Acc/531 Week 4
Table of Contents
Question
Descriptions
Page
Question 1
Multiple Choice Questions
4
Question 2
Absorption costing and standard costing
Use the information provided below to prepare the Budgeted Income Statement for the year ended 30 June 2013 using the absorption costing method
2.2.1 Calculate the direct labour efficiency variance
2.2.2 Explain 2 possible causes of an unfavourable direct labour efficiency variance
5
Question 3.1
Question 3.2
Question 3.3
Question 3.4
Question 3.5 Cost-Volume-Profit Analysis
Calculate the total marginal income and net profit/loss if all the tables are sold Calculate the margin of safety (in units)
Calculate the break-even value using the marginal income ratio if …show more content…
the company spends an additional R185 650 on advertising
Calculate the selling price per unit that will enable the company to break-even if 720 units are sold and fixed costs amount to R484 560
Calculate the number of units that must be manufactured and sold if the selling price decreases to R864 per unit and the company wishes to earn a profit of R140 490
6 - 7
Question 4.1
Question 4.2 Cash Budget
Debtors collection schedule
Cash budget
8 -10
Question 5
Question 5.1
Question 5.2
Question 5.3
Question 5.4
Capital Investment Appraisal
Calculate the Payback Period for Project C.
(Answer must be expressed in years, months and days)
Calculate the Accounting Rate of Return (ARR) for Project A. (Answer expressed to two decimal places)
Calculate the Net Present Value (NPV) of Project B and Project C Calculate the Internal Rate of Return (IRR) of Project B (Answer expressed to two decimal places). (Round off amounts to the nearest rand).
Calculate the Internal Rate of Return (IRR) of Project B (Answer expressed to two decimal places) …show more content…
11-13
Question 1
1.1. C
1.2. D
1.3. B
1.4. A
1.5. C
Question 2
2.1 Absorption costing method
Income statement 30 June 2013
R
Sales (330 XR40 500) = 13 365 000
Less: manufacturing cost of sales = 8 441 130
Opening inventory (40 x R40 500) = 1 620 000
Fixed production cost = 945 000
Variable production cost (350 X 16 875) = 5 906 250
Goods available for sale = 8 471 250
Less: Closing inventory (8 471 250 /R16 875 = (30 120) = R502
Gross profit = 4 923 870 Other costs = 375 750
Variable selling and admin cost (330 X 2025) = 668 250 Fixed selling and administrative cost = (292 500)
Net profit = 4 548 120
2.2 Direct labour efficiency
= (AT – ST) SR
= 38 – 36 X 550
= 2 X 550
=
1100
Labour efficiency is favourable.
QUESTION 3
3.1 Marginal income statement 30 June 2014
Machael LTD manufactures tables
Sales (1800 X R900) = R 1620 000
Variables costs = (R 858 600)
Production (432 X 1800) = R 777 600
Sales commission (1800 X 45) = R 81 000
Marginal income = R 761 400
Fixed expenses = R (486 450)
Production overheads = R 162 000
Admin + marketing = R 324 450 Net profit = R 274 950
3.2 Break even of safety = Budgeted sales units – Break even units = 1800 - 1430 / 900 = 1800 – 1589 = 211 units
3.3 Break even value = Fixed costs 47%
= 672 100 0.47
= R1 430 000
3.4 Selling price per unit
Total fixed costs + variable costs = R484 560 + (477 x 720)
