ACCOUNTING FOR DECISION-MAKING
QUESTION ONE AND QUESTION TWO ARE BASED ON THE FOLLOWING INFORMATION EXTRACTED FROM THE ACCOUNTING RECORDS OF DAIRYBELLE LIMITED FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2015 AND 2014:
Dairybelle Limited
Statement of Financial Position as at 31 December:
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|
2015
|
2014
|
|
|
R
|
R
|
|
ASSETS
|
|
|
|
Non-current assets
|
2 362 000
|
1 512 000
|
|
Land and buildings
|
450 000
|
450 000
|
|
Motor vehicles
|
375 000
|
300 000
|
|
Plant and equipment
|
1 180 000
|
500 000
|
|
Investments
|
357 000
|
262 000
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|
Current assets
|
838 000
|
938 000
|
|
Inventories
|
375 000
|
470 000
|
|
Accounts receivable
|
385 000
|
440 000
|
|
Cash
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78 000
|
28 000
|
|
Total assets
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3 200 000
|
2 450 000
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|
|
|
|
|
EQUITY AND LIABILITIES
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|
|
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Equity
|
?
|
?
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|
Share capital
|
1 096 000
|
736 000
|
|
Retained income
|
?
|
?
|
|
Non-current liabilities
|
900 000
|
760 000
|
|
Loan (20% p.a.)
|
900 000
|
760 000
|
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Current liabilities
|
460 000
|
300 000
|
|
Accounts payable
|
460 000
|
300 000
|
|
Total equity and liabilities
|
3 200 000
|
2 450 000
|
Dairybelle Limited
Statement of Comprehensive Income for the year ended 31 December:
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2015
|
2014
|
|
|
R
|
R
|
|
Sales
|
2 160 000
|
1 430 000
|
|
Cost of sales
|
(1 200 000)
|
(730 000)
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|
Gross profit
|
960 000
|
700 000
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|
Operating expenses
|
(360 000)
|
(240 000)
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|
Depreciation
Other selling, general and administrative expenses
|
116 000
244 000
|
40 000
200 000
|
|
Operating profit
|
600 000
|
460 000
|
|
Investment income
|
?
|
?
|
|
Interest expense
|
(176 000)
|
(120 000)
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|
Profit before tax
|
520 000
|
406 000
|
|
Company tax
|
(208 000)
|
(162 400)
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|
Profit after tax
|
312 000
|
243 600
|
Note:
All sales and purchases of inventory are on credit.
Dividends declared for the years ended 31 December2014 and 2015 amounted to R182 700 and R222 000 respectively.
Inventories on 31 December 2013 amounted to R300 000.
The creditors allow credit terms of a maximum of 90 days.
QUESTION ONE
REQUIRED
Did the retained income of the company increase or decrease? By how much?
By how much did the interest income increase or decrease from 2014 to 2015. Provide a possible reason for the change.
Comment on the investing activities of the company.
Calculate the amount that would be reflected as "Changes in working capital" in the Statement of Cash Flows for 2015.
Without making use of any ratios, provide an interpretation of the following over the two-year period:
Profit after tax
Inventories
Accounts receivable
QUESTION TWO
REQUIRED
Use the appropriate ratios and provide an interpretation of your answers for each of the following over the two-year period:
The operational effectiveness of the company with regard to the mark-up added to the cost price of the inventories for sale.
The effectiveness of the company with regard to the management of its accounts payable.
The ability of the company to settle its short-term debts under distress conditions.
The percentage of the profit that has been retained in the company.
The profitability of the company from the point of view of the shareholders.
QUESTION THREE
REQUIRED
Study the information below and answer each of the following questions independently:
3.1. Calculate the break-even quantity.
3.2 Calculate the selling price per unit that will enable the company to break even.
3.3 Calculate the sales value required to make an operating profit of R1 620 000, by using the contribution margin ratio.
