SUPPLEMENTARY EXAMINATION

Transcription

1 SUPPLEMENTARY EXAMINATION PROGRAMME Master of Business Administration (MBA): General and Tourism MODULE Accounting for Decision Making YEAR Two (2) INTAKE July 2013 DATE 21 January 2014 TIME DURATION 09h00 12h00 3 hours TOTAL MARKS 100 EXAMINER MODERATOR Mr P Brijlal Mr F Kenga INSTRUCTIONS TO THE CANDIDATE 1. Questions must be attempted in the answer book provided. 2. All queries should be directed to the invigilator; do not communicate or attempt to communicate with any other candidate. 3. You have THREE HOURS to complete this paper. You are not allowed to leave the examination room within the first hour and in the last 15 minutes of this examination. 4. This is a CLOSED BOOK examination. 5. Read ALL instructions carefully. 6. The use of a non-programmable calculator is permitted.

2 Answer ALL questions. QUESTION ONE AND QUESTION TWO ARE BASED ON THE FOLLOWING : Excerpts of financial data of Pisces Limited for the year 2013 are as follows: Income statement for the year ended 31 December 2013 R Sales Cost of sales Gross profit Operating profit Interest expense Profit before tax Tax? Profit after tax Balance sheet as at 31 December 2013 R ASSETS Non-current assets Current assets Inventories Accounts receivable Cash EQUITY AND LIABILITIES Shareholders equity Non-current liabilities Long-term loan Current liabilities Accounts payable Other current liabilities Notes: 1. All sales and purchases of inventory are on credit. 2. Income tax is calculated as a fixed percentage on the profit before tax. 3. Depreciation for the year ended 31 December 2013 amounted to R R of the long-term loan is payable during the financial year ended 31 December The inflation rate on 31 December 2013 was 7%. 6. Inventories on 31 December 2012 amounted to R

3 QUESTION ONE FINANCIAL STATEMENTS (20 MARKS) REQUIRED 1.1 Calculate the tax rate of the company (percentage). (2) 1.2 The long-term loan is incorrectly disclosed in the financial statements. State how the loan should be correctly disclosed. (4) 1.3 Based on the mark-up used by Pisces Limited, a gross profit of R was expected. Provide three possible reasons why the gross profit is less than expected. (6) 1.4 Explain what you understand by the accounting concept of consistency as it applies to the preparation of financial statements and explain why this concept is significant. (4) 1.5 Explain the impact on the carrying value of inventory in the Balance Sheet when the LIFO method rather than FIFO method of valuing inventory is used during periods of inflation. (4) QUESTION TWO FINANCIAL STATEMENTS AND FINANCIAL ANALYSIS (20 MARKS) REQUIRED 2.1 Suppose Pisces Limited used the diminishing balance method instead of the straight-line method for depreciating assets, such as equipment. What effect would this have on the net profit that would be reflected in the Income Statement, over the useful life of the asset? (4) 2.2 The cost price of inventories held by Pisces Limited was R However, the balance sheet reflects inventories as R Provide three possible reasons for this. (6) 2.3 As a shareholder of Pisces Limited, would you be satisfied with the return on your investment? Support your answer with the relevant calculations. (3) 2.4 Calculate the creditor payment period. (3) 2.5 Use an appropriate ratio to comment on the liquidity position of Pisces Limited on 31 December (4) 2

