QUESTION 1
REQUIRED
Study the Statement of Comprehensive Income of Princeton Limited for the three year period provided below and then answer the following questions:
1.1 Explain the possible change that took place in the financing activities over the three- year period.
1.2 Calculate the other operating expenses for 2014.
1.3 Calculate the expected gross profit for 2017 if the budgeted sales are R2 400 000 and the gross margin for 2016 is maintained.
1.4 Comment on the cost of sales over the three year period.
1.5 Comment on the trends that you observe with regard to personnel and rent expenses.
1.6 Provide an interpretation of the operating profit over the three-year period.
INFORMATION
The Statement of Comprehensive Income of Princeton Limited for 3 years are provided below:
|
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER:
|
|
|
2016
|
2015
|
|
|
R
|
R
|
|
ASSETS
|
|
|
|
Non-current assets
|
1 260 000
|
795 000
|
|
Property, plant and equipment (cost)
|
1 245 000
|
810 000
|
|
Accumulated depreciation
|
(315 000)
|
(240 000)
|
|
Long-term investments
|
330 000
|
225 000
|
|
Current assets
|
1 530 000
|
1 425 000
|
|
Inventory
|
525 000
|
645 000
|
|
Debtors/Accounts receivable
|
615 000
|
450 000
|
|
Income tax paid in advance
|
15 000
|
|
|
Bank
|
375 000
|
330 000
|
|
|
2 790 000
|
2 220 000
|
|
EQUITY AND LIABILITIES
|
|
|
|
Equity
|
2 550 000
|
2 079 000
|
|
Ordinary Share Capital
|
1 800 000
|
1 500 000
|
|
Retained Income
|
750 000
|
579 000
|
|
Current liabilities
|
240 000
|
141 000
|
|
Creditors/Accounts payable
|
240 000
|
114 000
|
|
Income tax payable
|
-
|
27 000
|
|
|
2 790 000
|
2 220 000
|
QUESTION 2
REQUIRED
2.1 Use the information provided below to calculate the ratios for 2016 that would reflect each of the following (Where applicable, round off answers to two decimal places.):
2.1.1 The percentage of the profit that has been put back into the company
2.1.2 The ability of the company to repay its short-term debts without relying on the sale of its inventories
2.1.3 The return earned by shareholders on their investment
2.1.4 The operational effectiveness of the company before considering interest income, interest expense and income tax
2.1.5 The effectiveness of management with regard to the inventories for sale
2.1.6 An evaluation of the company's performance with regard to the management of its trade creditors
2.2 Comment on following ratios that have been calculated for Mika Limited. Provide two significant comments for each.
|
|
2016
|
2015
|
|
Return on assets
|
13.44%
|
15.54%
|
|
Earnings per share
|
15.83 cents
|
18.42 cents
|
|
Price/Earnings ratio
|
3.15 times
|
4.32 times
|
|
Gross margin
|
38.86%
|
46.23%
|
INFORMATION
The information given below was obtained from the books of Mika Limited:
1. EXTRACT FROM THE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016
|
|
R
|
|
Sales
|
2100 000
|
|
Cost of sales
|
1326000 |
|
Gross profit
|
774 000
|
|
Operating expenses
|
399000
|
|
Operating profit
|
375 000
|
|
Interest income
|
30 000
|
|
Profit before tax
|
405 000
|
|
Company tax
|
120000
|
|
Profit after tax
|
285 000
|
2.
|
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER:
|
|
|
2016
|
2015
|
|
|
R
|
R
|
|
ASSETS
|
|
|
|
Non-current assets
|
1 260 000
|
795 000
|
|
Property, plant and equipment (cost)
|
1 245 000
|
810 000
|
|
Accumulated depreciation
|
(315 000)
|
(240 000)
|
|
Long-term investments
|
330 000
|
225 000
|
|
Current assets
|
1 530 000
|
1 425 000
|
|
Inventory
|
525 000
|
645 000
|
|
Debtors/Accounts receivable
|
615 000
|
450 000
|
|
Income tax paid in advance
|
15 000
|
|
|
Bank
|
375 000
|
330 000
|
|
|
2 790 000
|
2 220 000
|
|
EQUITY AND LIABILITIES
|
|
|
|
Equity
|
2 550 000
|
2 079 000
|
|
Ordinary Share Capital
|
1 800 000
|
1 500 000
|
|
Retained Income
|
750 000
|
579 000
|
|
Current liabilities
|
240 000
|
141 000
|
|
Creditors/Accounts payable
|
240 000
|
114 000
|
|
Income tax payable
|
-
|
27 000
|
|
|
2 790 000
|
2 220 000
|
3. ADDITIONAL INFORMATION
- All purchases and sales are on credit.
