mba accounting assignment

QUESTION 1

1.1

Retained earnings for 2015:

R R

Total Equity and Liabilities 2 400 000

Less:Retained earnings 2014 (200 000)

Current Liabilities (575 000)

Non-current liabilities (325 000)

Ordinary Share Capital (1 200 000)

Total (2 300 000)

Retained Earnings 2015 100 000

1.2 To assess the credit worthiness of Atlas LTD given the balance sheet

information,Senzo Manufacturers should calculate ratios that determine Atlas’ability

to meet its short term debt obligations.

Current ratio =Current assets /current liabilities

=1 500 000/575 000

=2.61:1

Acid test ratio = Current assets-Inventory/current

liabilities

= (1 500 000-800 000)/575 000

= 1.22:1

Given the above ratios, Senzo manufacturers should grant Atlas ltd the credit since its

current ratio shows that its current assets can meet its short term debt obligations. The

acid test also shows that without depending on the sale of inventories, Atlas ltd would

still be able to cover their short term debts(Mancosa,2013:104).

1.3.1 Property Plant and Equipment (700 000)

The reported values are shown at cost value less accumulated depreciation. The

Equipment has depreciated and it needs replacement since it is reaching the end of its

economic life.

1.3.2 Fixed deposit (200 000)

This is an intangible asset from the company’s long term investments. There are capital

gains on the investment. It can be recommended that the company venture into more

investments since these long term assets do not depreciate (Mancosa, 2013:47).

1.3.3 Inventories (800 000)

The company is holding too much inventory. Therefore there is an opportunity cost of

using the funds in other profitable ventures. It is recommended that the firm use an

inventory management system that ensures that the company turns over inventory

quickly (Mancosa,2013:47)..

QUESTION 2

2.1 According to the policy, amount that should be retained is:

40/100x 315 000= R 126 000

Retained Earnings= Profit due to ordinary shareholders-Ordinary dividend for the year

=R315 000-R114 200

=200 800

The retained earnings policy has been followed.

2.2

Debtor collection period=Accounts Receivable/Credit sales X 365

=800 000/7 000 000 X365

=41.71 days

Therefore the management has not been effective in the management of its accounts

receivable since the days showed by the above ratio are more than the 30 days

stipulated in the credit terms.

2.3

Creditor payment period=Accounts payable/credit purchases X 365

Credit purchases calculated as follows:

Cost of sales 5 600 000

Add closing inventory 1 600 000

Less opening Inventory (1 800 000)

Total purchases (5 400 000)

Credit purchases= 5 400 000X80/100

=4 320 000

Creditor payment period=400 000/4 320 000X365

33.795 days

No. Saturn is not taking advantage of the credit terms offered by its trade creditors since

it pays creditors too early.The firm is offered 90 days to pay but it pays its creditors

within 34 days.

2.4

Return on investment:

Return on Equity=Profit after tax/Owners Equity X100/1

=315 000/1 200 000

=26.25%

26.25% is higher than the prevailing interest rate of 15%, therefore it is considered

satisfactory, and hence the shareholders would be satisfied with the return on their

investment.

2.5

Gross margin ratio=gross profit/sales X 100/1

1 400 000/1 000 000 X 100/1

=20%

Mark up =20%X 600 000

=120 000

Selling price=cost price +mark up

=600 000+120 000

=R 720 000

It should sell the goods for a total of R 720 000 to achieve the current gross margin.

QUESTION 3

3.1

Per unit

x

Volume

=

Total %

sales 280

Variable costs 180

Contribution margin (100) 2000 200 000 35.7%

Fixed costs (100 000)

Operating Profit 100 000

Workings for variable costs and fixed costs

Variable costs:

Direct material 92

Labour(R30X2hrs) 60

Commission 28

180

Commission as 10% of selling price = 10/100 x280 =R28

Fixed costs= 96 000+4000 advertising costs=R100 000

Break even quantity=fixed costs/contribution margin per unit

=100 000/100

=1000 units

3.2

Per unit

x

Volume

=

Total %

sales 230

Variable costs 180

Contribution margin (50 ) 2000 100 000 35.7%


Operating Profit 0

Working back from operating profit at zero, we find that the total contribution margin

should equal fixed costs. Given 2000 units as the quantity, we deduce the contribution

margin, and then work out the sale value by adding the variable costs and the

contribution per unit.

3.3

Per unit

x

Volume

=

Total %

sales 250 500 000

Variable costs 180

Contribution margin (70) 2000 140 000 28%



The total contribution margin is 140 000

Operating profit is 40 000

3.4

Per unit

x

Volume

=

Total %

sales 280

Variable costs 152




Salaries per month =Fixed costs after Salaries - Fixed costs before the salary

=206 000-100 000

=106 000

3.5

Yes, renting the machine increases operating profit by R18 000 as shown below.

