Study the information given below and answer the following questions: (25 Marks) 1.1 Calculate the Payback Period

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Study the information given below and answer the following questions:
(25 Marks)
1.1 Calculate the Payback Period of both machines (answers expressed in years, months and days).
(5 marks)
1.2 Which machine you recommend that the company choose on the basis of the Accounting Rate of Return (on initial investment)? Motivate your answer with the relevant calculations (with returns expressed to two decimal places).
(7 marks)
1.3 Calculate the Internal Rate of Return of Machine B (answer expressed to two decimal places).
(5 marks)
1.4 Calculate the Net Present Value of both machines (amounts expressed to the nearest Rand).
(8 marks)
INFORMATION
MGM Limited is considering the purchase of a machine and has a choice between Machine A and Machine B. Details of the machines are as follows:
Machine A
This machine will cost R2 200 000 plus installation costs of R300 000 and is expected to have a useful life of six years. The machine is expected to have a salvage value of R100 000. The machine is expected to increase revenues by R800 000 per year but will require the employment of two new machine operators at R100 000 per year for each operator, and it will require maintenance and repairs averaging R50 000 per year.
Machine B
The cost of this machine is R2 400 000 with no salvage value expected. The machine is expected to generate profits of R200 000 per year. The expected useful life of the machine is six years.
MGM Limited uses the straight-line method of depreciation. The company desires a minimum required rate of return of 12%.
Answer the questions from the information provided.
(25 Marks)
2.1Use the information provided below to answer the following questions:
(9 marks)
2.1.1 Calculate the number of orders that should be placed for the year, which would also take into consideration that the most advantageous quantity is ordered each time.
(5 marks)
2.1.2 Determine the cost (as a percentage) to Zengu Stores of not taking advantage of the rebate offered by Fego Manufacturers.
(4 marks)
INFORMATION
Zengu Stores purchases a product from Fego Manufacturers which has a steady monthly demand of 8 400 units. The product is purchased from the manufacturer at R40 per unit. The ordering cost is R10 per order. The holding cost is 5% of the unit purchase price. Fego Manufacturers’ credit terms to Zengu Stores are 30 days but the manufacturer is prepared to allow a 3% rebate if Zengu Stores pays the account within 10 days.
2.2 Study the information given below and motivate with the relevant calculations whether Crypton (5 marks) Stores should allow the credit sales to new customers if a return on sales of at least 12% is required.
INFORMATION
Suppose Crypton Stores received applications from a group of customers in a new market that will increase credit sales by R65 000 but the customers are considered to be high-risk, and bad debts of 12% of the sales expected. The goods that would be sold to them have been marked at cost plus 60%. The collection costs on the new sales are expected to be 10%. The tax rate is 28%.
2.3 Use the information provided by Klicks Stores below to prepare an extract of the statement of comprehensive income for the year ended 31 December 2020 that reflects the value of closing inventory as at 31 December 2020 and gross profit for the year ended 31 December 2020 using the following methods of inventory valuation:
(11 marks)
2.3.1Weighted average cost (Round off the average cost per unit to the nearest cent.)
(4 marks)
2.3.2 First-In-First-Out (FIFO)
(4 marks)
2.3.3 Last-In-First-Out (LIFO).
(3 marks)
INFORMATION
Klicks Stores had 50 toasters at a cost of R100 each (including the cost of carriage) on hand on 01 January 2020, the start of the financial year.
During 2020 the following purchases and returns were made:
*
440 toasters at R100 each were purchased on 30 March 2020. The carriage on purchases amounted to R10 per unit.
*
45 toasters (purchased on 30 March 2020) were returned to the supplier. A refund was obtained on the carriage.
*
55 toasters at R120 each were purchased on 30 October 2020. The carriage on purchases amounted to R10 per unit.
During the year 400 toasters were sold at R180 each.
Use the information provided below to answer the following questions:
(25 Marks)
3.1 Prepare the Pro Forma Statement of Comprehensive Income for the year ended 31 May 2022 using the percentage-of-sales method.
(6 marks)
3.2Prepare the Pro Forma Statement of Financial Position as at 31 May 2022.
(14 marks)
3.3 Is the company likely to experience liquidity problems during the financial year ended 31 May 2022? Motivate your answer with the relevant ratios.
