FINAL EXAMINATION

PROGRAMME Bachelor of Commerce in Financial Management

MODULE Financial Management 1A

YEAR One (1)

INTAKE July 2018

DATE 08 November 2018

TIME 09h00 – 12h00

DURATION 3 hours

TOTAL MARKS 100

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.

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QUESTION 1. FINANCIAL MANAGEMENT CONCEPTS AND CONTROLS [25 MARKS]

1
1.1 Economic Order Quantity [EOQ]. (2 2 marks)

You have been promoted as the Purchasing Manager at Jumbo Wholesalers.

You have picked up the following information from the Purchasing File :
3 000 of a particular type of school bag is purchased annually at R60 per bag.
These bags are sold at R99 each. The cost of placing a single order amounts to
R12. The inventory holding cost amounts to R5 per bag.
Calculate the Economic Order Quantity for this inventory.

1
1.2 Cost of not accepting a discount. (2 marks)
2

Hardware Distributors allows all its clients a credit period of 30 days.

However, Hardware Distributors have offered Spaza Builders a discount
of 2% if it settles its account within 15 days.
Determine the cost to Spaza Builders of not accepting this discount offer.

1.3 Closing inventory valuation.

The following information relates to a particular type of surveillance equipment

sold by ELECTRONIX, for the year ending 31 December 2018.

2018 Unit cost

Surveillance sets Quantity
Month R
January Opening Inventory 18 R5 000
May Purchases 30 R5 500
September Purchases 20 R5 800
December Purchases 10 R6 000

NB: 66 Surveillance sets were sold during the year at R7 500 per set.
The business policy is to use the First-in, First-out method to value its inventories.

REQUIRED
Calculate the following:

1.3.1 The number of units of Surveillance sets in the closing inventory on 31 December 2018. (2 marks)

1.3.2 The value of the closing inventory. (3 marks)

1.3.3 The value of the cost of sales. (3 marks)

1.3.4 the gross profit. (3 marks)

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1.4 Financial analysis.

The following information has been extracted from the accounting records of
Spencer Stores for the year ended 31 December 2018.

INFORMATION

Accounts R
Purchases 3 700 000
Sales 2 900 000
Opening Inventory 140 000
Closing Inventory 100 000
Accounts Receivable 258 000
Accounts Payable 180 000

Additional information.
 40% of the purchases are on credit.
 70% of the sales are on credit.

REQUIRED

Calculate the following:

1.4.1 Inventory turnover. (3 marks)

1.4.2 Debtors collection period. (3 marks)

1.4.3 Creditors payment period (3 marks)

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QUESTION 2 BUDGETING (25 Marks)

2.1 (10 marks)

REQUIRED:

Prepare the Pro- forma Statement of Comprehensive Income of Bolo Industries for the year ending 31 December
2019.

INFORMATION

Bolo Industries
Pro-forma Statement of Comprehensive Income
for the year ended 31 December 2018.

Percentage
R
of sales
Sales 3 000 000
Less: Cost of sales ( 1 800 000 ) ?
GROSS PROFIT 1 200 000
Less: Operating expenses ( 450 000 ) ?
Operating profit before interest 750 000
Less: Interest expense ( 30 000 ) ?
PROFIT BEFORE TAX 720 000
Less: Company tax [ 28% ] ( 201 600 )
PROFIT AFTER TAX 518 400

Additional information.
 The accounting policy is to use the percentage of projected sales for
the expenses with the question mark.
 The projected sales for 2019 financial year is R5 000 000.

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2.2

TUFF PLASTIX, manufactures plastic household products. The information below is in reference to the household
plastic chairs that they manufacture and sell on a quarterly basis. The First-in, First-out method is used for their
inventories.

INFORMATION

Actual and projected sales per quarter

Projected units
Quarters
to be sold
Actual sales for the quarter ended
60 000
31 December 2018
Projected sales for the quarter ending 31
80 000
March 2019
Projected sales for the quarter ending 30
100 000
June 2019

Additional information.