Rent machine:

Per unit

x

Volume

=

Total %

sales 280

Variable costs 165




Without machine rental:

Per unit

x

Volume

=

Total %

sales 280

Variable costs 180




Calculations of fixed costs and variable costs

Fixed costs=96 000+4 000+12 000=R112 000

Variable costs:

Labour 1.5 x P30 45

Direct materials 92

Commission 28

R165

QUESTION 4

4.1

4.1.1

Credit sales: 114 000x 40/60=76 000

Total sales=credit sales +cash sales

=76 000+ 114 000

=R190 000

4.1.2

15%=2500

100%= total loan

Cross multiplying

Total loan =2500x100/15

=R16 667

4.1.3

Salaries with 12%increase in February=40320

112%=40320

100%=salaries in January

Cross multiplying

Salaries in January=R40320x 100/112

=R36 000

4.1.4

Cash purchases are 50% of purchases

Credit purchases =45 000x50/50

=45 000

Total purchases =cash purchases + credit purchases

=45 000+45 000

=R90 000

4.1.5

cash budget of heinz enterprises for 3 months ended31 March 2016

January February Marchcash receipts 214000 205400 224800

cash sales 114000 125400 136800

receipts from debtors 100000 80000 88000

cash payments (213500)

(225820) (214820)

cash purchases of inventory 45000 43000 47000

payment to creditors 50000 60000 45000

salaries and wages 36000 40320 40320

interest on loan 15% 2500 2500 2500

other cash operating epenses 80000 80000 80000

cash surplus/(shortfall) 500 (20420) 9980

Opening cash balance 25000 25500 5080

closing cash balance 25500 5080 15060

Since the bank balance is expected to be favourable each month, the company does

not need overdraft facilities during the period. However, the cash position is not good

since in February the company did not generate enough cash to cover its payments.

The cash deficiency was met by cash balances in the bank.

4.2

4.2.1

If the order is rejected the total contribution margin is R138 000 calculated as shown in

the table below

Per unit

x

Volume

=

Total %

sales 40

Variable costs 26.20

Contribution margin (13.80) 10 000 138 000 34.5%



Calculation of fixed and variable costs:

Fixed costs=fixed factory overheads+ fixed selling and administrative costs

=58 000+60 000

=118 000

Unit Variable costs:

Direct materials 140 000/10 000 =14

Direct labour 60 000/10 000 = 6

variable factory overheads 40 000/10 000 =4

variable selling and admin costs= 22 000/10 000 =2.20

26.20

4.2.2

Differential revenue from accepting the offer:

1000 units @R28 28 000

Differential cost by accepting the offer:

1000 units@R24 (14+6+4) (24 000)

Differential profit from accepting the offer 4000

The special order would increase operating profits.

QUESTION 5

5.1

5.1.1

Operating cash flows =Revenues-Operating expenses

=300 000-120 000

=180 000

Net cash flows =operating cash flows + depreciation

=180 000+116 000

=296 000

Calculation of depreciation: cost –salvage value/number of years

=R600 000-R20 000/5

=R116 000p.a

Calculation of NPV:

Year Cash

flows

Discount

factor 12%

Present

value

Y0 600 000 1 (600 000)

Y1 296 000 0.8929 264 298

Y2 296 000 0.7972 235 971

Y3 296 000 0.7118 210 693

Y4 296 000 0.6355 188 108

Y5 296 000 0.5674 167 950

Y5 scrap

value

20 000 0.5674 11 348

NPV 478 369

5.1.2

Accounting rate of return:

ARR =Average annual profit/Average investmentX100/1

=180 000/310 000 X100/1

=58%

Average investment =cost of machine salvage value/2

= (600 000+20 000)/2

=R310 000

Average annual profit = Revenues-Operating expenses

=300 000-120 000

=R180 000 p.a

Therefore 180 000*5/5 =R180 000

5.1.3

Internal Rate of Return

By Trial and Error:

Year Cash

inflow

p.a

Discount

factor

18%

Discount

factor

19%

Present

value

18%

Present

value

19%

1-5 196 000 3.1272 3.0576 612 931 599 290

Investment 600 000 600 000

NPV 12 931 (710)

By interpolation

IRR= 18%+ 12 931/(12 931+710)

=18%+ 12 931/13 641

=18+0.94795

=18.95%

5.2

5.2.1

Raw material usage variance= (Actual quantity-standard quantity) X standard price

= (25 000-27 000) X R4

=R8 000 (Favourable)

Note:

Standard quantity=3 x 9000=27 000m

Actual quantity=25 000m

Standard price=R4 per meter

5.2.2

Labour Efficiency variance= (actual time worked-standard time allowed) X standard rate

=(13000-13500)XR15

= (R7 500) Favourable

Note:

Standard time allowed =9000 units X 1.5 hours per unit

=13 500hrs

Actual time worked =208 000/16

=13 000hrs

Bibliography

Anonymous.2013.MBA Year 2 Accounting for Decision-Making.Mancosa

mba accounting assignment

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