Accounting & Managerial Finance — EOQ, Ratios, CVP

Answer ALL questions     QUESTION 1

(20 Marks)

1.1

REQUIRED
Use the information given below to calculate the following:
1.1.1	Economic order quantity	(4 marks)
1.1.2	The number of orders to be placed annually based on the economic order quantity	(2 marks)
1.1.3	The total ordering costs and total carrying costs.	(7 marks)
INFORMATION
The monthly sales of a product sold by Solo Limited are 3 750 units at R14 per unit. The product is purchased at cost plus 40%. The carrying cost of inventory amounts to 10% of the unit purchase price. The ordering cost is R100 per order.

1.2

REQUIRED

Use the format of the statement of comprehensive income (which includes opening and closing inventories) to calculate the gross profit for the month ended 31 October 2024.             (7 marks)

INFORMATION

You are provided with the inventory record of Electro Traders, which sells microwaves, for the month ended 31 October 2024. The business uses the specific identification method to value inventories.

Inventory record of microwaves for the month ended 31 October 2024

Model	Purchase price	Inventory on 01 October	Purchases	Sales
		Units	Units	Units	Price
Samsung	R2 500	100	500	400	R3 000
Defy	R1 800	50	700	500	R2 200
Hisense	R1 400	80	400	380	R1 800
		230	1 600	1 280

QUESTION 2

(20 Marks)

REQUIRED
Use the information given below to answer the following questions. Use only the formulas provided in the formula sheet that appear after Question 5 or in the module guide. Ratios must be expressed to two decimal places and be fully stated e.g. 27.47%.
2.1	Calculate and comment on the following ratios of both companies:
2.1.1	Percentage return on sales (net profit margin)	(4 marks)
2.1.2	Percentage return earned by the shareholders	(4 marks)
2.1.3	Debt to assets ratio	(4 marks)
2.1.4	Debt to equity ratio.	(4 marks)
2.2	The current ratio of Nik Limited is 3.82:1 whilst its acid test ratio is 1.31:1. Compare the two ratios and comment on your observations. What recommendations would you make to the management of Nik Limited?
		(4 marks)

INFORMATION

The following information was extracted from the financial statements of two companies, Nik Limited and Nak Limited, at the end of the financial year 31 December 2024:

	Nik Limited	Nak Limited
	R	R
Gross profit	4 800 000	8 000 000
Company tax	147 960	591 300
Total assets	1 000 000	12 000 000
Shareholders’ equity	800 000	10 000 000
Non-current liabilities	120 000	1 600 000
Trade creditors	60 000	400 000
Bank overdraft	20 000	0

Additional information

• The company tax rate is 27%.
• The gross margin ratios of Nik Limited and Nak Limited are 60% and 40% respectively.

QUESTION 3

(20 Marks)

Note: The expanded contribution margin model MUST be used to answer questions 3.2 and 3.3.

3.1 REQUIRED

Use the information provided below to calculate the margin of safety (in rands).                 (4 marks)

INFORMATION

Oval Ltd plans to manufacture and sell 10 000 units of product Y each month, at a selling price of R108 per unit. The unit costs of producing product Y each month are as follows:

Variable costs	R48
Fixed costs	R24
	R72

3.2 REQUIRED

Use the information provided below to calculate the following for the laboratory:

• The number of tests that need to be administered to break even.    (4 marks)
  • The fee that the racehorse owners should be charged for each test if an operating profit of R900 000 per month is targeted by the laboratory.          (4 marks)

INFORMATION

Cost per test Materials R220 Technicians’ wages R100 Variable overheads R40

The racehorse trainers in Pietermaritzburg engage the services of a laboratory to carry out tests on the horses to determine whether they are free of any infections. Presently, the laboratory carries out 6 000 tests each month. Fixed costs amount to R600 000 per month. The current costs to carry out a full test are as follows:

	Cost per test
Materials	R220
Technicians’ wages	R100
Variable overheads	R40

The laboratory charges the racehorse trainers R600 per test. 3.3

REQUIRED
Calculate the following from the information given below:
3.3.1	Break-even value	(4 marks)
3.3.2	Sales value required to achieve an operating profit of R720 000.	(4 marks)
INFORMATION

