MANCOSA: MBA (GENERAL) YEAR 2 45 SPINA Ae Neeel eI aie 6)-4 DECISION-MAKING DUE DATE: 16 APRIL 2013 QUESTION ONE (20 MARKS) REQUIRED Mechs 4 Answer the questions below that are based on the gash flow...

MANCOSA: MBA (GENERAL) YEAR 2 45 SPINA Ae Neeel eI aie 6)-4 DECISION-MAKING DUE DATE: 16 APRIL 2013 QUESTION ONE (20 MARKS) REQUIRED Mechs 4 Answer the questions below that are based on the gash flow statement provided hereafter: 11 Calculate the following: 11.1 Interest income XXXXXXXXXXCash and cash equivalents at the beginning of the year XXXXXXXXXXCarrying/Book value of the vehicles sold XXXXXXXXXXApart from depreciation, name two other adjustments that would be needed to convert to (2) cash from operations (R XXXXXXXXXXComment on the following: 13.1 Decrease in inventory XXXXXXXXXXIncrease in receivables XXXXXXXXXXCash flow from investing activities (mention two significant points) (4) i 1.3.4 The overall cash position of the company (mention two significant points) (4) i INFORMATION 5 i Mika Limited ! CASH FLOW STATEMENT FOR THE YEAR ENDED 30 NOVEMBER 2012 i R Cash flows from operating activities XXXXXXXXXXi Profit before interest and tax/Operating profit 500 G00 Adjustments to convert to cash from Operations XXXXXXXXXXi Profit before working capital changes XXXXXXXXXX ' Working capital changes XXXXXXXXXXk Decrease in inventory XXXXXXXXXXi Increase in receivables XXXXXXXXXXf Increase in payables XXXXXXXXXXCash generated from operations XXXXXXXXXXInterest income ? Dividends paid XXXXXXXXXXi Income tax paid { XXXXXXXXXXCash flow from investing activities (760 G00) Non-current assets purchased XXXXXXXXXXProceeds from sale of vehicles (sold at a profit of R XXXXXXXXXXG00 i increase in long-term investments XXXXXXXXXXa Disposal of long-term investments (disposed at a loss of R XXXXXXXXXXi Cash flow from financing activities XXXXXXXXXXProceeds from issue of ordinary shares Net increase in cash and cash equivalents ? Cash and cash equivalents at beginning of year ? Cash and cash equivalents at end of year XXXXXXXXXXCOURSE AND ASSIGNMENT HANDBOOK: JANUARY 2013 INTAKE MANCOSA: MBA (GENERAL) YEAR 2 QUESTION TWo Pivmran| Avel os Stohet 5 REQUIRED 2.1 Use the information provided below to calculate the ratio for 2012 that would reftect each of the _ following (Where applicable, round off answers to two decimal places.): (20 MARKS) _ 2.1.1 An indication of the profit that has been put back into the company XXXXXXXXXXThe ability of the company to repay its short-term debts without relying on the sale of 4 its inventories (2)! 2.1.3 The return earned by shareholders on their investment (2); 2.1.4 The operational effectiveness of the company before considering interest income, ig interest expense and income tax (2} 2.1.5 The effectiveness with which management has employed the goods available for sale XXXXXXXXXXAn evaluation of the company’s performance with regard to the management of its : trade creditors XXXXXXXXXXComment on following ratios that have been calculated for Watson Limited. Provide two significant comments for each one XXXXXXXXXXf 2.2.1 | Return on assets 13.44% 15.54% (a) 2.2.2 | Earnings per share 15.83 cents 18.42 cents {i 2.2.3 | Price/Earnings ratio 3.15 times 4.32 times XXXXXXXXXX | Gross margin 38.86% 46.23% | INFORMATION The information given below was obtained from the books of Watson Limited: 1. BALANCE SHEET AS AT 30 SEPTEMBER: XXXXXXXXXXR R Hat ASSETS j Non-current assets XXXXXXXXXXProperty, plant and equipment (cost XXXXXXXXXXr Accumulated depreciation XXXXXXXXXX) i Long-term investments XXXXXXXXXXCurrent assets XXXXXXXXXXt Inventory XXXXXXXXXXDebtors/Accounts receivable XXXXXXXXXX " Income tax paid in advance 10000 s ° Bank { Gea J XXXXXXXXXXc, “ XXXXXXXXXX la EQUITY AND LIABILITIES 7 of Equity XXXXXXXXXXi Ordinary Share Capital XXXXXXXXXX a i Retained Income XXXXXXXXXXa Current liabilities XXXXXXXXXXCreditors/Accounts payable XXXXXXXXXXPri Income tax payable XXXXXXXXXX XXXXXXXXXXCOURSE AND ASSIGNMENT HANDBOOK: JANUARY 2013 INTAKE MANCOSA: MBA (GENERAL) YEAR 2 EXTRACT FROM THE INCOME STATEMENT FOR THE YEAR ENDING 30 SEPTEMBER 2012 R Sales XXXXXXXXXXCost of sales XXXXXXXXXXGross profit XXXXXXXXXXOperating expenses XXXXXXXXXX} XXXXXXXXXXinterest income XXXXXXXXXXProfit before tax XXXXXXXXXXTax { XXXXXXXXXXProfit after tax XXXXXXXXXXADDITIONAL INFORMATION All purchases and sales are on credit. Interim dividends