ASSIGNMENT: ACCOUNTING FOR DECISION-MAKING
QUESTION 1: REQUIRED
Answer the questions below that are based on the Statement of Cash Flows provided hereafter:
1.1- Calculate the following:
- Dividends paid
- Cash and cash equivalents at the end of the year
- Carrying./Book value of the vehicles sold
1.2- Apart from depreciation, name two other adjustments that would be needed to convert to cash from operations (R140 000).
1.3- Comment on the following:
- Cash flows from operating activities
- Increase in receivables
- Cash flow from investing activities
INFORMATION -
|
Mika Limited - Statement of Cash Flows for the Ended 30 November 2016
|
|
|
R
|
|
Cash flows from operating activities
|
630,000
|
|
Profit before interest and tax/Operating profit
|
750,000
|
|
Adjustment to convert to cash from operations
|
210,000
|
|
Profit before working capital changes
|
960,000
|
|
Working capital changes
|
162,000
|
|
Decrease in inventory
|
240,000
|
|
Increase in receivables
|
(330,000)
|
|
Increase in payables
|
252,000
|
|
Cash generated from operations
|
1,122,000
|
|
Interest income
|
60,000
|
|
Dividends paid
|
?
|
|
Income tax paid
|
(324,000)
|
|
Cash flow from investing activities
|
(1,140,000)
|
|
Non-current assets purchased
|
(1,230,000)
|
|
Proceeds from sale of vehicles (sold at a profit of R150,000)
|
450,000
|
|
Increase in long-term investments
|
(510,000)
|
|
Disposal of long-term investment (disposed at a loss of R75 000)
|
150,000
|
|
Cash flow from financing activities
|
600,000
|
|
Proceeds from issue of ordinary shares
|
600,000
|
|
Net increase in cash and cash equivalents
|
?
|
|
Cash and cash equivalents at beginning of year
|
660,000
|
|
Cash and cash equivalents at end of year
|
?
|
QUESTION 2: REQUIRED
2.1 Use the information provided below to calculate the ratio for 2016 that would reflect each of the following (Where applicable, express answers to 2 decimal places.):
2.1.1 The extent to which the claims of the short-term creditors are covered by assets that can be translated into cash ilk the short term.
2.1.2 The extent to which long-term debt is covered by shareholders' funds.
2.1.3 The amount of funds available relative to sales, to pay the corn pa ny's expenses other than its cost of sales.
2.1.4 The rand amount of distributions during the period on behalf of each ordinary share issued.
2.1.5 An indication of the percentage of the profit that has been put back into the company.
2.1.6 The amount that investors are willing to pay for each rand of the company's earnings.
2.2 Provide two ways of making an improvement with regard to each of the following ratios:
2.2.1 Debtor collection period
2.2.2 Operating margin
2.3 Comment briefly on the following ratios:
2.3.1 Acid test ratio 2.3.2 Return on equity
|
|
2016
|
2015
|
|
Acid test ratio
|
4.19:1
|
5.53:1
|
|
Return on equity
|
12.08%
|
8.85%
|
INFORMATION
The information given below was obtained from the books of Juta Limited:
1.