 The entity’s policy is to maintain a closing inventory of 30% of the next quarters projected sales.
 The closing inventory for the quarter ending 31 December was R26 per chair.
 Projected manufacturing costs per chair is as follows :

Manufacturing costs R
Direct Materials [ 5 Kg x R3.60 per kg.] 18
Direct labour 7
Manufacturing overheads 5

 These chairs will be sold at R40 per chair.

REQUIRED.

Prepare the following for the quarter ending 31 March 2019.

2.2.1 The production Budget in Units. (6 marks)

2.2.2. The Production Cost Budget. (5 marks)

2.2.3 The Cost of sales Budget. (4 marks)

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QUESTION 3 COST- VOLUME- PROFIT (25 Marks)

3.1

TINKO INDUSTRIES have plans to manufacture their new product for 2019.
The following information relates to their new product code named ZEDEZ.

INFORMATION

Projected costs for 2019

Direct Materials cost R15 per unit

Direct labour cost R6 per unit
Selling and Distribution cost R9 per unit
Manufacturing Overheads [ fixed ] R180 000
Administration cost [ fixed ] R95 000
Projected sales 15 000 units
Projected selling price R75 per unit

REQUIRED

3.1.1 Calculate the expected marginal income per unit, the marginal income ratio and the expected profit.
(9 marks)

3.1.2 Calculate the expected break-even quantity. (3 marks)

3.1.3 Calculate the expected break- even value. (2 marks)

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3.2

MOTOSUPP manufactures a standardised digital component named DAX,

which is used internationally by the motor industry.
The production department realised that their costing will be affected by the recent
hike in petrol, electricity, wages and other relevant cost.
With this in mind some adjustments to the projections for 2019 had to be made.

INFORMATION

 Current 2018 relevant costs:

Sales 120 000 units per month.
Selling price per unit R40
Variable cost per unit R16
Total fixed costs R1 500 000

 Proposed projections by the production department for 2019 :

Decrease the selling price to R35 per unit.
Resulting in an increase in monthly sales by 30%.
Variable costs will increase by 20%.
Fixed costs will remain the same.

REQUIRED

Taking these projections into account calculate the following for 2019 :

3.2.1 Calculate the monthly expected profit. (5 marks)

3.2.2 Calculate the new break-even quantity. (3 marks)

3.2.3 Calculate the number of units that must be sold to earn a net profit of R1 000 000. (3 marks)

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QUESTION 4 C-V-P RELATIONSHIPS AND DECISION MAKING (25 Marks)

4.1 Optimum Mix

DEELEE DESIGNS, has received orders from its customers for their latest designer jeans for the forthcoming season.
These jeans are being marketed as the J- DEEZ and the K- LEEZ Jeans.

The following information has been provided by the Production Department.

INFORMATION

DETAILS J- DEEZ K- LEEZ

Selling price per pair of jean R300 R700
Variable costs per pair of jean ( R90 ) ( R310 )
Marginal Income / Contribution per pair of jean R210 R390

Time required to manufacture a pair of jeans 3 hours 6 hours

Maximum demand ( orders ) for these jeans 14 000 jeans 10 000 jeans

NB : However Deelee Designs have a production constraint

ie. It has only 60 000 of machine hours available for these products.

REQUIRED

4.1.1 Keeping the constraint / limitation in mind, determine the best possible manufacturing combination of these
TWO (2) products that will realise maximum profit for the entity. ( Optimum mix ) (9 marks)

4.1.2 Calculate the total value to be earned by this mix. (3 marks)

4.2 Make or buy decision. (13 marks)

KLASSIFURN, manufactures a variety of home furniture. One of their product, the “TV Compactum” is manufactured at
a rate of 600 units per month. Another manufacturer, SPACEFURN, has offered to supply KLASSIFURN 600 units
of the ”TV Compactum” on a monthly basis for the next twelve months at R290 per unit.