= R484 560 + R343 440
= R828 000
Selling price = R828 000 720
= R1 150 per unit
3.5. Number of units that must be manufactured.
Sales = R1 719 375 x 864
= R1 485 540
Marginal income = sales – variable cost
= R1 485 540 – R858 600
= R626 940
Net profit = marginal income – fixed cost
= R626 940 - R486 450
= R140 490
Marginal income ratio = marginal income x 100 Sales 1
= 626 940 x 100 1 713975 1 = 36%
Target sales value = fixed profit + target profit Marginal income ratio
= 626 940 36
= 17 415
Question 4
4.1 Debtors collectors schedule.
PepsiCo LTD
CREDIT SALES
JAN
FEB
MARCH
JAN
86 400
FEB
96 000
34 560
51 840
57 600
MARCH
115 200
38 400
46 080
TOTAL
297 600
34 560
90 240
103 680
REMARKS
Collections of credit sales for each month are calculated as follows:
JAN
COLLECTION
JAN
86 400 X 40%
34 560
COLLECTION
FEB
86 400 X 60%
51 840
FEB
COLLECTION
FEB
96 000 X 40%
38 400
COLLECTION
MARCH
96 000 X 60%
57 600
MARCH
COLLECTION
MARCH
115 200 X 40%
46 080
COLLECTION
APRIL
--------
--------
4.2. CASH SALES JAN , FEB AND MARCH 2015
PEPSICO LTD
Jan Feb March
Cash receipts 264 240 314 240 372 480
Cash sales after discount 201 600 224 000 268 800
Receipts from debtors 62 640 92 240 103 680
Cash payments 206 600 225 600 198 200
Cash purchase 41 000 74 000 34 000
Fixed overheads 32 000 32 000 32 000
Wages 73 600 81 600 90 200
Variable overheads 20 000 38 000 42 000
Loan repayments 40 000 Cash surplus (shortfall) 57 640 86 640 174 280
Opening cash balance 75 000 132 640 221 280
Closing cash balance 132 640 221 280 395 560
Remarks
CASH SALES
JANUARY: 86 400 ÷ 30 X 70 = 201 600
FEBRUARY: 96 000 ÷ 30 X 70 = 224 000
MARCH : 115 200 X ÷ 30 X 70 = 268 800
CASH PURCHASE
JANUARY : 51 000 – 32 000 + 22 000 = 41 000
FEBRUARY : 57 000 – 22 000 + 39 000 = 74 000
MARCH : 47 000 – 39 000 + 26 000 = 34 000
WAGES
JAN
FEB
MARCH
JAN
76 000
73 600
15 200
---------
FEB
83 000
---
66 400
16 600
MARCH
92 000
-----
73 600
TOTAL
73 600
81 600
90 200
VARIABLE OVERHEADS
JAN
20 000
20 000
FEB
38 000
38 000
MARCH
42 000
42 000
TOTAL
20 000
38 000
42 000
Question 5
5.1. Payback Period for project C
1. 400 000 140 000 386 000
2. 230 000
156000
3. 200 000
156 000 200 000
= 0.78 %
Project = 2 years, 9 months and 11 days
5.2. ARR for project A
ARR = average annual profit x 100 Average investment 1
= 40 000 X 100 (400 000 / 2) 1
= 40 000 X 100 200 000 1
= 20 %
Average investment = cost of machine + disposal value or scrap value 2
= 400 000 + 40 000 2
= 220 000
Depreciation = (400 000 – 40 000) ÷5 = 72 000 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Cash flow 192 000 168 000 156 000 144 000 132 000
Less : Depreciation (72 000) (72 000) (72 000) (72 000) (72 000) Scrap value
Accounting profit 120 000 96 000 84 000 72 000 60 000
5.3 NPV for Project C and Project B
YEAR
CASH INFLOW 15%
DISCOUNT FACTOR 15%
PRESENT VALUE
1
140 000 0.8696
R 121 744
2
230 000
0.7561
R 133 903
3
200 000
0.6575
R 131 500
4
120 000
0.5718
R 68 616
5
90 000
0.4972
R 44 748
TOTAL PV
R 540 511
INVESTMENT
R (400 000)
NPV - POSITIVE
R 140 511
NET INFLOW R156 000
DISCOUNT FACTOR 15% X 3.3522
TOTAL PRESENT VALUE R 522 943
INVESTMENT
R(500 000)
NPV (POSITIVE) R 122 943
5.4 I.R.R of project B
18%
16%
17%
NET INFLOW
156 000
156 000
156 000
DISCOUNT FACTOR
3.1272
3.2743
3.1993
TOTAL PRESENT VALUE
487 843
