Reference no: EM13183120

QUESTION 1

REQUIRED

Study the information provided below and answer the following questions:

1.1 Explain the changes that possibly took place during 2013 in respect of:
1.1.1 Financing activities
1.1.2 Investing activities
1.2 Calculate the Distribution costs for 2013.
1.3 Was there a change in the tax rate during 2013? Explain.
1.4 Critically assess the performance of the company from the information provided.

The Income Statement and simplified extract of the Statement of Changes in Equity for Kontiki Ltd are provided below:

Kontiki Ltd Income Statement for the year ended 31 December
	2013 (R)	2012 (R1
Sales	9 000 000	8 000 000
Cost of sales	(3 900 000)	(3 400 01)3)
Gross profit	5 100 000	_           4 600 000
Other operating income	300 000	280 000
Distribution costs	?	?
Administrative expenses	(1 200 000) I	(1 100 000)
Operating profit	1 200 000	1 080 000
Finance income	11 000	5 400 ,
Finance expenses	(8 700)	(17 600)
Profit before tax	1 202 300	1 067 800
Income tax	(360 690)	(320 340)
Net profit	841 610	747 460

Kontiki Ltd Statement of Changes in Equity for the year ended 31 December 2013 (simplified extract)
	(R)
Balance at 31 December 2012	2 900 000
Profit for the year	841 610
Dividends	(380 000)
Balance at 31 December 2013	3 361 610

1. Depreciation for the year amounted to:
2013: R400 000
2012: R600 000

QUESTION 2

REQUIRED

2.1 Use the Information provided below to calculate the ratios for 2013 that would reflect each of the following (Where applicable, round off answers to two decimal places):

2.1.1 The percentage of each sales Rand that remain after all costs and expenses other than interest and taxes are deducted

2.1.2 The number of times more that investors are willing to pay for each Rand of the company's earnings

2.1.3 The proportion of the total assets that are financed by external funding

2.1.4 The ability of the company to repay its short-term debts during adverse business conditions

2.1.5 The Rand amount of distributions during the period on behalf of each ordinary share Issued

2.1.6 An Indication of the percentage of profit that has been put back into the company

2.2 Comment on the following ratios that have been calculated for Leo Limited. Provide two significant comments for each ratio.

2.2.1 Gross margin

2.2.2 Return on capital employed

Excerpts of financial data of Leo Limited for 2013 are as follows:

Income statement for the year ended 31 December 2013
		R
Sales	3	250 000
Cost of sales	2	200 000
Operating profit		332 000
Interest expense		44 COO
Profit before tax		288 000
Tax		70 000

Balance sheet as at 31 December 2013
Assets
Non-current assets	980 COC
Inventories	1300	000
Accounts receivable	388	000
Cash	4	000
	2 672 DX)
Equity and liabilities
Ordinary share capital (352 000 shares)	704	000
Retained earnings	576	000
Long-term loan (12% p.a.)	420	000
Accounts payable	822	000
Dividends payable (for 2013)	100	000
Bank overdraft	50 OCO
	2 672 000

1. All purchases and sales were on credit
2. Inventories on 31 December 2012 amounted to R1200 DX.
3. Dividends paid during 2013 amounted to R50000.
4. The following ratios were calculated for 2013 and 2012:

	2013	2012
Gross margin	32.31%	36.77%
Return on capital employed	19.53%	24.52%

5. The market price of the share for 2013 and 2012 was R13 and R12 respectively.

QUESTION 3

REQUIRED

Study the information given below and answer the following questions independently:

3.1 Calculate the contribution margin ratio and thereafter use this ratio to determine the sales value required to achieve an annual operating profit of R1200 000.

3.2 Calculate the margin of safety (as a percentage) for 2015.

3.3 Suppose Colbert Enterprises is considering a R20 per unit decrease In the selling price of the product, with the expectation that this would Increase annual sales by 25%. Is this a good idea? Motivate your answer with the relevant calculations.

3.4 What price does Colbert Enterprises have to charge for each unit of the product to break even, if all 28 000 units produced are sold?

Fixed manufacturing costs per year	R480000
Variable manufacturing costs per unit	R76
Selling price per unit	R200
Marketing costs:
Advertising	R14 000 per month
Sales personnel's salaries and commission	R40000 per month plus 6% of sales
Administration costs:
Salaries	RS2 000 per month
Other office costs	R44 000 per month plus R12 per unit sold

QUESTION 4

Study the information given below and answer the following questions:

4.1.1 Calculate the total Operating Profit (Loss) for 2015 if the special order is accepted. Based on your calculations, should the special order be accepted? Why?

4.1.2 Calculate the total costs that are relevant to the special order only (45 000 units).

INFORMATION

The following Budgeted Income Statement is for a manufacturer which has received a special order to sell 45 000 units of a product at R33 per unit during January 2015. Planned sales for 2015 (excluding the special order) are 120 000 units which represents 80% of Its plant capacity. The manufacturer has no intention of increasing plant capacity if the special order is accepted.

Budgeted Income Statement for the year ended 31 December 2015

			R
Sales (120000 units)		5 760 000 (4 680 000)
Manufacturing costs:
Direct materials		1 800	000
Direct labour		720	000
........  Fixed overheads		960	000
Variable overheads		1200	000
Gross profit		1 080	000
Fixed selling, general and administrative costs		(360 000)
Operating profit		720 000

4.2  REQUIRED

Study the Information given below and answer the following questions:

4.2.1 Calculate the total Direct Labour Efficiency Variance. Also indicate whether the variance is favourable or unfavourable.

4.2.2 Explain two possible causes of an unfavourable Direct Labour Efficiency Variance.

INFORMATION

The details regarding the composition and weekly wages of the employees engaged on a job scheduled to be completed in 17 weeks are as follows:

	Standard		Actual
		Weekly wage
Category of	Number of	rate per	Number of	Weekly wages rate per
employees	employees	employee	employees	employee
Skilled	114	R750	108	R825
Semi-skilled	90	R500	75	R550

QUESTION 5

5.1 REQUIRED

Calculate the following from the information given below:

5.1.1 Accounting Rate of Return (on average investment)

5.1.2 Calculate the internal Rate of return. Use Interpolation to arrive at your answer.

INFORMATION

Conquesta Umited is considering the purchase of Machine X, details of which are provided below:

Year R
Initial investment 0 (750 000)
Scrap value 5 100 000
Net cash Inflows: 1 240 000
2 320 000
3 190 000
4 116 000
5 180 000

The cost of capital Is 12%. Depredation Is calculated using the straight-line method.

5.2 REQUIRED

Study the information given below and determine, on the basis of its Net Present Value (NPV), whether the Investment should be favourably considered.

INFORMATION

Lotus Ltd plans an investment In non-current assets costing R3 000 000. The non-current assets will have a four-year ilfe, with the following expected profits:

Year 1 R324000
Year 2 R720000
Year 3 R100000
Year 4 R150000

Finance for inventories and debtors amounting to 8200 000 will be required at the start of the project. Trade credit will provide R110 000 of this amount. All the working capital will be recovered at the end of year 4. The expected scrap value of the non-current assets at the end of year 4 Is R375000. The cost of capital Is 12%.