SUBJECT ANNEXURES PAGES DURATION

PROJECT ACCOUNTING 4 – PART TIME 1 5 120 mins

CODE DATE MARKS VENUE

PJA400S/PDA440C 12 May 2010 120 LT2

FACULTY OF BUSINESS

ASSESSMENT 2: SEMESTER 1 MEMORANDUM

COURSE: B. Tech. (Project Management)

EXAMINER : S. Fore
INTERNAL MODERATOR : N. Bray
EXTERNAL MODERATOR : M. Wilson-Trollip,

SPECIAL INSTRUCTIONS

1. THIS IS A CLOSED BOOK ASSESSMENT - You must answer all questions.

2. Pay attention to the mark allocation prescribed in deciding the length of your answers.

3. Own Interpretation and integration of subject information is essential.

4. You may use a calculator.

REQUIREMENTS

Write your answers in ink in the provided exam book .

Page 1 of 6
 QUESTION 1 (Total marks: 8)
Define the following Project Accounting terms:
1.1 Earned Value [2]
A measure of the value of work done during execution of the project.
1.2 Budget at Completion (BAC) [2]
Original cost indicating funds required to complete work.
1.3 Budgeted cost for Work Scheduled (BCWS) [2]
Also called Planned Value. It is the integration of cost and time that gives the
characteristic S curve forming the base line plan.
1.4 Actual Cost for Work Performed (ACWP) [2]
Also called actual Value. It is the amount payable for the work done to timenow. It is
the real cost incurred executing the work to achieve progress.

QUESTION 2 (Total Marks: 24)

2.1 Based on the Net Present Value, which project would you advise the
company to undertake?
[8]

PROJECT B C
Year No Present Project 2 Project Net 3
Value Net Present Income Present
Factors Income R Value R Value
@ 10% R R
1 0,909 4,000 3,363 2,000 1,818
2 0,826 4,000 3,304 2,000 1,652
3 0,751 2,500 1,878 2,000 1,502
4 0,683 2,000 1,366 5,000 3,415
5 0,620 1,500 930 5,000 3,100
Totals 14,000 11,114 16,000 11,487
Capital Investment 10,000 10,000
Net Present Value 1,114 1,487
Project C, it has a higher NPV.

2.2 Using the return on investment (ROI), which project is the most viable? [6]

Average annual Profit=

Return on investment = (average annual profit / original investment) x 100

Project B; Average Annual Profit = (14 000 – 10000)/5 = R800

ROI = {800/10000}*100 = 8%

Project C; Average Annual Profit = (16 000 – 10000)/5 = R1200

ROI = {1200/10000}*100 =12%

Project C has a Higher ROI; so C would be the best option.

Page 2 of 6
 2.3 Determine the IRR for the two projects using linear interpolation and identify the
best project to invest in, based on this approach.

[Hint: use another discount factor of 12%] [10]

Picking another value; say 12 %

PROJECT B C
Year No Present Project 2 Project Net 3
Value Net Present Income Present
Factors Income R Value R Value
@ 10% R R
1 0.893 4,000 3,572 2,000 1,786
2 0.797 4,000 3,188 2,000 1,594
3 0.712 2,500 1,780 2,000 1,424
4 0.636 2,000 1,272 5,000 3,180
5 0.567 1,500 851 5,000 2,835
Totals 14,000 10663 16,000 10819
Capital Investment 10,000 10,000
Net Present Value 663 819

For Project B; IRR using interpolation; is:

Discount Rates: X 10 12

NPVs: 0 1114 663

Solving

Giving IRR = 14.9 % (Approx.) for B.

Similarly for Project C

Discount Rates: X 10 12

NPVs: 0 1487 819

Solving ,

Giving IRR = 14.45 % (Approx.)

Thus Project B would be the most ideal with an IRR of 14.9 %

Page 3 of 6
QUESTION 3 (Total marks: 32)

Trading Account for the year ended 30.04.97

ROOO ROOO
Sales 900
less: Returns Inwards 47
853
Less: Cost of Sales
Opening Stock 84
add: Purchases 516
600
Less: Closing Stock 74 526
Gross Profit 327
Profit and Loss Account for the year ended 30.04.97
Gross Profit from T/A 327
Less: Expenses
Printing & Stationary 38
Depreciation office Equipment 4.6
Depreciation of Plant 8.3
Discount Allowed 4
Salaries 44
Light & Heat 23
Bad Debts written off 80 201.9
Net Profit to Balance Sheet 125.1
Balance Sheet as at 30.04.97
Fixed Assets Cost Depreciation Net Book Value
ROOO ROOO ROOO
Plant 83 21.3 61.7
Office Equipment 31 12.6 18.4