paid during the year amounted to R XXXXXXXXXXQUESTION THREE (20 MARKS) Cod -tdame (ofr ermtys Gchur b REQUIRED Study the information provided below and consider each of the proposals independently: Calculate the total contribution margin and operating profit/loss per month if proposal 1 fs implemented. (4) How many litres of petrol need to be sold each month to achieve the operating profit if proposal 2 is accepted? (4) Calculate the saving in monthly fixed costs that is necessary to yield a profit of R40 000 if proposal 3 is accepted. (4) INFORMATION An entrepreneur recently opened a petrol station. One grade of petrol is sold at R17.60 per litre and the variable costs total R16.00 per litre. The fixed costs per month are R272 400, After six months of opening, the sales achieved was XXXXXXXXXXlitres and the sales were more or less the same volume each month. In an attempt to improve performance, the entrepreneur is considering the following proposals: Proposal 1 Customers will be allowed to purchase petrol on credit. It is estimated that 50% of the average monthly sales (in litres) will be to customers who would take advantage of this opportunity. Sales to these customers should increase by 20% as they are expected to buy exclusively from this petrol station. Sales volumes to customers who do not take advantage of the credit policy are expected to remain unchanged. Additional costs arising from this proposal are expected to be: B Bad debts of 0.5% of sales value in respect of customers who use the credit facility. a Fixed administrative costs of R15 000 per month. COURSE AND ASSIGNMENT HANDBOOK: JANUARY 2013 INTAKE 47 47 MANCOSA: MBA (GENERAL) YEAR 2 Proposal 2 The entrepreneur would ideally want an operating profit of RSO 000 per month. To achieve this the following changes are suggested: w Selling price is reduced by RO.20 per litre. gm Asales commission of RO.50 per 10 litres sold will be granted to the petrol attendants. | # RS 000 per month will be spent on advertising. 48 Proposal 3 The possibility of only operating from 07:00 to 23:00 is being considered. This earlier closing time is expected to result ina loss of sales of XXXXXXXXXXlitres on average per month. It is hoped that saving in fixed costs resulting from the reduction in operating hours will enable the entrepreneur | to achieve an average monthly profit of at least R XXXXXXXXXXREQUIRED Refer to the information given below and consider each of the proposals independently: XXXXXXXXXXThe directors are considering a new selling price of R250 per unit, Calculate the number of additional units the company will have to sell in order to maintain the existing profit if the revised selling price is implemented XXXXXXXXXXThe directors are investigating whether or not to decrease the selling price to R260 per unit, anticipating that the sales volume will increase to 1500 units. It is estimated that fixed manufacturing overhead costs will increase by 10% as a result. Determine whether the proposal will result in a greater profit or not. INFORMATION XXXXXXXXXXHampton Limited manufactures agricultural pumps. It recently introduced a new type of energyefficient pump, and the following amounts based on the manufacture and sales of 1 200 pumps per year are available: R| Sales XXXXXXXXXXCosts XXXXXXXXXXDirect materials 84000 Direct labour XXXXXXXXXXVariable manufacturing overheads XXXXXXXXXXFixed manufacturing overheads XXXXXXXXXXFixed selling and administration expenses XXXXXXXXXXVariable selling expenses XXXXXXXXXXProfit XXXXXXXXXXCOURSE AND ASSIGNMENT HANDBOOK: JANUARY 2013 INTAKE MANCOSA: MBA (GENERAL) YEAR 2 49 QUESTION FOUR USF aualy ¢ s bw Clary a Counkn| (20 MARKS) Cee . 4.1 REQUIRED 3 2 by ortes nes hevafloer 4 ; Use the information given below and answer the following questions independently. (rudvet eran 4.1.1 Should Reacon Limited accept the order of XXXXXXXXXXunits? Show the relevant calculations XXXXXXXXXXAssume that Reacon Limited wants to realise a profit of at least R50 000 from the special order. What is the minimum order price (in total) that Reacon Limited should accept? XXXXXXXXXXSuppose the special order is XXXXXXXXXXunits instead of XXXXXXXXXXunits and additional capacity can XXXXXXXXXXbe obtained at a cost of R50 000 per month, The cost for additional capacity remains R50 000 irrespective of the number of units actually produced. The contract price is R375 