4 QUESTION THREE COST-VOLUME-PROFIT RELATIONSHIPS (20 MARKS) REQUIRED Study the information given below and answer each of the following questions independently. 3.1 Calculate the volume of sales required to break-even. (4) 3.2 Calculate the total contribution margin and operating profit/loss if the sales volume is 10% below expectations. (4) 3.3 What price does Oak Manufacturers have to charge for each unit of the product to break even, if all units produced are sold? (4) 3.4 Calculate the margin of safety (as a percentage) if variable production costs are 10% higher than budgeted, and fixed production overheads amount to R (with selling price and other costs unchanged). (4) 3.5 The sales manager wants to improve profits by increasing sales by 500 units. In order to achieve this she proposes that advertising expenditure increases by R and that the selling price per unit drops to R Is this a good idea? Motivate your answer with the relevant calculations. (4) Oak Manufacturers makes wardrobes. The following information was extracted from the budget for the year ended 31 December 2014: Estimated sales for the financial year units Selling price per unit R4 000 Direct material cost per unit R1 400 Direct labour cost per unit R700 Variable production overheads cost per unit R400 Fixed production overheads R Selling and administrative expenses: Fixed R Variable R300 per unit 3

5 QUESTION FOUR COST ANALYSIS FOR CONTROL AND TRANSFER PRICING (20 MARKS) 4.1 REQUIRED Refer to the information provided below and calculate the following variances. Indicate in each case whether the variance is favourable or unfavourable Raw materials usage variance (4) Direct labour rate variance (4) Direct labour efficiency variance (4) The direct materials and direct labour standards (per unit) of a product manufactured by Regeant Ltd for November 2013, are as follows: Direct materials 4 kilograms per unit at R5 per kg Direct labour 1.5 hours at R40 per hour Expected output units The actual results for production of units of the product are as follows: Direct materials kilograms at a cost of R were purchased and used Direct labour hours at an hourly rate of R REQUIRED Study the information given below and answer the following questions: State one disadvantage to the supplying division of the transfer pricing method used by Cheri Enterprises. (2) If Cheri Enterprises is operating below capacity, will it benefit or lose from making use of the outside agency? Motivate your answer. (3) If Cheri Enterprises is operating at full capacity, will it benefit or lose from making use of the outside agency? Motivate your answer. (3) Cheri Enterprises has set a number of transfer prices to be used by service departments within the business. One is for typing services. The charge is R30 per hour which is based on the total budgeted hours of available service and total budgeted costs for the typing service pool. Seventy-five percent (75 %) of the budgeted costs for the pool are fixed and the rest are variable. The manager of one of the operating departments has obtained a price of R21 per hour of typists time from an outside agency. This manager informed A. Murray, the manager of the typing cost centre, of the outside price. A. Murray replied that he could make use of the outside facility if he so desired, but the price set internally would not be lowered from the existing rate of R30 per hour. 4

6 QUESTION FIVE COST ANALYSIS FOR PLANNING AND DECISION-MAKING (20 MARKS) Note: Where applicable, refer to the present value tables (APPENDIX 1 and 2) that appear after QUESTION FIVE. 5.1 REQUIRED Study the information given below and prepare the Production Budget for January, February and March (6) Saswitch Limited manufactures ATMs for the banking industry. The sales budget for the first four months of 2014 shows the following projections: Month Units January 700 February 600 March 400 April 500 The desired quantity of finished goods inventory at the end of each month is to be equal to 30% of the next month s budgeted unit sales. 5.2 REQUIRED Study the information given below and answer the following questions: Use the Net Present Value method to determine which machine should be selected by the company. (9) Calculate the Accounting Rate of Return (on average investment) for Machine X. (5) Ruby Limited has the choice of purchasing one of two machines viz. Machine X and Machine Y. Both machines have a five-year life with no residual value. The annual volume of production for both machines is estimated at units, which can be sold at R24 per unit. Depreciation is calculated on the machines using the straight-line method. Machine X costs R Its annual variable costs are estimated at R Fixed costs are estimated at R Machine Y costs R Its annual variable costs are estimated at R Fixed costs are the same as for Machine X. Depreciation is not included in the above costs. The cost of capital may be assumed to be 14%. END OF PAPER 5

7 APPENDIX 1 Present value of R1: PVFA (k,n) = Number of 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 25% Periods * * * * * 6

8 APPENDIX 2 Present value of a regular annuity of R1 per period for n periods : PVFA (k,n) = n i=1 = Number of 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% Periods