therefore, the sales manager should revise upwards the
sales targets in the budget.

The current economic climate, because this may mean sales targets in the budget
are lowered as consumers have less to spend on Coldzone Industries ice-creams.

The month of the year / season because if it is summer, then there will be increased
demand to ice-cream based on warmer weather so the expected sales for Coldzone
Industries might increase based on previous months and Helen would need to
budget for lower sales in winter.

Coldzone Industries introducing new flavours because then this will influence the
amount of sales that the sales manager needs to budget for – some flavours
expected sales might decrease while the new flavour increases.

Existing / expected customers because this will give Helen a base to judge her
predicted level of sales on for the upcoming months, and provide a more accurate
level of sales in her budget

The capacity of the production machinery will influence Helen’s sales budget
because she cannot have predicted sales greater than the capacity as she will not be
able to meet them so she needs to ensure this does not happen
Judgement

First e is for an appropriate piece of non financial information that would influence the
budgeted sales

Second e is for an explanation of its impact on expected sales figures / importance of
this information in the sales budget, in context of the sales manager / Coldzone
Industries
ee
NCEA Level 3 Accounting (90505) 2010 — page 3 of 5
Q
Part B
(a)
Evidence
Coldzone Industries should not pay the dividend in September because

They already have an overdraft of $5 000 and the $58 000 forecast deficit after the
dividend was paid would take the bank account over the secured overdraft limit of
$30 000 (by $33 000) and, therefore, require a bank loan / extension of the overdraft,
which would incur increased interest payments.

the final bank balance for September is estimated to be $63 000 overdraft if the
dividend was paid would take the bank account over the secured overdraft limit of
$30 000 and therefore require a bank loan / extension of the overdraft which would
incur increased interest payments.

If they don’t pay the dividend they will have a surplus of $17 000 which will give
Coldzone Industries an expected closing bank balance of $12 000, which puts them
out of overdraft, avoiding a bank loan / extension of the overdraft, which would incur
increased interest payments.
Judgement
Must make a clear link between the opening overdraft and the expected deficit resulting
in the overdraft limit being exceeded OR would put into positive bank $12 000. Must
have at least one accurate figure to substantiate the argument, and understand the
impact on the closing bank balance (different from the deficit). No reference to profit /
inaccurate numbers
Bonus V Part a – for acknowledging that Coldzone Industries will be exceeding the
overdraft limit and therefore as a result will need to refinance / take out a loan / increase
overdraft limit / facing increased interest payments and penalties
(b)
(examples) The dividend should be paid in November because:

the cash surpluses from September $17 000 and October $27 000 (totalling
$44 000) would be enough to cover the payment of the dividend despite the opening
overdraft and leave Coldzone Industries with a positive bank balance of $1 000, thus
avoiding higher interest rates or interest charges from an overdraft extension or
loan.

if the dividend isn’t paid in September or October they will have an opening bank
balance in November of $39 000, and the dividend will result in a $38 000 deficit
which will still leave Coldzone Industries with $1 000 in the bank. This means that no
overdraft is needed, which prevents them needing to refinance or extend their
overdraft, thus avoiding higher interest rates or interest charges

the cash from accounts receivable is the greatest in November, $230 000, which will
help Coldzone Industries achieve a positive cash at bank of $1 000 even after the
payment of the dividend and leave them not needing to refinance or extend their
overdraft, thus avoiding higher interest rates or interest charges.
Code
V
Bonus V
(a or b –
only
award
once)
V
Judgement
Must be November and supported with information from the cash budget, ie surpluses in
September $17 000 and October $27 000 or $1 000 in the bank account etc, AND
realising that the bank will be positive / not go into overdraft there is no reference to profit
Bonus V Part b – for acknowledging that Coldzone Industries will be avoiding the need
to refinance / take out a loan / increase overdraft limit / incur increased interest payments
Bonus V
(a or b –
only
award
once)
NCEA Level 3 Accounting (90505) 2010 — page 4 of 5
Part C
(a)
C
$1 600 000 or $1.6 million
Judgement
Correct answer only
(b)
600 000 units
C
Judgement
Correct answer only
(c)
600 000 – 400 000 = 200 000 units
C
(ft)
Judgement
200 000 or follow-through from (b) (must show working to get follow-through)
(d) (i)
Insurance / depreciation on machinery / interest on loan / factory rent
E
Judgement
One of the above correct answers that will increase FIXED costs as a result of
purchasing the replacement machine (NOT mixed costs, capital expenditure)
(ii)
Examples:

