ASSIGNMENT: BUSINESS MANAGEMENT
QUESTION 1 FINANCIAL PROJECTION
REQUIRED
Use the information given below to prepare the following budgets for Product Nik and Product Nak for February 2017. Provide separate monetary columns for each product.
1.1 Sales Budget (units and Rand)
1.2 Production Budget (units)
1.3 Direct Labour Budget (Rand)
1.4 Manufacturing Overheads Budget (Rand) 1.5 Cost of Sales Budget (Rand)
INFORMATION
Niknak Limited manufactures and sells two products. The following information is available to determine the budget requirements for February 2017:
1 Projected sales for February and March 2017:
| February |
March |
| 30 000 units of Nik at R20 each |
24 000 units of Nik at R22 each |
| 10 000 units of Nak at R40 each |
8 000 units of Nak at R42 each |
2 The policy of Niknak Limited is to maintain a closing inventory equal to 40% of the budgeted sales of the following month.
3 Labour hours required to produce one unit of each product and the rate per hour are as follows: Nik: 0.6 hours at R4 per hour Nak: 0.9 hours at R5 per hour
4 Manufacturing overheads for each product are projected at a rate of R0.30 per direct labour hour.
5 Total production cost per unit (including the costs above) is R7 for Nik and R20 for Nak.
QUESTION 2 MANAGEMENT OF WORKING CAPITAL
2.1 REQUIRED
Use the information given below to calculate the net value of issues to the production department for May 2016 and the value of inventory as at 31 May 2016 using the:
2.1.1 First-in-first-out method.
2.1.2 Weighted average cost method.
INFORMATION
The following information for May 2016 was extracted from the records of TASPA Limited, a manufacturing company, for product Tas:
|
Date
|
Transaction details
|
|
01
|
Opening inventory comprised 2 000 units @ R18 each.
|
|
05
|
Invoice received for 40 000 units @ R19 each.
|
|
06
|
Returned 5 000 damaged units (purchased 05 May 2016) to the supplier.
|
|
15
|
Invoice received for 35 000 units @ R20 each.
|
|
28
|
Invoice received for 15 000 units @ R19 each.
|
|
31
|
Transferred 69 000 units to the production department during May 2016.
|
TASPA Limited uses the periodic inventory system.
2.2 REQUIRED
2.2.1 Study the information given below and calculate the cost (as a percentage) to Umhlali Stores of not accepting the discount.
2.2.2 Should Umhlali Stores pay the account within 12 days? Why?
INFORMATION
Warwick Wholesalers sold goods on credit to Umhlall Stores for RS 000. The credit terms to Umhlali Stores are 30 days but Warwick Wholesalers is prepared to allow a discount of R125 if Umhlali Stores pays the account within 12 days. The current interest rate on overdraft is 18% per annum.
QUESTION 3 CAPITAL EXPENDITURE DECISIONS
3.1 REQUIRED
Study the information given below and calculate the following in respect of the machine (answers expressed to 2 decimal places):
3.1.1 Benefit Cost Ratio
3.1.2 Internal Rate of Return, if the machine has no salvage value.
INFORMATION
Africote Limited is considering the purchase of a machine. The company desires a minimum required rate of return of 12%. The machine will cost R1000 000 plus 11200 000 for installation costs and is expected to have a useful life of 5 years. The machine is expected to have a salvage value of R50 000. The machine is expected to increase revenues by R400 000 per year but will require the employment of 2 new machine operators at R50000 per year per each operator, and it will require maintenance and repairs averaging R20 000 per year.
3.2 REQUIRED
Study the information given below and answer the following questions:
3.2.1 Calculate the Payback Period of Project A (answer expressed in years, months and days). 3.2.2 Calculate the Accounting Rate of Return (on average investment) of each project.
INFORMATION
The following data relate to two investment pro'ects, only one of which may be selected:
|
|
Project A
|
Project B
|
|
|
R
|
R
|
| Initial capital expenditure |
100 000
|
100 000
|
| Net cash inflows per year: |
|
|
| Year 1 |
50 000
|
20 000
|
| Year 2 |
40 000
|
22 000
|
| Year 3 |
32 000
|
40 000
|
| Year 4 |
20 000
|
45 000
|
Note:
- Project B is expected to have a scrap value of R20 000 (not included in the figures above). No scrap value is expected for Project A.