(5 marks)
INFORMATION
The following information was provided by Sharpe Ltd, which has an authorised share capital of 350 000 ordinary shares:
SHARPE LTD
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MAY 2021
R
Sales
3 200 000
Cost of sales
(2 400 000)
Gross profit
800 000
Expenses
(400 000)
Profit before tax
400 000
Company tax (30% of pre-tax profit)
(120 000)
Profit after tax
280 000
SHARPE LTD
STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2021
R
ASSETS
Non-current assets
1 400 000
Fixed/Tangible assets
1 400 000
Current assets
1 200 000
Inventories
400 000
Accounts receivable
600 000
Cash and cash equivalents
200 000
Total assets
2 600 000
EQUITY AND LIABILITIES
Shareholders’ equity
1 300 000
Ordinary share capital (300 000 shares)
600 000
Retained earnings
700 000
Non-current liabilities
800 000
Long-term loan
800 000
Current liabilities
500 000
Accounts payable
488 000
Company tax payable
12 000
Total equity and liabilities
2 600 000
Additional information
1.
Sales for the year ended 31 May 2022 are expected to total R3 600 000. Total purchases of inventories for resale are forecast at R2 750 000. All purchases and sales are on credit.
2.
An old machine (Cost price R200 000; Accumulated depreciation R180 000) is expected to be sold at carrying value on 31 May 2022 and new machinery with a cost price of R800 000 will be purchased on the same date. Total depreciation for the year ended 31 May 2022 is expected to be R140 000.
3.
The company’s closing inventory is likely to change directly with changes in sales for the financial year ended 31 May 2022.
4.
Accounts receivable would be based on a collection period of 36.5 days, whilst 73 days accounts payable would be outstanding.
5.
Cash and cash equivalents are expected to remain unchanged.
6.
The remaining unissued shares are expected to be sold at R2.20 each on 30 June 2021.
7.
R200 000 of the long-term loan will be repaid during the financial year ended 31 May 2022.
8.
Company tax payable on 31 May 2022 will equal one tenth of the tax liability on the Pro Forma Statement of Comprehensive Income.
9.
A final dividend of 50 cents per share is expected to be recommended on 31 May 2022 and will be payable during July 2022.
10.
The amount of external non-current funding required must be calculated.
Answer the questions from the information provided.
(25 Marks)
4.1Use the information provided below to calculate the following:
(16 marks)
4.1.1 The total revenues at break-even using the contribution margin ratio, if the sales manager’s proposal is rejected.
(4 marks)
4.1.2The margin of safety (in units) if the sales manager’s proposal is rejected.
(4 marks)
4.1.3 The additional expenditure that the company can afford on advertising in terms of the sales manager’s proposal.
(4 marks)
4.1.4 The variable cost per unit that will enable the company to break-even, if the sales manager’s proposal is accepted.
(4 marks)
INFORMATION
Xpanda Enterprises manufactures a product that sells for R9 each. The company presently produces and sells 100 000 units per year. Unit variable manufacturing and selling costs are R4.50 and R0.90 respectively. Fixed costs are R226 800 for manufacturing overheads and R97 200 for selling and administrative activities.
The sales manager has proposed that the selling price be increased to R10.80 per unit. To maintain the present sales volume, advertising must be increased. The company’s profit objective is 10% of sales.
4.2 Suppose Schroder Limited wants to earn an operating profit of R450 000 from the battery sales. (4 marks) What must the selling price per unit be if production and sales equal 20 000 units?
INFORMATION
Following substantial research, Schroder Limited is confident that it can make and sell a new battery with a prolonged life for mobile phones (cell phones). The management anticipates the market demand for the new battery to be 20 000 units per year, with the variable costs per unit estimated at R41.25. The company’s accountants and engineers estimate that the fixed costs of producing between 18 000 and 24 000 units is R225 000.
4.3 What must the contribution margin ratio be if Wren Limited wants to increase its operating profit by (5 marks) R140 000 in 2021?
INFORMATION
During 2020 Wren Limited had a contribution margin ratio of 30% with variable costs amounting to R700 000. In 2021 fixed costs are expected to remain at R240 000, and sales are expected to be 10% higher than in 2020.