- Interim dividends paid during the year amounted to R114 000.
QUESTION 3
REQUIRED
Use the information provided below to answer the following questions:
Calculate the total revenues at break-even using the contribution margin ratio if the sales manager's proposal is rejected.
If the sales managers proposal is accepted, calculate the:
Additional expenditure that the company can afford on advertising.
Total Contribution margin and Operating profit.
Selling price per unit that will enable the company to break-even.
INFORMATION
Gems Limited manufactures a product that sells for R18 each. The company presently produces and sells 90 000 units per year. Unit variable manufacturing and selling costs are R9.00 and R1.80 respectively. Fixed costs are R453 600 for factory overheads and
R194 400 for selling and administrative activities. The sales manager has proposed that the selling price be increased to R21.60 per unit. To maintain the present sales volume, advertising must be increased. The company's profit objective is 10% of sales.
3.2 REQUIRED
Suppose Siemens Limited wants to earn an operating profit of R900 000 from the battery sales. How much can it afford to spend on variable costs per unit if production and sales equal 20 000 units? (4)
INFORMATION
Following substantial research, Siemens Limited is confident that it can make and sell a new battery with a prolonged life for mobile phones. The management anticipates the market demand for the new battery to be 20 000 units per year if the battery is priced at R150 per unit. The fixed costs of producing between 19 000 and 25 000 units is estimated to be R450 000.
QUESTION 4
4.1 REQUIRED
Use the information given below and answer the following questions independently:
4.1.1 Should Kadburys Limited accept the order of 37 500 units? Show the relevant calculations.
4.1.2 Explain 2 other factors that may affect the special order decision.
4.1.3 Assume that Kadburys Limited wants to realise a profit of at least R50 000 from the special order. What is the minimum total sales order value that Kadburys Limited should accept?
INFORMATION
Kadburys Ltd is a manufacturer of sweets. The available production capacity for a month amounts to 250 000 units of sweets, while sales are only 200 000 units in a month. The sweets are sold at R8 per unit.
A toy manufacturer approached Kadburys Ltd to supply 37 500 units of sweets, which have to be modified in size in order to fit their latest toy. The toy manufacturer has offered a price of R6 per unit. The variable cost of the normal sweets is R4 per unit. The variable cost of the special sweet will be the same as the normal sweets, except that an additional R22 500 will be incurred for the modification. Fixed costs of Kadburys Limited's facility amount to R156 000 per month.
4.2 REQUIRED
Use the information provided below to calculate the following variances:
4.2.1 Raw materials usage variance
4.2.2 Direct labour efficiency variance
Note: Your answers must indicate whether the variance is favourable or unfavourable.
INFORMATION
During 2016 Bandit Clothing budgeted for the production and sales of 11 000 bandanas. The company produced and sold 10 500 bandanas. Each bandana has a standard requiring 1 metre of material at a budgeted cost of R5.00 per metre and 20 minutes of sewing time at a cost of R0.50 per minute. The bandanas sell for R30.00 each. Actual costs for the production of 10 500 bandanas were R55 120 for materials (at R5.20 per metre) and
R121 000 for labour (at R0.55 per minute).
QUESTION 5
REQUIRED
Study the information given below and answer the following questions:
5.1 Determine which of the two investment opportunities the company should choose. Motivate your answer by comparing the Net Present Value of each alternative.
5.2 Provide 2 advantages of using the NPV technique to evaluate projects.
5.3 Calculate the Accounting Rate of Return (on average investment) of the first alternative, if the depreciation per year amounts to R86 000.
5.4 Calculate the Internal Rate of Return of the first alternative, if it did not have a salvage value.
INFORMATION
The management of Harvey Incorporated is considering two investment opportunities:
- The first alternative involves the purchase of new equipment for R450 000 which will enable the company to modernise its maintenance facility. The equipment is expected to have a useful life of 5 years and a R20 000 salvage value. The modernisation is expected to increase efficiency, resulting in a R115 000 reduction in annual cash operating expenses.
The second alternative involves purchasing a truck. Purchasing another truck will enable the company to expand its delivery area and increase revenue. The truck costs R450 000. Its useful life is expected to be 5 years and a salvage value of R50 000 is anticipated. The truck is expected to generate R300 000 per year in additional revenues. The drivers salary and other operating expenses are expected to amount to R176 000 per year.
Harvey Incorporated desires a rate of return of 14%.