- Depreciation is calculated using the straight-line method.
QUESTION 4 FINANCIAL ANALYSIS
REQUIRED
4.1 Use the information provided below to calculate the following ratios for 2015. Where applicable, round off answers to two decimal places.
4.1.1 Inventory turnover
4.1.2 Debtors collection period
4.1.3 Creditors payment period
4.1.4 Earnings per share 4.1.5 Return on equity 4.1.6 Debt to assets 4.1.7 Acid-test ratio
4.2 Comment briefly but meaningfully on the following ratios:
|
|
2015
|
2014
|
|
Gross margin
|
40%
|
30%
|
|
Return on assets
|
47.67%
|
34.87%
|
|
Debt to equity
|
30%
|
40%
|
INFORMATION
Excerpts of the financial data of Virgo Limited for 2015 are as follows:
|
Statement of Comprehensive Income for the year ended 31 December 2015
|
|
|
|
|
|
R
|
|
|
Cost of sales
|
1
|
200
|
000
|
|
Gross profit
|
|
800
|
000
|
|
Operating profit
|
|
350
|
000
|
|
Interest expense
|
|
25
|
000
|
|
Profit before tax
|
|
325
|
000
|
|
Profit after tax
|
|
225
|
000
|
|
Statement of Financial Position as at 31 December 2015
|
|
|
|
|
R
|
|
|
Non-current assets
|
400
|
000
|
|
Inventories
|
250
|
000
|
|
Accounts receivable
|
100
|
000
|
|
Equity
|
500
|
000
|
|
Long-term loan
|
150
|
000
|
|
Accounts payable
|
80
|
000
|
|
Bank overdraft
|
20
|
000
|
Additional information
1. The ratio of credit sales to cash sales is 3:2 respectively.
2. 60% of the merchandise purchased was bought on credit.
3. Inventories on 31 December 2014 amounted to R200 000.
4. The authorised share capital consisted of 500 000 ordinary shares, of which 300 000 were issued.
QUESTION 5 CASH BUDGET
REQUIRED
Use the information provided below to prepare the following for Baxter Limited for November and December 2016 (using separate monetary columns for each month):
5.1 Debtors Collection Schedule 5.2 Cash Budget
INFORMATION
1. The bank balance on 31 October 2016 is expected to be R30 000 (unfavourable).
2. Sixty percent (60%) of all sales are for cash; the balance is on credit. Credit sales for October 2016 are expected to be R300 000. Sales are expected to increase by 10% per month from November 2016.
3. Twenty percent (20%) of the sales on credit are expected to be collected in the month of the sale, for a discount of 3%. The balance is expected to be collected in the month after the sale.
4. Baxter Limited sells its goods at cost price plus 50%. All goods that are sold each month are replaced in the same month. All purchases are on credit and creditors are paid one month after the purchase.
5. Salaries and wages are expected to cost R81 000 for December 2016, after an 8% increase takes effect from 01 December 2016.
6. Advertising expenses are expected to be 5% of monthly sales, and are paid one month later.
7. Equipment costing R300 000 is expected to be purchased during November 2016. A deposit of 20% will be paid in November and the balance plus finance charges of R24 000 is payable in 12 equal instalments commencing December 2016.
8. A long-term loan of R240 000 at 15% per annum interest is to be raised on 01 December 2016. Interest is payable monthly with the first interest payment to be made on 31 December 2016.
9. Other expenses, including depreciation of RS 000 per month, are expected to amount to R50 000 each month and payments are made monthly.
10. An interim dividend of 8.5 cents per share is expected to be paid on 30 November 2016. The authorised share capital of Baxter Limited consists of 800 000 ordinary shares, of which 70% have been issued.
Assignment format
- Your assignment should include a Table of Contents page.
- Text: Arial or Times New Roman (12); Spacing 1% lines. All text must be justified at each margin.
- Where applicable, use formats, formulas and present value tables from your study guide.
- Start each question on a new page.
- Number each solution according to the numbering in the assignment handbook.
- You may make use of a spreadsheet (e.g. Microsoft Excel) to assist you only with the construction of tables and formats.
- Solutions generated by software packages will not be marked.
- No marks will be awarded if only the final answers are given. All relevant workings must be shown.