Reference no: EM13830392

QUESTION 1:

REQUIRED

Study the Statement of Financial Position of Atlas Ltd as at 31 May 2015 (including the notes) and answer the following questions:

1.1 How much of the profit after tax was retained by Atlas Limited for the year ended 31 May 2015?

1.2 Atlas Ltd made an application to Senzo Manufacturers to purchase goods on credit.

Should Senzo Limited approve the application? Motivate your answer with the use of the relevant ratios.

1.3 Comment and make recommendations with regard to the following:

1.3.1 Property, plant and equipment (R700 000)

1.3.2 Fixed deposit (R200 000)

1.3.3 Inventories (R800 000)

Atlas Ltd

EXTRACT OF STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2015

ASSETS	Note
Non-current assets			900	000
Property, plant and equipment	1		700	000 I
Fixed deposit (6% p.a.)			200	000
Current assets		1	500	000
Inventories			800	000
Accounts receivable/Debtors			600	000
Cash			100	000
		2	400	000

EQUITY AND LIABILITIES Equity
		?
Ordinary share capital		1 200 000
Retained earnings	2	?
Non-current liabilities		325 000
Long-term loan (18% p.a.)		325	000 I
Current liabilities		575	000
Accounts payable/Creditors		400	000
Dividends payable		175	000
		2400	000

QUESTION 2

REQUIRED

Study the information provided below and answer the following questions:

2.1 It is the policy of Saturn Limited to retain 4096 of the profit after tax. Was this policy adhered to for the financial year ended 31 December 2014? Motivate your answer.

2.2 Has management been efficient in the management of its accounts receivable? Use the relevant ratio to motivate your answer.

2.3 Is Saturn Limited taking advantage of the credit terms offered by its trade creditors? Substantiate your answer.

2.4 Would the shareholders of Saturn Limited be satisfied with their return on investment? Why?

2.5 Suppose Saturn Limited purchases goods for R600 000.

How much should it sell the goods for and still maintain the existing gross margin ratio?

Information

Excerpts of financial statement of saturn Limited for 2014 are as follows:

Statement of Comprehensive Income for the year ended 31 December 2014
	R
Sales (all credit)	7 000 000
Cost of sales	(5 600 000)
Gross profit	1 400 000
Operating expenses	(800 000)
Operating profit	600 000
Interest expense	(150 000)
Profit before tax	450 000
Tax	(135 000)

Statement of Financial Position as at 31 December 2014
			R
Assets
Non-current assets		700	000
Inventories	1	600	000
Accounts receivable		800	000
Cash		100	000
	3	200	000
Equity and liabilities
Ordinary share capital	1	200	000
Retained earnings		500	000
Long-term loan (15%)		800	000
Accounts payable		400	000
Dividends payable		100	000
Other current liabilities		200	000
	3	200	000

QUESTION 3

REQUIRED

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

3.1 Calculate the number of skirts that Beads4us must make in order to break even each month.

3.2 Calculate the selling price per unit that will enable Beads4us to break even (at the expected sales volume).

3.3 Calculate the total contribution margin and operating profit (loss) if the selling price is R30 below the normal selling price.

3.4 Beads4us is considering paying the sales persons a monthly salary instead of paying a sales commission. How much can it afford to pay in salaries and achieve an operating profit of R50 000 per month.

3.5 Suppose the business has an opportunity to rent machines in order to reduce work time.

Doing so would increase the total fixed costs of operating the workshop by R12 000 per month. Using the machines will reduce the labour time to 1.5 hours for each skirt.The employees who make the skirts will still be paid R30 per hour and material costs remain unchanged.

Will renting the machines be more profitable?Show the relevant calculations.

QUESTION 4

4.1 REQUIRED

Study the Cash Budget as well as the other information given below and answer the following questions:

4.1.1 Calculate the total budgeted sales for January 2016.

4.1.2 How much is Heinz Enterprises owing to AB Bank?

4.1.3 How much will be paid to the employees during January?

4.1.4 Calculate the total purchases for January 2016.

4.1.5 Is the cash position of the business satisfactory? Explain.

Information

Cash Budget of Heinz Enterprises for the 3 months ended 31 March 2016
					January		February		March
Cash receipts					214 000		205 400		224 800
Cash sales					114 000		125 400		136 800
Receipts from debtors					100 000		80 000		88 000
Cash payments					?		(225 820)		(214 820)
Cash purchases of inventory					45 000		43 000		47 000
Payments to creditors					50 000		60 000		45 000
Salaries and wages					?		40 320		40 320
Interest on loan		(15%)			2 500		2 500		2 500
Other cash operating expenses					80 000		80 000		80 000
Cash surplus	(shortfall)				?		20 420		9 980
Opening cash balance					25 000		?		?
Closing cash balance					?		?		?

Additional information

1. Cash sales make up 60% of the total sales and a 5% discount is granted on these sales. The balance of the sales is on credit and is collected in the month after the sale.

2. 50% of the purchases of inventory are for cash and the balance is paid for two months after the purchase.

3. Salaries increase by 12% with effect from 01 February 2016.

4. Interest is paid monthly on the loan from AB Bank.

4.2 REQUIRED

Use the information provided below to :

4.2.1 Calculate the total contribution margin if the special order is rejected.

4.2.2 Determine the effect on the operating profit if the special order is accepted.

INFORMATION

The following information was supplied by Umbro Limited in respect of the T-shirts that it manufactures:

		R
Sales (10 000 T-shirts)	400	000
Direct materials	140	000
Direct labour	60	000
Variable factory overheads	40	000
Variable selling and administrative costs	22	000
Fixed factory overheads	60	000
Fixed selling and administrative costs	58	000

Suppose Umbro Limited received a special order for 1 000 T-shirts at R28 per unit that:

• would use otherwise idle capacity.
• would not require any additional variable selling and administrative expenses.

QUESTION 5

5.1 REQUIRED

Use the information given below to calculate the following:

5.1.1 Net Present Value of the project (Round off amounts to the nearest rand.)

5.1.2 Accounting Rate of Return (on average investment).

5.1.3 Internal Rate of Return, if the net cash inflows are R150 000 per year for 5 years and the equipment has no resale value.

5.2 REQUIRED

Use the information given below to calculate the following variances: 5.2.1 Raw material usage variance

5.2.2 Direct labour efficiency variance