question 1requiredstudy the information provided


QUESTION 1

REQUIRED

Study the information provided below and answer the following questions:

1.1 Explain the changes that possibly took place during 2013 in respect of:
1.1.1 Financing activities
1.1.2 Investing activities
1.2 Calculate the Distribution costs for 2013.
1.3 Was there a change in the tax rate during 2013? Explain.
1.4 Critically assess the performance of the company from the information provided.

The Income Statement and simplified extract of the Statement of Changes in Equity for Kontiki Ltd are provided below:

Kontiki Ltd

Income Statement for the year ended 31 December

 

2013 (R)

2012 (R1

Sales

9 000 000

8 000 000

Cost of sales

(3 900 000)

(3 400 01)3)

Gross profit

5 100 000

_           4 600 000

Other operating income

300 000

280 000

Distribution costs

                         ?

?

Administrative expenses

(1 200 000)

I

(1 100 000)

Operating profit

1 200 000

1 080 000

Finance income

11 000

5 400

,

Finance expenses

(8 700)

(17 600)

Profit before tax

1 202 300

1 067 800

Income tax

(360 690)

(320 340)

Net profit

841 610

747 460

Kontiki Ltd

Statement of Changes in Equity for the year ended 31 December 2013 (simplified extract)

 

(R)

Balance at 31 December 2012

2 900 000

Profit for the year

841 610

Dividends

(380 000)

Balance at 31 December 2013

3 361 610

1. Depreciation for the year amounted to:
2013: R400 000
2012: R600 000

QUESTION 2

REQUIRED

2.1 Use the Information provided below to calculate the ratios for 2013 that would reflect each of the following (Where applicable, round off answers to two decimal places):

2.1.1 The percentage of each sales Rand that remain after all costs and expenses other than interest and taxes are deducted

2.1.2 The number of times more that investors are willing to pay for each Rand of the company's earnings

2.1.3 The proportion of the total assets that are financed by external funding

2.1.4 The ability of the company to repay its short-term debts during adverse business conditions

2.1.5 The Rand amount of distributions during the period on behalf of each ordinary share Issued

2.1.6 An Indication of the percentage of profit that has been put back into the company

2.2 Comment on the following ratios that have been calculated for Leo Limited. Provide two significant comments for each ratio.

2.2.1 Gross margin

2.2.2 Return on capital employed

Excerpts of financial data of Leo Limited for 2013 are as follows:

Income statement for the year ended 31 December 2013

 

 

 

R

Sales

3

250 000

Cost of sales

2

200 000

Operating profit

 

332 000

Interest expense

 

44 COO

Profit before tax

 

288 000

Tax

 

70 000

Balance sheet as at 31 December 2013

 

 

Assets

 

 

Non-current assets

980 COC

Inventories

1300

000

Accounts receivable

388

000

Cash

4

000

 

2 672 DX)

Equity and liabilities

 

 

Ordinary share capital (352 000 shares)

704

000

Retained earnings

576

000

Long-term loan (12% p.a.)

420

000

Accounts payable

822

000

Dividends payable (for 2013)

100

000

Bank overdraft

50 OCO

 

2 672 000

1. All purchases and sales were on credit
2. Inventories on 31 December 2012 amounted to R1200 DX.
3. Dividends paid during 2013 amounted to R50000.
4. The following ratios were calculated for 2013 and 2012:

 

2013

2012

Gross margin

32.31%

36.77%

Return on capital employed

19.53%

24.52%

5. The market price of the share for 2013 and 2012 was R13 and R12 respectively.

QUESTION 3

REQUIRED

Study the information given below and answer the following questions independently:

3.1 Calculate the contribution margin ratio and thereafter use this ratio to determine the sales value required to achieve an annual operating profit of R1200 000.

3.2 Calculate the margin of safety (as a percentage) for 2015.

3.3 Suppose Colbert Enterprises is considering a R20 per unit decrease In the selling price of the product, with the expectation that this would Increase annual sales by 25%. Is this a good idea? Motivate your answer with the relevant calculations.

3.4 What price does Colbert Enterprises have to charge for each unit of the product to break even, if all 28 000 units produced are sold?

Fixed manufacturing costs per year

R480000

Variable manufacturing costs per unit

R76

Selling price per unit

R200

Marketing costs:

 

Advertising

R14 000 per month

Sales personnel's salaries and commission

R40000 per month plus 6% of sales

Administration costs:

 

Salaries

RS2 000 per month

Other office costs

R44 000 per month plus R12 per unit sold

QUESTION 4

Study the information given below and answer the following questions:

4.1.1 Calculate the total Operating Profit (Loss) for 2015 if the special order is accepted. Based on your calculations, should the special order be accepted? Why?

4.1.2 Calculate the total costs that are relevant to the special order only (45 000 units).

INFORMATION

The following Budgeted Income Statement is for a manufacturer which has received a special order to sell 45 000 units of a product at R33 per unit during January 2015. Planned sales for 2015 (excluding the special order) are 120 000 units which represents 80% of Its plant capacity. The manufacturer has no intention of increasing plant capacity if the special order is accepted.

Budgeted Income Statement for the year ended 31 December 2015

 

 

 

R

Sales (120000 units)

 

5 760 000

(4 680 000)

Manufacturing costs:

Direct materials

 

1 800

000

Direct labour

 

720

000

........  Fixed overheads

 

960

000

Variable overheads

 

1200

000

Gross profit

 

1 080

000

Fixed selling, general and administrative costs   

 

(360 000)

Operating profit

 

720 000

4.2  REQUIRED

Study the Information given below and answer the following questions:

4.2.1 Calculate the total Direct Labour Efficiency Variance. Also indicate whether the variance is favourable or unfavourable.

4.2.2 Explain two possible causes of an unfavourable Direct Labour Efficiency Variance.

INFORMATION

The details regarding the composition and weekly wages of the employees engaged on a job scheduled to be completed in 17 weeks are as follows:

 

Standard

Actual

 

 

Weekly wage

 

 

Category of

Number of

rate per

Number of

Weekly wages rate per

employees

employees

employee

employees

employee

Skilled

114

R750

108

R825

Semi-skilled

90

R500

75

R550

QUESTION 5

5.1 REQUIRED

Calculate the following from the information given below:

5.1.1 Accounting Rate of Return (on average investment)

5.1.2 Calculate the internal Rate of return. Use Interpolation to arrive at your answer.

INFORMATION

Conquesta Umited is considering the purchase of Machine X, details of which are provided below:

Year R
Initial investment 0 (750 000)
Scrap value 5 100 000
Net cash Inflows: 1 240 000
2 320 000
3 190 000
4 116 000
5 180 000

The cost of capital Is 12%. Depredation Is calculated using the straight-line method.

5.2 REQUIRED

Study the information given below and determine, on the basis of its Net Present Value (NPV), whether the Investment should be favourably considered.

INFORMATION

Lotus Ltd plans an investment In non-current assets costing R3 000 000. The non-current assets will have a four-year ilfe, with the following expected profits:

Year 1 R324000
Year 2 R720000
Year 3 R100000
Year 4 R150000

Finance for inventories and debtors amounting to 8200 000 will be required at the start of the project. Trade credit will provide R110 000 of this amount. All the working capital will be recovered at the end of year 4. The expected scrap value of the non-current assets at the end of year 4 Is R375000. The cost of capital Is 12%.

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