Insurance – a higher insurance premium is paid on a more expensive piece of
machinery

Depreciation – higher depreciation because of the depreciable amount of the new
machinery / the machinery is more expensive, so the depreciation would work out to
be greater

Interest on Loan – Coldzone Industries would probably need to take out a loan to
purchase the machinery so the interest on the loan payments would increase

Factory Rent – if the machine is bigger than the old machine, Coldzone Industries
might need to increase their factory floor space, which will require them to increase
the factory rent.
E
Judgement
A sound reason for why the fixed cost increases linked to the replacement machine.
NOT a definition of a fixed cost.
(e)
$330 000
(various working were possible to get this number)
Judgement
Correct answer only
C
NCEA Level 3 Accounting (90505) 2010 — page 5 of 5
Q
(f)
Evidence
Code
Should buy now
Financial (allow for follow-through from earlier calculation for BE and Profit)

Coldzone Industries can improve net profit without increasing units of ice-cream
sold as 600 000 units sold would increase net profit from $200 000 to $330 000, thus
Coldzone Industries which means they will achieve their goal which is great for the
business / leading to increased returns / which can contribute towards paying off the
machine / showing improved profitability and can therefore benefit of higher profit
now rather than waiting two years.

Break-even falls from $1 600 000 to $1 344 000, (decrease by $256 000) which
reduces the amount of ice-cream by 64 000 units that need to be sold before a profit
is made, thus making it easier/faster to achieve a profitable level of sales thus
increases the margin of safety / makes the business potentially more profitable,
which Coldzone Industries should take advantage of now.

Decrease in variable costs from $3 to $2.75 means that Coldzone Industries has an
increase in contribution margin to $1.25 (from $1) to cover fixed costs more easily
and make a profit faster / increase profit with current production level of
600 000 units / making it easier to break even / easier to cover the increased fixed
costs.
Vf
(ft)
Non-financial

The ability of the new machinery to produce frozen yoghurt gives Coldzone
Industries access to a new market / attract more (new) customers, which will
increase their sales and increase profit, now rather than waiting two years when
competitors may be established.

The margin of safety for Coldzone Industries improves from 200 000 units to
264 000 units when sales are 600 000 units. This increases the amount sales would
have to fall for Coldzone Industries to no longer be profitable. With such a high
margin of safety, Coldzone Industries should take advantage of it now rather than
waiting.

Vn
Installation of new machine does not interfere with current production, which means
the current orders can still be meet which means customers will be kept happy / no
loss of goodwill / if they wait, the old machine might break down or need repairs
which will disrupt production, so Coldzone Industries are better off replacing it now
than in two years time.
Judgement
Vf
One valid financial reason substantiated using figures from candidates
answers or provided in Part C information which explains why this information
is good for Coldzone Industries.
Vn
One valid non-financial reason supported from information provided, which
explains why this information is good for Coldzone Industries.
Bonus V bonus for answering from the point of view of now rather than in two years, eg
Coldzone Industries can get the benefit of higher profit now rather than waiting
two years. Must be beyond just stating the two-year information, but explaining
why it is an advantage to buy the machine now, not later.
Overall Judgement Statement
Criterion
Achievement
Merit
Excellence
One
2e
4e
4e
Two
6C
8C
10 C
Three
3V
Bonus V