Please answer 4 questions of the following :
Question is compulsory
QUESTION 1.
Truck Components Limited is a company engaged in the import and distribution of commercial vehicle components for supply to a network of agents.
To plan for expansion, the company requires a cash flow projection for the next quarter.
Actual revenues and costs for May and the projected figures for June, July and August are as follows:
Actual Projected Projected Projected
May June July August
€ € € €
Sales 157,600 140,000 160,000 171,000
Purchases 80,500 84,000 70,000 83,000
Wages 14,000 15,000 13,000 16,000
Overheads 20,300 19,600 21,000 22,000
Details of cash flow trends are given as follows:
• Customers pay for goods on average 60% in the month of sale, 40% in the month following sale.
• The company pays for all its purchases in the month following that in which the goods are received and charged for.
• Wages are paid for in the month in which they are incurred.
• Overheads include €1000 per month depreciation and are paid for in the month following that in which they are incurred.
The Company intends to borrow €100,000 in June 2019 in order to invest in new machinery. The machinery will cost in total €110,000 and will be purchased in June also. Repayments of the loan will be €11,000 per month and will commence in July.
The Company expects to have a cash balance of €6,000 on 1st June.
REQUIRED:
Prepare a Cash Flow Forecast for the 3 months June, July and August 2019.
Total 25 Marks QUESTION 2.
Part A:
Hi Tec Motor Services Limited is a company engaged in the motor industry. They require you to compute the minimum efficiency to be derived from the workshop having regard to the following information:
There are four mechanics engaged in the workshop who are paid €32,000 per annum basic wage. They receive 4 weeks holidays per year and are entitled to 10 bank holidays. The working week is 39 hours.
The Workshop occupies 50% of the total floor space of the enterprise and engages 60% of all employees. General Overheads to be apportioned to user departments on an appropriate basis are as follows:
Rent €18,000
Rates 10,000
Light & Heat 13,000
Administration 50,000
Aside from Mechanics’ Wages, the only overheads specific to the workshop are:
Superviser’s Salary 50,000
Depreciation Equipment 8,000
The required profit form the Workshop is 20% of all workshop costs. Mechanics’ time is charged out at €55.00 per hour.
REQUIRED:
Compute the required minimum workshop efficiency.
(Show all workings to the nearest €1.)
(20 Marks)
Part B:
Explain what you understand by the term “General Overheads”. (5 Marks)
Total 25 Marks QUESTION NO. 3
A.B. Assemblers makes a standard product which it sells for €24.00 per unit. Fixed costs are €19,200 per month and the variable cost of manufacture is €12.00 per unit.
REQUIRED:
a) Prepare a breakeven chart and from your chart determine the breakeven output (6 marks)
b) Calculate the profit arising on production of 2,200 units. (5 marks)
c) Calculate by formula the revised Breakeven Output if fixed costs increase by 15% per month. (5 Marks)
d) If selling price increases to €32.00 per unit, what will be the profit arising on sale of 2,000 units (5 marks).
e) Define “Contribution”. (4 Marks)
(Note: Consider Parts c) and d) independently).
Total 25 Marks
QUESTION 4.
A. What are the main elements of a good system of credit control. (8 marks)
B. Distinguish, giving examples, between fixed cost and variable costs. (8 marks)
C. What is the risk-return factor of high capital gearing. (6 marks)
D. What do you understand by the term “Workshop Efficiency”? (3 marks)
Total 25 Marks QUESTION 5.
A. Jive Talk Products Limited manufactures a standard product. Demand is of a seasonal nature with production peaking in August of each year. Each unit of product has a raw material cost of €160.00.
Expected production for the next four months of activity is:
June 2013 3,100 units
July 2013 3,500 units
August 2013 3,800 units
September 2013 2,900 units
On 1st of June, it is anticipated that stock levels of Raw Material will be €290,000. It is the company’s inventory policy to have 60% of the raw material required for production in any month in stock at start of that month.
Prepare a Raw Material Purchases Budget for the quarter ended 31st August 2013.
(15 marks)
B. Give six of the principle objectives of Budgetary Control.
(10 marks)
Total 25 Marks QUESTION 6.
Part A:
What is “Gross Margin” and explain its importance as a key economic statistic of a business sector?
(10 Marks).
Part B:
Paul O’Neill has asked you to assist him in determining whether he should proceed with the purchase of a retail business which is being advertised for sale.
The business is a retail franchise business and the guide price for the business is €140,000. Paul will further require to invest additional funds to cover promotional expenditure and enhancement costs in the amount of €20,000.
Paul has obtained loan approval for the full amount to be invested of €160,000. The repayments over 20 years at 7% will be €1,180 per month.
The auctioneer has indicated that the turnover of the existing business in the last full year of trading was €340,000.
The following information on costs has been determined:
Light and Heat €3,200
Telephone and postage 2,200
Printing & Stationery 1,600
Insurances 5,200
Wages (2 persons) 35,000
Repairs & Maintenance 2,000 Rent & Rates 22,000
Total projected overhead €71,200
The Gross Margin from this sector is 40% and Paul considers that he requires an income of €40,000 per annum.
Determine for Paul whether or not he should go ahead with the purchase of this business.
(15 Marks)
Total 25 Marks QUESTION NO. 7
The Director of a private trading company are seeking to retire and have received an offer for the company of €2.2 million. There are 10,000 shares in issue and they are held equally by the two directors.
To assist you in determining whether the valuation should be accepted by the Directors, you are provided with the most recent financial results of the company:
PROFIT AND LOSS ACCOUNT
Profit before interest and tax €320,000
Interest 18,000
Profit before tax 302,000
Taxation 40,000
Profit after tax 262,000
BALANCE SHEET
Property & non business assets 560,000
Stocks 20,000
Debtors other receivables 132,000
Bank and Cash Balances 158,000
870,000
Ordinary Shares (€1.00 each) 10,000
Retained Profits 430,000
Term Loans 280,000
Creditors & Accruals 150,000
870,000
A typical price earnings ratio of a publicly quoted company in this sector is 5.8.
a. Calculate the:
– Gearing Ratio (3 marks) – Interest Cover (3 marks) – Earnings per share (3 marks).
b. Calculate the value of the company and determine whether the offer of €2.2 million should be accepted by the Directors. (16 marks)
Total 25 Marks
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