The Independent Institute of Education 2017

MODULE NAME: MODULE CODE:

FINANCIAL MANAGEMENT 2A FINM6211
FINANCIAL MANAGEMENT 2A FINM6211d
FINANCIAL MANAGEMENT 2A FINM6211p
FINANCIAL MANAGEMENT 2A FINM6211w

ASSESSMENT TYPE: EXAMINATION (PAPER ONLY)

TOTAL MARK ALLOCATION: 180 MARKS
TOTAL HOURS: 3 HOURS (+15 minutes reading time)
INSTRUCTIONS:
1. Please adhere to all instructions in the assessment booklet.
2. Independent work is required.
3. Five minutes per hour of the assessment to a maximum of 15 minutes is dedicated to reading
time before the start of the assessment. You may make notes on your question paper, but not
in your answer sheet. Calculators may not be used during reading time.
4. You may not leave the assessment venue during reading time, or during the first hour or
during the last 15 minutes of the assessment.
5. Ensure that your name is on all pieces of paper or books that you will be submitting. Submit
all the pages of this assessment’s question paper as well as your answer script.
6. Answer all the questions on the answer sheets or in answer booklets provided. The phrase
‘END OF PAPER’ will appear after the final set question of this assessment.
7. Remember to work at a steady pace so that you are able to complete the assessment within
the allocated time. Use the mark allocation as a guideline as to how much time to spend on
each section.
Additional instructions:
1. This is a CLOSED BOOK assessment.
2. Calculators are allowed.
3. This assessment has Seven Sections. You are required to answer All of these sections
4. Answer All Questions.
5. Show all calculations, where applicable (marks may be awarded for this).

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Question 1 (Marks: 30)

Lion Tyre Limited (“Lion Tyre”) sells tyres to the public from its store in Sandton. Each year, Lion
Tyre orders 7 000 tyres from the manufacturer, Greatyear, in order to meet the public’s demand.
One Greatyear tyre costs R1 200, excluding freight charges of R150 per tyre. In order to finance its
inventories, Lion Tyre borrows funds at an interest rate of 11% to finance inventory. Management
has determined that it costs R200 to place an order for Greatyear tyres. Each Greatyear tyre has an
annual holding cost of R10.
Q.1.1 Calculate the number of Greatyear tyres that Lion Tyre should request in each order, (6)
i.e. the economic order quantity (“EOQ”). Round up your answer to the nearest unit.
Q.1.2 Calculate the annual number of orders at the EOQ. (3)
Q.1.3 Calculate the total annual ordering cost at the EOQ. (3)
Q.1.4 Calculate the total annual carrying cost at the EOQ. (3)
Q.1.5 A new tyre supplier Cheetah tyre has entered into the market. Cheetah offers a 1% (15)
discount off the quoted tyre price (excluding freight charges). Cheetah’s prices is the
same as that of Greatyear as they have a policy to match any written quotation.
Since they are in the start up phase they will only be able to deliver 125 tyres per
order. Should Lion Tyre change suppliers? Motivate your answer with supporting
calculations.

Question 2 (Marks: 40)

The following information relates to Novelino Manufacturers Ltd for the year ended 30 June 2017:

Inventory Balances as at 1 July 2016

Direct materials R340 000
Finished products R184 000
Work in process R283 000
Indirect materials R87 000

Totals of transactions during the financial year ended 30 June 2017:

Direct materials – credit purchases R1 750 000
Direct materials – cash purchases R209 000
Custom duties on direct materials R195 000
Indirect material – purchased on credit R245 000
Indirect material – issued to factory R230 000

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Direct labour – wages for factory staff R435 000

– pension fund contributions paid by Novelino R55 000
– medical aid contributions paid by Novelino R46 000
– UIF contributions paid by Novelino R5 000
Indirect labour R122 000
Insurance – factory R60 000
Insurance – office R20 000
Freight on raw material purchases (on credit) R134 000
Rent paid – factory R220 000
Rent paid – office R85 000
Returns of finished goods R27 000
Sales of finished products R4 600 000
Marketing R74 000
Depreciation– factory machinery R62 000
Stationery – office R18 000
Salaries – office staff R730 000
Selling and administrative costs R119 000
Telephone – factory R3 000
Telephone – offices R14 000
Water and electricity – factory R94 000
Water and electricity – offices R38 000

Balances as at 30 June 2017

Direct materials R265 000
Finished products R139 000
Work in process R233 000
Indirect materials R102 000

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(40)
Required:
Prepare the production cost statement, the trading statement and the notes to the financial
statements (as listed below) for Novelino Manufacturers for the year ended 30 June 2017.