Management has to decide whether to buy or to continue manufacturing the compactum.

The following information has been extracted from the accounting records in respect of the production of these
compactums.

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INFORMATION

Relevant manufacturing costs of the TV COMPACTUM

Manufacturing costs Cost per unit Total cost

[ 600 units per month ] R R
Direct Materials 180 108 000
Direct Labour 70 42 000
Variable Manufacturing Overheads 20 12 000
Fixed Manufacturing Overheads 35 21 000
Non-Manufacturing Overheads 28 16 800

 If KLASSIFURN purchases the TV compactum from Spacefurn, the fixed manufacturing overheads would be
reduced to R5 per unit
 And the non-manufacturing overheads will remain the same.

REQUIRED

Use relevant calculations to advise management whether to make or buy the

Compactum.

END OF PAPER

SA1
 APPENDIX 1

Table 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
1 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333 0.8000
2 0.9803 0.9612 0.9426 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 0.8116 0.7972 0.7831 0.7695 0.7561 0.7432 0.7305 0.7182 0.7062 0.6944 0.6400
3 0.9706 0.9423 0.9151 0.8890 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 0.7312 0.7118 0.6931 0.6750 0.6575 0.6407 0.6244 0.6086 0.5934 0.5787 0.5120
4 0.9610 0.9238 0.8885 0.8548 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830 0.6587 0.6355 0.6133 0.5921 0.5718 0.5523 0.5337 0.5158 0.4987 0.4823 0.4096
5 0.9515 0.9057 0.8626 0.8219 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209 0.5935 0.5674 0.5428 0.5194 0.4972 0.4761 0.4561 0.4371 0.4190 0.4019 0.3277

6 0.9420 0.8880 0.8375 0.7903 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645 0.5346 0.5066 0.4803 0.4556 0.4323 0.4104 0.3898 0.3704 0.3521 0.3349 0.2621
7 0.9327 0.8706 0.8131 0.7599 0.7107 0.6651 0.6227 0.5835 0.5470 0.5132 0.4817 0.4523 0.4251 0.3996 0.3759 0.3538 0.3332 0.3139 0.2959 0.2791 0.2097
8 0.9235 0.8535 0.7894 0.7307 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665 0.4339 0.4039 0.3762 0.3506 0.3269 0.3050 0.2848 0.2660 0.2487 0.2326 0.1678
9 0.9143 0.8368 0.7664 0.7026 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241 0.3909 0.3606 0.3329 0.3075 0.2843 0.2630 0.2434 0.2255 0.2090 0.1938 0.1342
10 0.9053 0.8203 0.7441 0.6756 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855 0.3522 0.3220 0.2946 0.2697 0.2472 0.2267 0.2080 0.1911 0.1756 0.1615 0.1074

11 0.8963 0.8043 0.7224 0.6496 0.5847 0.5268 0.4751 0.4289 0.3875 0.3505 0.3173 0.2875 0.2607 0.2366 0.2149 0.1954 0.1778 0.1619 0.1476 0.1346 0.0859
12 0.8874 0.7885 0.7014 0.6246 0.5568 0.4970 0.4440 0.3971 0.3555 0.3186 0.2858 0.2567 0.2307 0.2076 0.1869 0.1685 0.1520 0.1372 0.1240 0.1122 0.0687
13 0.8787 0.7730 0.6810 0.6006 0.5303 0.4688 0.4150 0.3677 0.3262 0.2897 0.2575 0.2292 0.2042 0.1821 0.1625 0.1452 0.1299 0.1163 0.1042 0.0935 0.0550
14 0.8700 0.7579 0.6611 0.5775 0.5051 0.4423 0.3878 0.3405 0.2992 0.2633 0.2320 0.2046 0.1807 0.1597 0.1413 0.1252 0.1110 0.0985 0.0876 0.0779 0.0440
15 0.8613 0.7430 0.6419 0.5553 0.4810 0.4173 0.3624 0.3152 0.2745 0.2394 0.2090 0.1827 0.1599 0.1401 0.1229 0.1079 0.0949 0.0835 0.0736 0.0649 0.0352