3.4 Calculate the percentage change in the operating profit, if the selling price and fixed costs increase by 10%.
3.5 Calculate the total Contribution margin and Operating profit/loss if the sales volume is 10% below expectation.
INFORMATION
The following information was extracted from the budget for a project of Daintree Manufacturers for the year ended 29 February 2016:
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Estimated sales for the financial year Selling price per unit
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6000 units
R1 800
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Direct materials cost per unit Direct labour cost per unit
Variable production overheads cost per unit
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R630 R315 R180
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Fixed production overheads
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R702 000
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|
Selling and administrative costs: Fixed
Variable costs per unit
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R270 000 R135
|
QUESTION FOUR
4.1 REQUIRED
Study the cash budget and additional information provided below and then answer the following questions:
4.1.1 Calculate the total sales for July 2016.
4.1.2 Calculate the interest rate on the fixed deposit.
4.1.3 Calculate the salaries for June 2016.
4.1.4 Calculate the total purchases of inventory for June 2016.
4.1.5 Comment on the cash budget and provide recommendations, where applicable.
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Manfin Enterprises
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|
Cash Budget for period 01 July to 31 August 2016
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July
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|
August
|
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Cash receipts
|
643 200
|
|
455 200
|
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Cash sales
Receipts from debtors Fixed deposit
Interest on fixed deposit
|
312 000
246 400
80 000
4 800
|
|
247 200
208 000
-
-
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|
Cash payments
|
(839 200)
|
|
(847 600)
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|
Cash purchase of inventory Payments to creditors (for inventory)
Drawings Salaries Equipment
Cash operating expenses
|
196 000
204 000
20 000
211 200
40 000
168 000
|
|
190 000
230 000
20 000
211 200
20 000
176 400
|
|
Cash surplus (shortfall)
|
(196 000)
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|
(392 400)
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|
Opening cash balance
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(136 000)
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|
(332 000)
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|
Closing cash balance
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(332 000)
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|
(724 400)
|
Additional information
The following assumptions and forecasts were taken into consideration when the cash budget was drawn up:
- Cash sales make up 60% of the total sales. The balance of the sales is on credit. Debtors usually settle their accounts one month after the sale.
- 50% of the purchases of inventory are for cash. The balance is purchased on credit. Creditors are paid two months after the month of purchase.
- The salaries are expected to amount to R211 200 for July 2016, after a 10% increase takes effect from 01 July 2016.
- A fixed deposit, R80 000, will mature (expire) on 31 July 2016. Interest for six months will
also be received on this date.
4.2 REQUIRED
Study the information provided below and answer the following questions:
4.2.1 Does Humpty Limited have sufficient spare capacity to accept the special order of 45 000 units? Motivate your answer.
4.2.2 Should the company accept the special order? Show the relevant calculations.
INFORMATION
Humpty Limited is currently operating at 75% of its capacity. Monthly production and sales at present are 150 000 units at R225 each. The per unit costs for producing 150 000 units of Product Vin are as follows:
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|
R
|
|
Direct materials
|
75.00
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Direct labour
|
45.00
|
|
Variable factory overheads
|
11.25
|
|
Fixed factory overheads
|
22.50
|
|
Variable selling expenses
|
3.75
|
|
Fixed administrative expenses
|
15.00
|
|
Total cost per unit
|
172.50
|
A customer has offered to purchase 45 000 units of Product Vin at R150 per unit. No additional selling expenses will be incurred.
QUESTION FIVE
5.1 REQUIRED
Study the information given below and calculate the following:
5.1.1 Accounting Rate of return (on average investment).
5.1.2 Net Present Value.
5.1.3 Internal Rate of Return.
INFORMATION
A private school is considering the purchase and operation of its own fleet of buses to transport students to and from school daily. If the project is implemented the school will be able to cancel an existing contract with a local bus operator. The cost of operating the buses each year is expected to be R200 000 and the annual revenues from parents for transporting their children are estimated at R350 000. The buses will cost the school R500 000. The school's cost of capital is 12%. Depreciation is calculated using the straight-line method. The useful life of the buses is 5 years.
5.1 REQUIRED
Study the information given below and calculate the transfer price to Division B if:
5.2.1 The product is transferred at cost plus 25%.
5.2.2 The market-based transfer price is used.
INFORMATION
Hyundai Limited has two divisions viz. Division A and Division B. Division A produces Product X at a standard cost of R20 per unit, which includes R5 selling costs per unit if the product is sold to external customers. Product X is also supplied to Division B for further processing. Division A normally sells Product X to external customers for R25 per unit.