510 791
199 091
INVESTMENT
500 000
500 000
500 000
NPV (POSITIVE)
(80345)
107 90 (910)
INTERPOLATION
The IRR is between 16 – 17
= 16 + 10790 10790 + 910
= 145, 76%
Question
Descriptions
Page
Question 1
Multiple Choice Questions
4
Question 2
Absorption costing and standard costing
Use the information provided below to prepare the Budgeted Income Statement for the year ended 30 June 2013 using the absorption costing method
2.2.1 Calculate the direct labour efficiency variance
2.2.2 Explain 2 possible causes of an unfavourable direct labour efficiency variance
5
Question 3.1
Question 3.2
Question 3.3
Question 3.4
Question 3.5 Cost-Volume-Profit Analysis
Calculate the total marginal income and net profit/loss if all the tables are sold Calculate the margin of safety (in units)
Calculate the break-even value using the marginal income ratio if …show more content…
the company spends an additional R185 650 on advertising
Calculate the selling price per unit that will enable the company to break-even if 720 units are sold and fixed costs amount to R484 560
Calculate the number of units that must be manufactured and sold if the selling price decreases to R864 per unit and the company wishes to earn a profit of R140 490
6 - 7
Question 4.1
Question 4.2 Cash Budget
Debtors collection schedule
Cash budget
8 -10
Question 5
Question 5.1
Question 5.2
Question 5.3
Question 5.4
Capital Investment Appraisal
Calculate the Payback Period for Project C.
(Answer must be expressed in years, months and days)
Calculate the Accounting Rate of Return (ARR) for Project A. (Answer expressed to two decimal places)
Calculate the Net Present Value (NPV) of Project B and Project C Calculate the Internal Rate of Return (IRR) of Project B (Answer expressed to two decimal places). (Round off amounts to the nearest rand).
Calculate the Internal Rate of Return (IRR) of Project B (Answer expressed to two decimal places) …show more content…
11-13
Question 1
1.1. C
1.2. D
1.3. B
1.4. A
1.5. C
Question 2
2.1 Absorption costing method
Income statement 30 June 2013
R
Sales (330 XR40 500) = 13 365 000
Less: manufacturing cost of sales = 8 441 130
Opening inventory (40 x R40 500) = 1 620 000
Fixed production cost = 945 000
Variable production cost (350 X 16 875) = 5 906 250
Goods available for sale = 8 471 250
Less: Closing inventory (8 471 250 /R16 875 = (30 120) = R502
Gross profit = 4 923 870 Other costs = 375 750
Variable selling and admin cost (330 X 2025) = 668 250 Fixed selling and administrative cost = (292 500)
Net profit = 4 548 120
2.2 Direct labour efficiency
= (AT – ST) SR
= 38 – 36 X 550
= 2 X 550
=
1100
Labour efficiency is favourable.
QUESTION 3
3.1 Marginal income statement 30 June 2014
Machael LTD manufactures tables
Sales (1800 X R900) = R 1620 000
Variables costs = (R 858 600)
Production (432 X 1800) = R 777 600
Sales commission (1800 X 45) = R 81 000
Marginal income = R 761 400
Fixed expenses = R (486 450)
Production overheads = R 162 000
Admin + marketing = R 324 450 Net profit = R 274 950
3.2 Break even of safety = Budgeted sales units – Break even units = 1800 - 1430 / 900 = 1800 – 1589 = 211 units
3.3 Break even value = Fixed costs 47%
= 672 100 0.47
= R1 430 000
3.4 Selling price per unit
Total fixed costs + variable costs = R484 560 + (477 x 720)