80.1
Current Assets
Debtors 200
less: Provisions for Debts 23
177
Discount Received 2
Prepaid Insurance 3
Stock 74 256
Less: Current Liabilities
Creditors 40
Wage Accruals 3
Bank Overdraft 50 93
Net Current Assets 163
Total Net Assets 243.1
Financed by:
Capital 120
Add Net Profit 125.1
245.1
less: Drawings 2
243.1

Page 4 of 6
QUESTION 4 (Total marks: 37)

4.1 Set up an Earned Value Table using the following abbreviated field headings:
[34]

Activity BAC/R BCWS/R PC/% BCWP/R ACWP/ SV/R CV/R EAC/R

R
100 9,000 9,000 100 9,000 11,000 0 -2,000 11,000
200 2,000 2,000 100 2,000 2,000 0 0 2,000
300 1,000 1,000 100 1,000 2,000 0 -1,000 2,000
400 12,000 12,000 100 12,000 11,500 0 500 11,500
500 10,000 6,000 50 5,000 7,000 -2004 -2,000 14,000
600 6,000 6,000 66.6 3,996 4,000 -2000 -4 6,006
700 4,000 4,000 50 2,000 2,500 -2000 -500 5,000
800 6,000 0 0 0 0 0 0 6,000
900 8,000 0 0 0 0 0 0 8,000
1000 4,000 2,000 50 2,000 1,500 0 500 3,000
1100 6,000 0 0 0 0 0 0 6,000
1200 8,000 8,000 100 8,000 7,000 0 1,000 7,000
1300 8,000 4,000 25 2,000 3,000 -2000 -1,000 12,000
1400 4,000 4,000 100 4,000 3,500 0 500 13,500
Totals 88,000 58,000 58 51,000 55,500 7,000 -4,000 97,000

4.2 Comment on the findings in 5.1

[3]

From the schedule and cost variances the project is behind schedule and the budget
is overspent. Activity 100, 500,700 and 1300 should be checked, they are either
underperforming or the estimates were too optimistic, or there are special
circumstances.

QUESTION 5 (Total marks: 19)

5.1 Define the following terms

5.1.1 Opportunity Cost. [2]

Net cash flow that could be obtained if the resources committed to one action were
used in the most desirable alternative.

5.1.2 Sunk Cost. [2]

Result from past decisions that management no longer has control over. Because
these cannot be changed, they have no relevance over future decisions.

5.1.3 Cost Driver. [2]

Any factor whose change causes a change in the total cost of a related cost object.
Drivers are causal factors whose effect increase the total cost.

5.1.4 Direct Cost. [2]

Costs that can be traced to a given cost object in an economically feasible way.

Page 5 of 6
5.2 A speaker at Acoustic Concepts has a selling price of R250 and the variable
expenses of manufacture amount to R150. Given that the total fixed expenses
are R35,000, determine the breakeven point .
[3]

The BEP point is calculated as follows:

BEP = Fixed costs / contribution per unit
= 35,000 / 100
BEP = 350 speakers

5.3 Peter Dube owns a furniture manufacturing company. He has decided to embark
on manufacturing a special table. The cost to manufacture an unfinished table is
R350, made up as follows:

 Direct Material= R150

 Direct Labour = R100
 Variable Overheads= R60
 Fixed Overheads=R40

The selling price per unit is R500.The company has unused capacity which can
be utilized to complete the unit and the selling price then would be R600. In
order to complete a unit ; direct material and direct labour cost will increase by
R20 and R40 respectively. In addition, variable overheads will increase by R24
but there will be no change in fixed overheads. Should the unfinished tables be
processed further or sold as ‘unfinished’?
[8]

SELL PROCESS FURTHER

Selling Price= R500 Selling Price= R600
Direct Labour =R100 Direct Labour =R140
Direct Materials = R150 Direct Materials = R170
Variable Overheads= R60 Variable Overheads= R84
Total cost = R310 Total Cost =394
Net Revenue= 500- 310 = R190 Net Revenue= 600- 394 = R206
Incremental Revenue= R16
Incremental Cost = R84
Incremental Revenue is less than Incremental Cost
Decision: Sell as is.

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