000, and modification variable costs increase proportionately. They therefore amount to R XXXXXXXXXXShould the order be accepted or not? Motivate your answer with the relevant calculations. (5) INFORMATION _ — ee a ' Reacon Ltd is a manufacturer of sweets. The available production capacity for a month amounts to | XXXXXXXXXXunits of sweets, while sales are only XXXXXXXXXXunits in a month. The sweets are sold at R4 per unit. | At the end of November a toy manufacturer approached Reacon Ltd to supply XXXXXXXXXXunits of sweets, | which have to be modified in size in order to fit their latest toy. The toy manufacturer has offered a | total price of R XXXXXXXXXXfor delivery in December. The variable cost of the normal sweets is R1 per | unit. The variable cost of the special sweet will be the same as the normal sweets, except that an additional R37 500 will be incurred for the modification. Fixed costs of Reacon Limited’s facility _amount to R XXXXXXXXXXper month. REQUIRED Use the information provided below to calculate the following variances: Raw material usage variance (3) Direct labour efficiency variance (3) Note: Your answers must indicate whether the variance is favourable or unfavourable. INFORMATION During 2012 Somerset Clothing budgeted for the production and sales of XXXXXXXXXXscarves. The company produced and sold XXXXXXXXXXscarves. Each scarf has a standard requiring 2 metres of material at a budgeted cost of R3.00 per metre and 30 minutes of sewing time at a cost of RO.60 per minute. The scarves sell for R29.50 each. Actual costs for the production of XXXXXXXXXXscarves were R XXXXXXXXXXfor materials (at R3.08 per metre) and R XXXXXXXXXXfor labour {at RO.58 per minute).QUESTION FIVE GS amalycay Aw f ard combs {20 MARKS) 5.1 REQUIRED bedbow 7 . Study the information given below and prepare the following budgets for JaOuary, F, bruary and March 2013: he lecshenc {sp tead br Aap 5.1.1 Production budget frpek an XXXXXXXXXXMaterial purchases budget (6) INFORMATION Compono Limited produces components for the automotive industry. The sales budget for the first five months of 2013 shows the following projections: Month Units January XXXXXXXXXXFebruary XXXXXXXXXXMarch XXXXXXXXXXApril XXXXXXXXXXMay XXXXXXXXXXThe desired quantity of finished goods inventory at the end of each month is to be equal to 25% of the next month's budgeted unit sales. Each unit of finished product required 3 kilograms of raw materials. The company wants to have 30% of next month’s required materials on hand at the end of each month. Each kifogram of raw material costs RS. $.2 REQUIRED Use the information provided below to answer the following questions: 5.2.1 Calculate the present value of the (recurring) net annual cash flows generated by the machine XXXXXXXXXXUse your answer obtained in question 5.2.1 and the other information given below to calculate the net present value of the machine. (6) INFORMATION Hillview Hospital is considering the purchase of an X-ray machine for cardiac care patients and has a minimum required rate of return of 12%. Currently patients have to travel over 100 kilometres to another hospital equipped with this type of X-ray machine. The machine will cost R XXXXXXXXXXplus installation costs of another R XXXXXXXXXXand will have a useful life of six years. The machine is expected to have a scrap value of R XXXXXXXXXXThe machine is expected to increase revenues by R XXXXXXXXXXper year but will require the hire of two new technicians at R80 000 each per year and it will require maintenance and repairs averaging R40 000 per year. In addition, it is expected to require the installation of a new X-ray tube at the end of years three and five at a cost of R XXXXXXXXXXeach. Assignment format e = Your assignment should include a Table of Contents page and a bibliography. e = Text: Arial or Times New Roman (12); Spacing 1% lines. All text must be justified at each margin. © Where applicable, use formats and formulas from your study guide or workbook. © Start each question on a new page. @ Number each solution according to the numbering in the assignment handbook. ® You may make use of a spreadsheet (e.g. Microsoft Excel) to assist you only with the construction of tables and formats. Solutions generated by software packages will not be marked. No marks will be awarded if only the final answers are given. All relevant workings must be shown.