Prepare a purchase budget for the four month

Assignment Help Financial Accounting

Reference no: EM131205733

Section A

Answer ALL questions in this section

Question 1. Tattoo Ltd has gathered the following information at 30 June 2015.

Net sales	37,000
Cost of sales	23,000
Expenses (including $1,300 depreciation)	8,000
Profit	6,000

	Beginning Balance $	Ending Balance $
Accounts receivable	5,000	4,000
Inventory	7,000	9,000
Accounts payable	4,000	7,000
Prepaid expenses	2,000	1,500
Accrued salaries	5,000	5,300

Required:

Using the indirect method, calculate the net cash used in operating activities.

Question 2. The Managing Director of a private limited company asks for your assistance in arriving at a decision as to whether to continue manufacturing component X or to buy it from an outside supplier.

Component X is used in the finished products of the company. The following data are supplied:

1. The annual requirements of component X is 10,000 units, the quotation from the outside supplier is $8 per unit.

2. The total expenses of the machine shop for the year 2015 where component X is made, are as follows:

Materials	135,000
Labour	100,000
Indirect labour	40,000
Power and fuel	4,000
Repairs	11,000
Rates and taxes	16,000
Depreciation	20,000
Other overheads	29,600

3. The following expenses of the machine shop apply to the manufacture of component X:

Materials 35,000

Direct labour 56,000

Indirect labour 12,000

Power and fuel 600

Repairs 1,000

The sale of the machinery used for the manufacture of component X would reduce the annual depreciation by $4,000 and insurance by $2,000.

If component X is purchased, the following additional expenses would be incurred: freight $1 per unit, inspection $10,000 per annum.

Required:

Prepare a report to the Managing Director showing the comparison of expenses to the company:

(a) Of producing the component.

(b) Of purchasing it from the outside supplier.

Question 3. PT Corporation is to launch a new product and the initial findings are as follows:

1. The cost per unit will be:

Material 25

Labour 10

Overheads 12

2. The no stock holding periods are:

Raw materials 6 weeks

Finished goods 4 weeks

3. 2 weeks are required for the production process.

4. Credit terms:

Material 8 weeks

Wages 1 week

Overheads 4 weeks

Debtors 8 weeks

5. It is planned to produce 50 units per week.

6. The selling price per unit will be $55.

Required:

Calculate the amount of working capital required for the new product, showing all the workings.

Section B

Answer ANY TWO questions in this section.

Question 1

Molly Ltd's trial balance at 30 April 2015 was as follows:

	$000	$000
Revenue		300
Inventory at 1 May 2014	20
Purchases	113
Sales office salaries	57
Selling expenses	39
General office wages	32
Other general expenses	35
Warehouse machinery at cost	70
Provision for depreciation of warehouse machinery		30
Office machinery at cost	42
Provision for depreciation of office machinery		20
Trade receivables	38
Balance at bank	28
Trade payables		11
10% debentures 2021/22		5
50,000 ordinary shares of $1		50
10,000 6% non-redeemable preference shares of $1		10
Share premium account		15
General reserve		25
Retained earnings		8
	474	474

Further information:

1. Inventory at 30 April 2015 was valued at $31,000.

2. Depreciation for the year is to be provided as followed:

Warehouse machinery $8,000.

Office machinery $10,000.

3. $10,000 is to be transferred to the general reserve.

Required:

(a) Prepare Molly Ltd's income statement for the year ended 30 April 2015.

(b) Prepare Molly Ltd's statement of changes in equity for the year ended 30 April 2015.

Question 2.

A company's management accountant has prepared the following budget for the five months November to March.

	Nov	Dec	Jan	Feb	Mar
Raw materials consumed	50	60	69	77	60
Wages	40	40	40	48	40
Depreciation	9	9	9	9	9
Factory expenses	6	6	6	6	6
Rent	4	4	4	4	4
Advertising	15	14	12	16	12
Administrative expenses	20	20	20	20	20
Sales	150	160	170	190	170
Profit	6	7	10	10	19
Raw materials stock (month end)	60	70	80	70	50

The following information is also available:

1. The bank balance at 1 January will be $10,000.

2. Suppliers are paid one month after delivery.

3. Factory and administrative expenses are paid during the month incurred.

4. Wages are paid one quarter of a month in arrears.

5. On average, debtors take two month's credit.

6. During January a corporation tax liability of $15,000 will be settled.

7. Rent is paid quarterly in arrears on the last day of December, March, June and September.

8. Two months credit is allowed by the advertising agency.

Required:

(a) Prepare a purchase budget for the four month period December - March.

(b) Prepare a cash budget for the three month period January - March.

Note: Show all relevant workings.

Question 3

Expel Plc uses a variety of machines to produce aluminum sheets. One of these machines is to be replaced. The management is considering two alternative models. Each model has an estimated life of 5 years. Details of the two models are given below:

Models	A	B
	$	$
Cost	75,000	90,000
Expected net cash flows:
Year 1	12,000	18,000
2	24,000	36,000
3	30,000	30,000
4	15,000	18,000
5	12,000	12,000
Trade in value (end of year 5)	9,000	15,000

Present Value of $1

Year 1 2 3 4 5

10%	0.9091	0.8264	0.7513	0.6830	0.6209
15%	0.8696	0.7561	0.6575	0.5718	0.4972

Required:

(a) Compute which of the two models is likely to yield the better return (based on net present value (NPV) method) using as the required rate:

(b) (i) Describe, illustrating with figures from part (a), how you would apply the internal rate of return (IRR) method.

(ii) Explain why your conclusions using this method might differ from the NPV approach, and which is the recommended method.

Reference no: EM131205733

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