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Unformatted text preview: re e xp e c te d c o s ts
a nd a m o u nts s o ld to d e te rm ine if th e y wo u ld p ro c e e d …… The Accounting system provides a model of the business that measures the activities by amount sold and costs: Revenue-Cost=Profit
They calculate the Expected Monthly Earnings for Mum’s Biscuits Costs Revenue
Sales of merchandise Sales of merchandise inventory inventory $12 000
$12 000 C oosst o f f C t o
Me rc hhaand is ee s oold
Me rc nd is s ld
SSup pplie ss
Utilitie TToota l l ta $$ 8 000000 8
330000 2 0000 2
$$1100 1 0000 1 ..and decide to go ahead… Profit $1900
Profit $1900 •Is this enough information?
•What else would you consider?
23 So they implement their plan with the following results: Mum’s Biscuits Pty Ltd Profit Earned for January
Resources created from selling biscuits $11 400
Cost of merchandise inventory sold
Utilities Total cost of resources consumed
Profit earned $7600
300 200 9700
$ 1700 They also needed a system to measure actual costs incurred and amounts sold
that could be used to determine if goals had been accomplished A more informative report for the owners would be to
compare actual and expected performance
Actual Expected Difference S a le s $11 400 $12 000 $ 600 unfavourable Cost of sales ($7 600) ($8 000) $ 400 favourable Wa g e s ($1 000) ($1 000) 0 Rent ($ 600) ($ 600) 0 Supplies ($ 300) ($ 300) 0 Utilities ($ 200) ($ 200) 0 Profit $1 700 $1 900 $ 200 unfavourable So what do we know from this accounting information?
A c tua l re s ults d iffe re d fro m th o s e e xp e c te d a nd th a t d e m o ns tra te s th a t th e re is RISK ( uncertainty about an outcome, such as the amount of profit a business will earn) in their business venture..
25 Is it a good investment?
How can we tell? What was the goal? What could
be earned in an alternative investment? The purpose of accounting information is to The purpose of accounting informat...
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