Financial Planning and Control Assignment Questions and Answers

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QUESTION 1

1.1

REQUIRED

Use the information provided below to prepare the Pro-forma Statement of Comprehensive Income of Mentos Limited for the year ended 31 December 2024. Note: The statement must

include the gross profit, operating profit, profit before tax and profit after tax.                                  (10 marks)

INFORMATION

Mentos Limited has provided the following budgeted figures for the year ended 31 December 2023:

	R
Sales (60% cash; 40% credit)	2 700 000
Cost of sales	1 080 000
Administrative and selling expenses	810 000
Interest expense	30 000
Profit before tax	780 000
Profit after tax	569 400

 

The following forecasts were made for 2024:

1. Cash sales are expected to increase by 20% whilst credit sales are expected to increase by 30%.
2. The gross margin ratio is expected to increase by 5 percentage points.
3. Administrative and selling expenses will represent the same percentage of sales as for 2023.
4. A new loan will be taken and the interest expense will increase by 30%.
5. The company tax is calculated as a percentage of the profit before tax and the tax rate is the same as
6. for 2023.

1.2

REQUIRED

Prepare the production plan for each month of the quarter ending 31 March 2024.

INFORMATION

The information given below was supplied by Philips Enterprises:

The expected sales for the period 01 December 2023 to 30 April 2024 are as follows :

	Units
December 2023	16 000
January 2024	7 000
February 2024	8 000
March 2024	11 000
April 2024	12 000

Production for each month equals 60% of the current month’s projected sales and 40% of the following month’s projected sales.

1.3

REQUIRED

Study the information given below and calculate the cost (as a percentage, expressed to two

decimal places) to Oudtshoorn Stores of not accepting the discount.

INFORMATION

Jimbo Wholesalers’ credit terms to Oudtshoorn Stores are 60 days but the supplier is prepared to allow a

2.5% rebate if Oudtshoorn Stores pays the account within 12 days.

QUESTION 2

2.1

REQUIRED

Use the information given below to calculate the net value of issues to production for May 2023 and value of closing inventory as at 31 May 2023 using the following methods of inventory valuation:

• First-in-first-out
• Last-in-first-out
• Weighted average cost. (Express the average cost per unit in rands and cents.)

INFORMATION

The following information for May 2023 was extracted from the records of Kens Limited, a manufacturing company, for a component used in production:

Date	Transaction details
	Opening inventory:
01	3 000 units at R17 each
	Purchased from a supplier:
03	46 000 units at R18 each
16	37 000 units at R19 each
23	15 000 units at R20 each
	Returned to the supplier:
04	1 000 damaged units (purchased 03 May)
	Transferred to the production department:
	80 000 units during May 2023

 

2.2

REQUIRED

Use the information given below to calculate the quantity that will minimise the total ordering and

storage costs during 2024.

INFORMATION

Kip Enterprises intends purchasing 2 000 units of product Yogo per week during 2024 at R52 per unit. The following additional costs are incurred:

Ordering cost	R25 per order
Stockholding cost	10% of the unit purchase price

QUESTION 3

REQUIRED
Use the information provided below to prepare the following for Mustang Enterprises for January and February 2024.
3.1	Debtors Collection Schedule		(4 marks)
3.2	Cash Budget.		(16 marks)
INFORMATION
The following information was supplied by Mustang Enterprises:
1.	Mustang Enterprises expects to have an unfavourable bank balance of R40 000 on 31 December 2023.
2.	The monthly sales were projected as follows:
	2023	Units
	November	44 000
	December	53 000
	2024	Units
	January	47 000
	February	31 000
3.	The selling price is R20 per unit (excluding any discounts). All the goods produced each month are expected to be sold in the same month. Sixty percent (60%) of the sales is expected to be on credit and the balance is for cash. Thirty percent (30%) of the cash sales is subject to a discount of 10%.
4.	Credit sales are usually collected as follows:
	·         20% in the month of sale, and these debtors receive a 5% discount.
	·         75% in the month after the sale, and the rest is usually written off as bad debts.
5.	Manufacturing overheads are paid monthly. The overheads are expected to amount to R65 000 forDecember 2023, including R5 000 for depreciation. Manufacturing overheads are expected to increase by 5% each month.
6.	Labour costs amount to R6 per unit and are paid in the month in which they are incurred. Labour costsper unit are expected to increase by 9% with effect from 01 February 2024.
7.	Materials cost R7 per unit (excluding any discounts). All the materials are purchased for cash to takeadvantage of a discount of 7.5%.
8.	R200 000 is expected to be invested in a fixed deposit account on 01 February 2024. Interest at 9%per annum is receivable monthly, commencing February 2024.
9.	Selling and administrative costs are paid monthly and are expected to total R56 000 for February 2024,after an increase of 12% takes place on 01 February 2024.

QUESTION FOUR

REQUIRED

Use the information provided below to answer the following questions.

Note: Use the formulas provided in the formula sheet only (that appear after QUESTION 5). Answers to the ratios must be expressed to two decimal places.

• What percentage of the sales is made up of net income?
• Calculate TWO (2) appropriate liquidity ratios and comment on the liquidity of the
• company.
• Calculate the relevant ratios and comment on the effectiveness with which the company
• has employed the debtors and creditors.
• Calculate TWO (2) appropriate ratios that would be used to assess the profitability of the company by examining the income from operations and the after-tax returns earned. Comment on your calculations.

INFORMATION

Excerpts of financial data of Markram Limited for 2022 are as follows:

Statement of Comprehensive Income for the year ended 31 December 2022
	R
Sales	6 000 000
Cost of sales	4 000 000
Opening inventory	200 000
Purchases	?
Closing inventory	500 000
Operating profit	1 200 000
Interest expense	200 000
Profit before tax	1 000 000
Company tax	270 000

Statement of Financial Position as at 31 December 2022
	R
Non-current assets	3 500 000
Inventories	500 000
Accounts receivable	1 400 000
Cash	2 000
Bank overdraft	30 000
Ordinary share capital	940 000
Retained earnings	132 000
Long-term loan	3 600 000
Accounts payable	700 000

Additional information

• Ninety percent (90%) of the sales is on credit.
• All purchases are on credit.
• Credit terms to debtors are 60 days and credit terms from suppliers are 90 days.

QUESTION 5

Note: Where discount factors are required, use only the present value tables (Appendix 1 and 2) that appear after the formula sheet.

REQUIRED

Study the information given below and answer the following questions:

• Determine the Net Present Values of the two investment alternatives. (Show the
• calculations of the present values as well as the net present values.)
• If both the net present values were negative, what advice would you offer Mustek Limited?
• Calculate the Accounting Rate of Return on average investment of Option 2 (expressed
• to two decimal places).
• Calculate the Internal Rate of Return (expressed to two decimal places) of Option 1. Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation.

INFORMATION

Mustek Limited is planning a new business venture. With R3 000 000 available funds to invest, it is investigating two options:

Option 1 is to acquire an exclusive contract to operate vending machines in municipal offices in a city for four

years. The contract requires the firm to pay the city R2 000 000 cash at the beginning. A once off payment of R300 000 is also required at the beginning for transportation and installation. The firm expects cash revenues from the operation to be R1 800 000 per year and cash expenses to be R1 000 000 per year.

Option 2 is to operate a printing shop in a busy shopping mall. This option would require the company to

spend R2 700 000 for printing equipment that has an estimated useful life of four years, with a R400 000 salvage value. The cash revenues are expected to be R2 600 000 per year and cash expenses are expected to be R1 700 000 per year.