16 0.8528 0.7284 0.6232 0.5339 0.4581 0.3936 0.3387 0.2919 0.2519 0.2176 0.1883 0.1631 0.1415 0.1229 0.1069 0.0930 0.0811 0.0708 0.0618 0.0541 0.0281
17 0.8444 0.7142 0.6050 0.5134 0.4363 0.3714 0.3166 0.2703 0.2311 0.1978 0.1696 0.1456 0.1252 0.1078 0.0929 0.0802 0.0693 0.0600 0.0520 0.0451 0.0225
18 0.8360 0.7002 0.5874 0.4936 0.4155 0.3503 0.2959 0.2502 0.2120 0.1799 0.1528 0.1300 0.1108 0.0946 0.0808 0.0691 0.0592 0.0508 0.0437 0.0376 0.0180
19 0.8277 0.6864 0.5703 0.4746 0.3957 0.3305 0.2765 0.2317 0.1945 0.1635 0.1377 0.1161 0.0981 0.0829 0.0703 0.0596 0.0506 0.0431 0.0367 0.0313 0.0144
20 0.8195 0.6730 0.5537 0.4564 0.3769 0.3118 0.2584 0.2145 0.1784 0.1486 0.1240 0.1037 0.0868 0.0728 0.0611 0.0514 0.0433 0.0365 0.0308 0.0261 0.0115

25 0.7798 0.6095 0.4776 0.3751 0.2953 0.2330 0.1842 0.1460 0.1160 0.0923 0.0736 0.0588 0.0471 0.0378 0.0304 0.0245 0.0197 0.0160 0.0129 0.0105 0.0038
30 0.7419 0.5521 0.4120 0.3083 0.2314 0.1741 0.1314 0.0994 0.0754 0.0573 0.0437 0.0334 0.0256 0.0196 0.0151 0.0116 0.0090 0.0070 0.0054 0.0042 0.0012
40 0.6717 0.4529 0.3066 0.2083 0.1420 0.0972 0.0668 0.0460 0.0318 0.0221 0.0154 0.0107 0.0075 0.0053 0.0037 0.0026 0.0019 0.0013 0.0010 0.0007 0.0001
50 0.6080 0.3715 0.2281 0.1407 0.0872 0.0543 0.0339 0.0213 0.0134 0.0085 0.0054 0.0035 0.0022 0.0014 0.0009 0.0006 0.0004 0.0003 0.0002 0.0001 *
60 0.5504 0.3048 0.1697 0.0951 0.0535 0.0303 0.0173 0.0099 0.0057 0.0033 0.0019 0.0011 0.0007 0.0004 0.0002 0.0001 0.0001 * * * *

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 APPENDIX 2
n
Table 2 : Present value of a regular annuity of R1 per period for n periods : PVFA (k,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
1 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333
2 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355 1.7125 1.6901 1.6681 1.6467 1.6257 1.6052 1.5852 1.5656 1.5465 1.5278
3 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869 2.4437 2.4018 2.3612 2.3216 2.2832 2.2459 2.2096 2.1743 2.1399 2.1065
4 3.9020 3.8077 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699 3.1024 3.0373 2.9745 2.9137 2.8550 2.7982 2.7432 2.6901 2.6386 2.5887
5 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908 3.6959 3.6048 3.5172 3.4331 3.3522 3.2743 3.1993 3.1272 3.0576 2.9906