The following notes to the financial statements are required:

1) Direct material costs
2) Direct labour costs
3) Factory overhead costs
4) Cost of finished goods sold

Question 3 (Marks: 25)

Swing Swing Ltd manufacture tennis racquets. The company uses the job costing system to cost its
production. The following information relates to Swing Swing Ltd for the month of April 2017:

Schedule of costs relating to jobs in process as at 31 March 2017

Materials Labour Overheads Total
A33 R1 050 R2 100 R315 R3 465
C23 R3 300 R5 900 R920 R10 120

Schedule of costs incurred on jobs during April 2017

Job (no. of units) Direct materials Direct labour cost
A33 (20 racquets) R2 400 R450
F54 (25 racquets) R3 700 R690
L49 (15 racquets) R1 300 R350
C23 (55 racquets) R11 800 R2 300

Additional information
 Factory overheads are applied at a rate of 10% of total direct cost.
 The only job still in process at 30 April 2017 was L49. All other jobs were completed during
the month.
 The total cost of C23 was correctly calculated as R25 630, this amount includes applied
overhead costs of R1 410.

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 Sales during April were as follows:

o A33: All 20 racquets were sold at cost plus 40% mark-up
o F54: 23 racquets were sold at a price of R290 per racquet
o C23: All 55 racquets were sold at cost plus 35% mark-up
 Actual factory overheads for April 2017 were R3 250.
 Marketing and distribution expenses amount to R4 700 for the month of April 2017.
 Ignore spoilage.

Q.3.1 Calculate the cost of jobs A33 and F54 completed during April 2017. (8)
Q.3.2 Calculate the closing work-in-process as at 30 April 2017. (3)
Q.3.3 Calculate the net income for the month of April 2017. (7)
Q.3.4 Calculate the closing balance of finished goods as at 30 April 2017. (2)
Q.3.5 Determine, through a calculation, whether factory overheads were over- or under- (4)
applied during April.
Q.3.6 In a job costing system, what document is used to track costs per job? (1)

Question 4 (Marks: 20)

Management of Adventure Gear Ltd, a manufacturing company, are considering using the Activity
Based Costing (ABC) method to cost their three products: T, Z and N. They have asked you to assist
them with this exercise for the financial year ended 31 December 2017.

Management have identified the following major activities as cost centres:

Cost Centre Annual Budgeted Cost Driver Quantity for the Period
Cost
Machining services R248 000 Machine hours 411 000
Assembly services R428 000 Direct labour hours 572 000
Handling services R140 000 No. of times item handled 433 000
Ordering services R134 000 Customer orders 150 000

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You have been provided with the following budgeted information and estimates:
Product T Z N
Units of production 45 000 82 000 60 000
Direct material cost per unit R30 R32 R78
Machine hours per unit 1 3 2
Direct labour cost per unit R120 R140 R100
Direct labour hours per unit 3 3.5 2.5
No. of times item handled 1 4 1
No. of customer orders 35 000 60 000 55 000
Q.4.1 Calculate the total product cost (including both direct and overhead costs) for (15)
product T using the ABC method. You are required to provide the total product cost,
i.e. not per unit.

Q.4.2 Given that management are considering implementing the ABC method, highlight (3)
three advantages of the ABC method which Adventure Gear Ltd may benefit from.

Q.4.3 Which types of organisations are more suited to using the ABC method as opposed (2)
to the traditional costing method?

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Question 5 (Marks: 30)

The following assets and liabilities relate to Marine Foods Ltd for the year ended 28 February 2017.
Account Description Debit Balance Credit Balance
(R) (R)
Creditors Control 220 000
Long Term Loan 760 000
Furniture 425 000
Accumulated Depreciation - Furniture 280 000
Inventory 170 000
Bank Overdraft 67 000
Bank – Credit Card 17 000
Accrued Expenses 32 000
Income Received in Advance 26 000
Input VAT 66 000
Output VAT 48 000
Petty Cash 1 500
Bank – Savings Account 11 000
Debtors Control 188 000
Accrued Income 6 000
Prepaid Expenses 2 800
Fixed Deposit – Maturing 30 June 2017 55 000
Fixed Deposit – Maturing 30 June 2018 100 000
Q.5.1 Calculate the total amount of working capital for the financial year ended (5)
28 February 2017.