= R484 560 + R343 440
= R828 000
Selling price = R828 000 720
= R1 150 per unit
3.5. Number of units that must be manufactured.
Sales = R1 719 375 x 864
= R1 485 540
Marginal income = sales – variable cost
= R1 485 540 – R858 600
= R626 940
Net profit = marginal income – fixed cost
= R626 940 - R486 450
= R140 490
Marginal income ratio = marginal income x 100 Sales 1
= 626 940 x 100 1 713975 1 = 36%
Target sales value = fixed profit + target profit Marginal income ratio
= 626 940 36
= 17 415
Question 4
4.1 Debtors collectors schedule.
PepsiCo LTD
CREDIT SALES
JAN
FEB
MARCH
JAN
86 400
FEB
96 000
34 560
51 840
57 600
MARCH
115 200
38 400
46 080
TOTAL
297 600
34 560
90 240
103 680
REMARKS
Collections of credit sales for each month are calculated as follows:
JAN
COLLECTION
JAN
86 400 X 40%
34 560
COLLECTION
FEB
86 400 X 60%
51 840
FEB
COLLECTION
FEB
96 000 X 40%
38 400
COLLECTION
MARCH
96 000 X 60%
57 600
MARCH
COLLECTION
MARCH
115 200 X 40%
46 080
COLLECTION
APRIL
--------
--------
4.2. CASH SALES JAN , FEB AND MARCH 2015
PEPSICO LTD
Jan Feb March
Cash receipts 264 240 314 240 372 480
Cash sales after discount 201 600 224 000 268 800
Receipts from debtors 62 640 92 240 103 680
Cash payments 206 600 225 600 198 200
Cash purchase 41 000 74 000 34 000
Fixed overheads 32 000 32 000 32 000
Wages 73 600 81 600 90 200
Variable overheads 20 000 38 000 42 000
Loan repayments 40 000 Cash surplus (shortfall) 57 640 86 640 174 280
Opening cash balance 75 000 132 640 221 280
Closing cash balance 132 640 221 280 395 560
Remarks
CASH SALES
JANUARY: 86 400 ÷ 30 X 70 = 201 600
FEBRUARY: 96 000 ÷ 30 X 70 = 224 000
MARCH : 115 200 X ÷ 30 X 70 = 268 800
CASH PURCHASE
JANUARY : 51 000 – 32 000 + 22 000 = 41 000
FEBRUARY : 57 000 – 22 000 + 39 000 = 74 000
MARCH : 47 000 – 39 000 + 26 000 = 34 000
WAGES
JAN
FEB
MARCH
JAN
76 000
73 600
15 200
---------
FEB
83 000
---
66 400
16 600
MARCH
92 000
-----
73 600
TOTAL
73 600
81 600
90 200
VARIABLE OVERHEADS
JAN
20 000
20 000
FEB
38 000
38 000
MARCH
42 000
42 000
TOTAL
20 000
38 000
42 000
Question 5
5.1. Payback Period for project C
1. 400 000 140 000 386 000
2. 230 000
156000
3. 200 000
156 000 200 000
= 0.78 %
Project = 2 years, 9 months and 11 days
5.2. ARR for project A
ARR = average annual profit x 100 Average investment 1
= 40 000 X 100 (400 000 / 2) 1
= 40 000 X 100 200 000 1
= 20 %
Average investment = cost of machine + disposal value or scrap value 2
= 400 000 + 40 000 2
= 220 000
Depreciation = (400 000 – 40 000) ÷5 = 72 000 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Cash flow 192 000 168 000 156 000 144 000 132 000
Less : Depreciation (72 000) (72 000) (72 000) (72 000) (72 000) Scrap value
Accounting profit 120 000 96 000 84 000 72 000 60 000
5.3 NPV for Project C and Project B
YEAR
CASH INFLOW 15%
DISCOUNT FACTOR 15%
PRESENT VALUE
1
140 000 0.8696
R 121 744
2
230 000
0.7561
R 133 903
3
200 000
0.6575
R 131 500
4
120 000
0.5718
R 68 616
5
90 000
0.4972
R 44 748
TOTAL PV
R 540 511
INVESTMENT
R (400 000)
NPV - POSITIVE
R 140 511
NET INFLOW R156 000
DISCOUNT FACTOR 15% X 3.3522
TOTAL PRESENT VALUE R 522 943
INVESTMENT
R(500 000)
NPV (POSITIVE) R 122 943
5.4 I.R.R of project B
18%
16%
17%
NET INFLOW
156 000
156 000
156 000
DISCOUNT FACTOR
3.1272
3.2743
3.1993
TOTAL PRESENT VALUE
487 843
510 791
199 091
INVESTMENT
500 000
500 000
500 000
NPV (POSITIVE)
(80345)
107 90 (910)
INTERPOLATION
The IRR is between 16 – 17
= 16 + 10790 10790 + 910
= 145, 76%