|
Statement of Financial Position as at 31 December:
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|
2016
|
2015
|
|
R
|
R
|
|
ASSETS
|
|
|
|
Non-current assets
|
2,520,000
|
1,590,000
|
|
Property, plant and equipment (cost)
|
2,490,000
|
1,620,000
|
|
Accumulated depreciation
|
(630,000)
|
(480,000)
|
|
Investments
|
660,000
|
450,000
|
|
Current assets
|
3,060,000
|
2,850,000
|
|
Inventory
|
1,050,000
|
1,290,000
|
|
Accounts receivable
|
1,230,000
|
900,000
|
|
Income tax paid in advance
|
30,000
|
-
|
|
Bank
|
750,000
|
660,000
|
|
5,580,000
|
4,440,000
|
|
EQUITY AND LIABILITIES
|
|
|
|
Equity
|
3,750,000
|
2,658,000
|
|
Ordinary Share Capital
|
2,559,000
|
1,500,000
|
|
Retained Income
|
1,191,000
|
1,158,000
|
|
Non-current liabilities
|
1,350,000
|
1,500,000
|
|
Loan
|
1,350,000
|
1,500,000
|
|
Current liabilities
|
480,000
|
282,000
|
|
Accounts payable
|
288,000
|
84,000
|
|
Dividends payable
|
192,000
|
144,000
|
|
Income tax payable
|
-
|
54,000
|
|
5,580,000
|
4,440,000
|
2. EXTRACT FRONT THE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016
|
|
R
|
|
Sales
|
4,200,000
|
|
Cost of sales
|
(2,652,000)
|
|
Gross profit
|
1,548,000
|
|
Operating expenses
|
(798,000)
|
|
|
750,000
|
|
Interest expense
|
(162,000)
|
|
Interest income
|
60,000
|
|
Profit before tax
|
648,000
|
|
Tax
|
(195,000)
|
|
Profit after tax
|
453,000
|
3. ADDITIONAL INFORMATION
- Interim dividends paid during the year amounted to R228,000.
- 255 900 shares were in issue during 2016.
- The market price per share was R17.25 31 December 2016.
QUESTION 3:
3.1. REQUIRED
Study the information provided below and consider each of the proposals independently:
3.1.1 Calculate the total Contribution margin and Operating profit/loss per month if Proposal 1 is implemented.
3.1.2 How many litres of diesel need to be sold each month to achieve the operating profit of R25,000 per month, if Proposal 2 is accepted?
3.1.3 Calculate the saving in monthly fixed cost that is necessary to yield an operating profit of 120 000 if Proposal 3 is accepted.
INFORMATION
An entrepreneur recently opened a service station, selling only diesel. Diesel is sold at RIG per litre and the variable costs total R14 per litre. The fixed cost per month are 8135 2041 After six months of opening, the sales achieved was 540 000 litres and the sales were more or less the same volume each month. In an attempt to improve performance, the entrepreneur is considering the following proposals:
Proposal 1 -
Customers will be allowed to purchase diesel on credit. ft is estimated that 60% of the average monthly sales (in litres) will he to customers who would take advantage of this opportunity. Sales to these customers should increase by 25 as they are expected to buy exclusively from this service station. Sales volumes to customers who do not take advantage of the credit policy are expected to remain unchanged.
Additional costs arising from this proposal are expected to be:
- Bad debts of 1% of the sales value in respect of customers who use the credit facility.
- Fixed administrative costs of R7 500 per month.
Proposal 2 -
The entrepreneur would ideally want an operating profit of R25 000 per month. To achieve this the following changes are suggested:
- Selling price is reduced by 80.30 per litre.
- A sales commission of R1.50 per 10 litres sold will be granted to the diesel attendant 3.
- R5 000 per month will be spent on advertising.
Proposal 3 -
The possibility of only operating from 06:00 to 22:00 is being considered_ This earlier closing time is expected to result in a loss of sales on average of 12 500 litres per month_ It is hoped that the saving in fixed costs resulting from the reduction in operating hours will enable the entrepreneur to achieve an average monthly operating profit of at least R20 000.
3.2 REQUIRED:
Refer to the information given below and answer each of the following quitions independently:
3.2.1 The directors are considering a new selling price of 8250 per unit. Calculate the number of additional units the company will have to sell in order to maintain the existing operating profit, if the revised selling price is implemented.
3.2.2 The directors are investigating whether or not to decrease the selling price to 8255 per unit, anticipating that the sales volume will increase to 3 000 units. It is estimated that fixed selling and administrative expenses will increase by 10% as a result. Determine whether the proposal will result in a greater operating profit or not.