6 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553 4.2305 4.1114 3.9975 3.8887 3.7845 3.6847 3.5892 3.4976 3.4098 3.3255
7 6.7282 6.4720 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684 4.7122 4.5638 4.4226 4.2883 4.1604 4.0386 3.9224 3.8115 3.7057 3.6046
8 7.6517 7.3255 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349 5.1461 4.9676 4.7988 4.6389 4.4873 4.3436 4.2072 4.0776 3.9544 3.8372
9 8.5660 8.1622 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590 5.5370 5.3282 5.1317 4.9464 4.7716 4.6065 4.4506 4.3038 4.1633 4.0310
10 9.4713 8.9826 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446 5.8892 5.6502 5.4262 5.2161 5.0188 4.8332 4.6586 4.4941 4.3389 4.1925

11 10.3676 9.7868 9.2526 8.7605 8.3064 7.8869 7.4987 7.1390 6.8052 6.4951 6.2065 5.9377 5.6869 5.4527 5.2337 5.0286 4.8364 4.6560 4.4865 4.3271
12 11.2551 10.5753 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 7.1607 6.8137 6.4924 6.1944 5.9176 5.6603 5.4206 5.1971 4.9884 4.7932 4.6105 4.4392
13 12.1337 11.3484 10.6350 9.9856 9.3936 8.8527 8.3577 7.9038 7.4869 7.1034 6.7499 6.4235 6.1218 5.8424 5.5831 5.3423 5.1183 4.9095 4.7147 4.5327
14 13.0037 12.1062 11.2961 10.5631 9.8986 9.2950 8.7455 8.2442 7.7862 7.3667 6.9819 6.6282 6.3025 6.0021 5.7245 5.4675 5.2293 5.0081 4.8023 4.6106
15 13.8651 12.8493 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 8.0607 7.6061 7.1909 6.8109 6.4624 6.1422 5.8474 5.5755 5.3242 5.0916 4.8759 4.6755

16 14.7179 13.5777 12.5611 11.6523 10.8378 10.1059 9.4466 8.8514 8.3126 7.8237 7.3792 6.9740 6.6039 6.2651 5.9542 5.6685 5.4053 5.1624 4.9377 4.7296
17 15.5623 14.2919 13.1661 12.1657 11.2741 10.4773 9.7632 9.1216 8.5436 8.0216 7.5488 7.1196 6.7291 6.3729 6.0472 5.7487 5.4746 5.2223 4.9897 4.7746
18 16.3983 14.9920 13.7535 12.6593 11.6896 10.8276 10.0591 9.3719 8.7556 8.2014 7.7016 7.2497 6.8399 6.4674 6.1280 5.8178 5.5339 5.2732 5.0333 4.8122
19 17.2260 15.6785 14.3238 13.1339 12.0853 11.1581 10.3356 9.6036 8.9501 8.3649 7.8393 7.3658 6.9380 6.5504 6.1982 5.8775 5.5845 5.3162 5.0700 4.8435
20 18.0456 16.3514 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 9.1285 8.5136 7.9633 7.4694 7.0248 6.6231 6.2593 5.9288 5.6278 5.3527 5.1009 4.8696

25 22.0232 19.5235 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.8226 9.0770 8.4217 7.8431 7.3300 6.8729 6.4641 6.0971 5.7662 5.4669 5.1951 4.9476
30 25.8077 22.3965 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 10.2737 9.4269 8.6938 8.0552 7.4957 7.0027 6.5660 6.1772 5.8294 5.5168 5.2347 4.9789
40 32.8347 27.3555 23.1148 19.7928 17.1591 15.0463 13.3317 11.9246 10.7574 9.7791 8.9511 8.2438 7.6344 7.1050 6.6418 6.2335 5.8713 5.5482 5.2582 4.9966
50 39.1961 31.4236 25.7298 21.4822 18.2559 15.7619 13.8007 12.2335 10.9617 9.9148 9.0417 8.3045 7.6752 7.1327 6.6605 6.2463 5.8801 5.5541 5.2623 4.9995
60 44.9550 34.7609 27.6756 22.6235 18.9293 16.1614 14.0392 12.3766 11.0480 9.9672 9.0736 8.3240 7.6873 7.1401 6.6651 6.2402 5.8819 5.5553 5.2630 4.9999

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