Q.5.2 Calculate the total amount of current liabilities for the year ended 28 February 2017. (4)

Q.5.3 Calculate the net-working capital on 28 February 2017. (2)

Q.5.4 Using the information provided, comment on the liquidity of Marine Foods Ltd for (8)
the 2016 – 2017 periods. You are required to calculate the following two ratios for
2017 to support your answer (comparative ratios for 2016 have been provided
below):
1. Current ratio (2016: 1.55)

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2. Acid test / quick ratio (2016: 1.12)

Q.5.5 On 1 March 2017, Marine Foods Ltd entered into the following transactions:
1. Sold goods on credit to the value of R38 000, inclusive of VAT. Marine Foods
Ltd uses a mark-up of 40% on cost to determine its selling price. The company
uses a perpetual inventory system.
2. Settled an outstanding creditor’s account of R16 000 and received a 2%
settlement discount.
Q.5.5.1 Calculate the effect of the above transactions on working capital. (6)
Q.5.5.2 Calculate the effect of the above transactions on current liabilities. (4)
Q.5.5.3 Calculate the effect of the above transactions on net-working capital. (1)

Question 6 (Marks: 15)

Pelly Paper Manufacturers Ltd operate a factory near Durban, Kwazulu-Natal, where recycled paper
gift bags are manufactured. The company has three machines which process scrap paper so that it
is suitable for reuse as gift bags. These machines are operating at 95% capacity. At 100% capacity,
each machine can produce a total of 20 000 kg of recycled paper per month.

The following is an extract of some of the transactions entered into by Pelly Paper Manufacturers
each month.
Period Costs (R) Product Costs (R)
Marketing, Administrative Direct Direct Factory
distribution cost materials labour overhead
or selling
cost
1 Scrap paper purchased per
month (R2 per kg)
2 Wages of the machine
operators (R800 per week).
There are 12 machine
operators on duty at any
point in time.
3 Monthly salary of factory
supervisor, R14 000.

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4 Depreciation per machine,

R154 000 per annum.
5 Indirect materials used in
production, R1.20 per kg of
paper processed.
6 Monthly insurance premium
of R800 (R500 of which
relates to the factory).
7 Railage and carriage on
sales, R13 000.

Assumptions:
 There are four weeks in a month.
 The machines are able to process 1kg of scrap paper into 1kg of recycled paper.

Required: (15)
Complete the above table by using monthly cost figures. You are required to redraw the table
in your answer books, however you do not need to copy the transaction detail. Use the
number to indicate the relevant line answered. All calculations must be shown. Ignore VAT.

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Question 7 (20 Marks: )

Sparkling enterprises provides sparkling water to various guesthouses in the Gauteng region.
Sparkling only provides sparkling water in 500ml bottles. On 1 February 2017 there were 6 500
bottles with a selling price of R10 each on hand. (A mark-up of 25% on cost were applicable on the
bottles). Sparkling enterprises uses the periodic inventory system and makes use of the weighted
average cost method in order to value the inventory.
The following transactions took place during February 2017:
Date Transactions
5 Purchased 2 000 bottles @ R7.50 per bottle
8 Sold 6 000 bottles @ R10 per bottle
15 Purchased 4 000 bottles @ R7.80 per bottle
20 Purchased 2 000 bottles @ R 8.00 per bottle, total delivery cost of R500 was incurred in
order to ensure timely delivery
24 Sold 8 000 bottles @ R10 per bottle
28 Purchased 4 000 bottles @ R8.00 per bottle

Required:
Q.7.1 Calculate the following:
Q.7.1.1 The value of the closing inventory on 28 February 2017; (14)
Q.7.1.2 The sales revenue for February 2017; (2)
Q.7.1.3 The cost of sales for February 2017; (2)
Q.7.1.4 The gross profit for February 2017. (2)

END OF PAPER

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