INFORMATION
Yorkshire Limited manufactures kettles. It recently introduced a new type of energy-efficient kettle and the following amounts based on the manufacture and sale of 2 400 kettles per year are available:
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|
R
|
|
Sales
|
660,000
|
|
Costs
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(576,000)
|
|
Direct materials
|
168,000
|
|
Direct labour
|
115,200
|
|
Variable manufacturing overheads
|
40,800
|
|
Fixed manufacturing overhead
|
192,000
|
|
Fixed selling and administration expenses
|
24,000
|
|
Variable selling expenses
|
36,000
|
|
Operating profit
|
84,000
|
QUESTION 4:
4.1 REQUIRED -
Study the information given below and answer the following questions:
4.1.1 Should Boardmans Limited accept or reject the special order? Substantiate your answer by calculating the additional profit or loss from the sale.
4.1.2 Would Boardmans Limited make a profit or loss if it sold all the toasters (6 600 units) at R280 per unit? Show your calculations.
INFORMATION
Boarclmans Limited manufactures toasters. It expects to make and sell 6 000 toasters in 10 batches of 600 units per batch during the coming year. Expected production costs are summarised below:
Budgeted costs for the expected production of 6000 toasters
|
R
|
|
Unit-level costs (6000 units)
|
1,080,000
|
|
Material costs
|
540,000
|
|
Labour cost
|
495,000
|
|
Overhead costs
|
45,000
|
|
Batch-level costs
|
66,000
|
|
Assembly set-up (10 batches X R5 100)
|
51,000
|
|
Materials handling (10 batches X R1 500)
|
15,000
|
|
Other costs:
|
829,5000
|
|
Salaries
|
574,500
|
|
Depreciation
|
81,900
|
|
Administrative and other fixed costs
|
173,1000
|
|
Total expected cost
|
1975,500
|
|
Cost per unit
|
329.25
|
ADDITIONAL INFORMATION
The selling price per toaster is P400. Board mans Limited received a special order from a new customer for 600 toasters. If Boardmans Limited accepts the order, the sales would increase from 6 000 to 6 600 unit. The firm has exams capacity to produce the 600 units_ The special order customer is willing to pay only R280 per unit.
4.2 REQUIRED:
Refer to the information below and answer the following questions:
4.2.1 Calculate the standard labour rate per hour.
4.2.2 Explain how a favourable direct labour rate variance may be interrelated with an unfavourable direct labour efficiency variable.
INFORMATION
Imperial Motors expected to service 500 vehicles during the month of May. Servicing each vehicle requires 3 hours of labour. The company actually used 1 518 hours of labour to service 460 vehicles. The labour efficiency variance was R3 105 (unfavourable).
QUESTION 5: 5.1 REQUIRED
Study the information given below and prepare the following budgets for January, February and March 2018 (3 monetary columns are required):
5.1.1 Production Budget (answer in units)
5.1.2 Material Purchases Budget (answer in Rands)
INFORMATION
Furnisure Limited produces tables. The sales budget for the first five months of 2018 shows the following projections:
|
Month
|
Units
|
|
January
|
5,000
|
|
February
|
5,400
|
|
March
|
6,400
|
|
April
|
5,700
|
|
May
|
6,200
|
The desired quantity of finished goods inventory (at the end of each month is to be equal to 20% of the next month's budgeted unit sales. Each unit of finished product required 2 square metres of timber. The company wants to have an inventory the end of each month equal to 25% of the next month's required materials. Each square metre of timber costs R50.
5.2 REQUIRED:
Use the information provided below to calculate the following:
5.2.1 Accounting Rate of Return on average investment (answer expressed to 2 decimal places).
5.2.2 Net present Value (amounts rounded off to the nearest rand).
INFORMATION
Premier Printers is considering the purchase of a new printing machine and has a minimum required rate of return of 12%. The machine will cost 8525 000 and will have a useful life of 5 years. The machine is expected to have a scrap value of R25 000_ The machine is expected to increase revenues by R200,000 per year but will require maintenance and repairs averaging R30,000 per year. Depreciation is estimated at R120,000 per year.