Belling Ltd manufactures a single product and an extract of the Pro Forma Statement of Comprehensive Income for the year ended 31 December 2025 is as follows:

	R
Sales	2 400 000
Costs:	(2 160 000)
Direct materials	480 000
Direct labour	320 000
Variable manufacturing overheads	80 000
Fixed manufacturing overheads	280 000
Fixed administration and selling overheads	680 000
Variable selling overheads	320 000
Operating profit	240 000

QUESTION 4			(20 Marks)
REQUIRED
Use the following information provided by Venus Enterprises to prepare the following for January and February 2026:
4.1	Debtors Collection Schedule		(4 marks)
4.2	Cash Budget.		(16 marks)
INFORMATION
The following information was provided by Venus Enterprises to assist in the preparation of the cash budget for the first two months of 2026:
1.	A bank overdraft of R100 000 is expected on 01 January 2026.
2.	The budgeted credit sales are as follows:
	December 2025	January 2026	February 2026
	R360 000	R420 000	R480 000

• Credit sales make up 60% of the total sales. Cash sales make up the balance.
• Credit sales are normally collected as follows:
  • 30% in the month in which the transaction takes place. These debtors are entitled to a 5% discount.
  • 65% in the following month.

The rest is usually written off as bad debts.

• Budgeted purchases of inventory are as follows:

	December 2025	January 2026	February 2026
Credit purchases	R140 000	R180 000	R170 000
Cash purchases	R120 000	R160 000	R180 000

	Venus Enterprises expects a discount of 10% on 60% of the cash purchases. Creditors usually offer credit terms of 30 days, which are adhered to.
6.	The salaries for February 2026 are expected to total R110 160, after an increase of 8% takes effect from 01 February 2026.
7.	Interest at 18% per annum is payable monthly on the loan balance. The loan balance on 01 January 2026 is expected to be R400 000 and capital repayments of R20 000 are made at the end of each month.
8.	Part of the building is sublet to a tenant. The rental for the year ended 31 December 2025 amounts to R131 000. The rental agreement, which came into effect during 2023, stipulated that the rental would increase by 10% on 01 February each year.
9.	Other operating expenses are forecast at R16 000 per month. This amount excludes depreciation of R4 000. Operating expenses are paid for in the month in which they are incurred.

QUESTION 5

(20 Marks)

REQUIRED
Study the information given below and calculate the following. Where discount factors are required use only the four decimals present value tables that appear after the formula sheet or in the module guide. Ignore taxes.
5.1	Payback Period of Project A (expressed in years, months and days).	(3 marks)
5.2	Accounting Rate of Return on initial investment of Project A (expressed to two decimal places).
		(4 marks)
5.3	Net Present Value of both projects.	(7 marks)
5.4	Internal Rate of Return of Project A (expressed to two decimal places) if it has no scrap value. Your answer must include two net present value calculations (using consecutive cost of capital rates/percentages) and interpolation.
		(6 marks)

INFORMATION

The following information relates to two capital expenditure projects. Because of capital rationing, only one project can be accepted.

		Project A	Project B
Initial cost		R1 600 000	R1 600 000
Expected useful life		5 years	5 years
Expected scrap value		R100 000	0
Expected net profit:		R	R
End of year	1	320 000	220 000
2		240 000	220 000
3		220 000	220 000
4		180 000	220 000
5		60 000	220 000

The company estimates that its cost of capital is 12%. Depreciation is calculated using the straight-line method.

Accounting Assignment Answers: Expert Answers on Above Accounting Questions

The calculation of economic order quantity is performed as follows:

EOQ = √((2DS)/H)

D= 45000 units per year

S= R100 per order

Purchase price is 19.60

Carrying cost is 10% = 1.96

Therefore EOQ is 2144 units

Orders per year is = 45000/2144 = 21 orders

Costs =

Ordering cost = 21*100 = 2100

Carrying cost = 2144/2*1.96 = R2100

Disclaimer: This answer is a model for study and reference purposes only. Please do not submit it as your own work.

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