Reference no: EM131003147 , Length: 8

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:

	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
Current assets	838 000	938 000
Inventories	375 000	470 000
Accounts receivable	385 000	440 000
Cash	78 000	28 000
Total assets	3 200 000	2 450 000
EQUITY AND LIABILITIES
Equity	?	?
Share capital	1 096 000	736 000
Retained income	?	?
Non-current liabilities	900 000	760 000
Loan (20% p.a.)	900 000	760 000
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:

	2015	2014
	R	R
Sales	2 160 000	1 430 000
Cost of sales	(1 200 000)	(730 000)
Gross profit	960 000	700 000
Operating expenses	(360 000)	(240 000)
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)
Profit before tax	520 000	406 000
Company tax	(208 000)	(162 400)
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:

Estimated sales for the financial year Selling price per unit	6000 units R1 800
Direct materials cost per unit Direct labour cost per unit Variable production overheads cost per unit	R630 R315 R180
Fixed production overheads	R702 000
Selling and administrative costs: Fixed Variable costs per unit	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.

Manfin Enterprises
Cash Budget for period 01 July to 31 August 2016
	July		August
Cash receipts	643 200		455 200
Cash sales Receipts from debtors Fixed deposit Interest on fixed deposit	312 000 246 400 80 000 4 800		247 200 208 000 - -
Cash payments	(839 200)		(847 600)
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)		(392 400)
Opening cash balance	(136 000)		(332 000)
Closing cash balance	(332 000)		(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:

	R
Direct materials	75.00
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.