8.(a) Ziva Ltd. sells goods at a gross profit of 20%. It includes depreciation as a...

 

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8.(a) Ziva Ltd. sells goods at a gross profit of 20%. It includes depreciation as a part of cost of production. The following figures for the 12 month-period ending March 31, current year are given to enable you to ascertain the requirements of working capital of the company on a cash cost basis. In your working, you are required to assume that : (i) A safety margin of 15% will be maintained; (ii) Cash is to be held to the extent of 50% of current liabilities; (iii) There will be no work-in-progress; (iv) Tax is to be ignored; (v) Finished goods are to be valued at manufacturing costs. Stocks of raw materials and finished goods are kept at one month's requirements. Sales at 2 month's credit * 13,50,000. Materials consumed (suppliers' credit is for 2 months), * 3,37,500 Wages (paid on the last of the month), * 2,70,000 Manufacturing expenses outstanding at the end of the year (cash expenses are paid one month in arrear), * 30,000 Total administrative expenses (paid as above), * 90,000 Sales promotion expenses(paid quarterly in advance), * 45,000 [6] (b) Calculate the operating leverage for each of the four firms P,Q,R and S from the following price and cost data. What conclusion can you draw with respect to levels of fixed cost and the degree of operating leverage result ? Explain. Assume number of units sold is 10,000. Sales price per unit Variables cost per unit Fixed operating cost P *20 6 1,60,000 Q *32 16 80,000 Firms R *50 20 4,00,000 S *70 50 Nil 8.(a) Ziva Ltd. sells goods at a gross profit of 20%. It includes depreciation as a part of cost of production. The following figures for the 12 month-period ending March 31, current year are given to enable you to ascertain the requirements of working capital of the company on a cash cost basis. In your working, you are required to assume that : (i) A safety margin of 15% will be maintained; (ii) Cash is to be held to the extent of 50% of current liabilities; (iii) There will be no work-in-progress; (iv) Tax is to be ignored; (v) Finished goods are to be valued at manufacturing costs. Stocks of raw materials and finished goods are kept at one month's requirements. Sales at 2 month's credit * 13,50,000. Materials consumed (suppliers' credit is for 2 months), * 3,37,500 Wages (paid on the last of the month), * 2,70,000 Manufacturing expenses outstanding at the end of the year (cash expenses are paid one month in arrear), * 30,000 Total administrative expenses (paid as above), * 90,000 Sales promotion expenses(paid quarterly in advance), * 45,000 [6] (b) Calculate the operating leverage for each of the four firms P,Q,R and S from the following price and cost data. What conclusion can you draw with respect to levels of fixed cost and the degree of operating leverage result ? Explain. Assume number of units sold is 10,000. Sales price per unit Variables cost per unit Fixed operating cost P *20 6 1,60,000 Q *32 16 80,000 Firms R *50 20 4,00,000 S *70 50 Nil

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Question 1 a Calculation of the Requirements of Working Capital Raw Materials 1 months requirement 3... View the full answer