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1. 2. 3. 4. 5. Introduction Signing up for a tutorial Tutorial Venues Tutorial Timetable Tutorial Bank

2 3 7 8 9

The University of Johannesburg academic rule 10.2.6 states: When a summative assessment opportunity is used as a last (comprehensive) summative assessment opportunity, a minimum module mark of 40% and where applicable, attendance of 80% of tutorial classes is required for admission to the summative assessment opportunity concerned. Students must take note of the following regarding academic rule 10.2.6: Attendance of tutorial classes is compulsory and academic rule 10.2.6 will be strictly enforced; If students fail to meet the 80% attendance required they will not, under any circumstances, gain access to the final summative assessment; If a student cannot attend a tutorial class, the student must arrange with his/her lecturer to be excused from the tutorial class, either before, or within two (2) days after the tutorial class; There will be four (4) contact sessions and four (4) Edulink tutorial assessments, see work program; and Students must ensure that they have access to, and know how Edulink works, in order to complete the Edulink tutorial assessments, NO excuses will be accepted.


Students are required to sign up for tutorial groups on Edulink. Students will attend tutorial contact sessions at times and venues allocated to the groups they have selected. STUDENTS MAY NOT CHANGE GROUPS DURING THE SEMESTER. Exceptional cases will be dealt with by the lecturer at least a week prior to the contact session. This is how you will access Edulink: 1. You can only access Edulink courses via the student portal. 2. Log into the student portal at http://edulink.uj.ac.za/ 3. IF YOU ARE A FIRST TIME USER OF THE STUDENT PORTAL: a. Click on the Register button in the top right hand of your screen. b. Specify your student number and ID number when prompted for them. c. Follow the steps on the screen to set up a password and forgotten your password/challenge response. 4. Contact Biographics at (011) 559-3040 immediately if there is a problem with regard to your ID number. Once they have corrected it, you can try to register on the student web again. 5. Contact the computer lab assistants at the computer labs on your campus if there is a problem with your password. 6. Click on the link Edulink under External Links to the left of the screen. 7. Click on the relevant module under the My Modules heading. 8. Contact the Edulink Helpdesk at (011) 559-3580 if you cannot see specific modules that need to be activated on Edulink.

Once you have accessed Edulink, you will need to sign up for a group in the Financial Management 3A page. Below is a step-by-step guide on how to sign up for a tutorial on Edulink:

4 STEP 1: On the Financial Management 3A Edulink Home Page click on GROUPS:

5 STEP 2: Select the best time per the timetable on Tutorial Venues below and click on the group that best suits you.

6 STEP 3: Confirm that the group is indeed the group you would like to sign up for by clicking on SIGN UP.

7 Once you have selected your group the following screen should pop-up:

Each student has ONE opportunity to sign up for a chosen tutorial group via Edulink. NO changes will be allowed once a group has been selected. Itis the students responsibilityto sign up for a group before Wednesday 15 February 2012. Below is a list of tutorial groups to choose from. Students are requested to study the table below carefully and ensure that there are no clashes with class times or other engagements. Please refer to how to sign up for a group above for guidance on how to sign up for a group on Edulink. Signing up for a group will be on a first-come-first-serve basis and the lecturers will not entertain any queries regarding full groups. Group nr 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Day Monday Time 12:30-13:15 12:30-13:15 12:30-13:15 12:30-13:15 13:20-14-:05 13:20-14-:05 13:20-14-:05 13:20-14-:05 14:10-14:55 14:10-14:55 14:10-14:55 14:10-14:55 15:30-16:15 15:30-16:15 15:30-16:15 15:30-16:15 16:20-17:05 16:20-17:05 16:20-17:05 16:20-17:05 10:30-11:15 10:30-11:15 10:30-11:15 19:40-20:25 Venue D1 Lab 410 D1 Lab 411 D1 Lab 412 D1 Lab 413 D1 Lab 410 D1 Lab 411 D1 Lab 412 D1 Lab 413 D1 Lab 412 D1 Lab 413 D1 Lab 414 D1 Lab 415 D1 Lab 405 D1 Lab 406 D1 Lab 407 D1 Lab 408 D1 Lab 405 D1 Lab 406 D1 Lab 407 D1 Lab 408 D1 Lab 403 D1 Lab 410 D1 Lab 411 D Les 408


Friday Afrikaans Friday Wednesday RAUNOX

Below is the timetable for this semesters tutorials. Please note that the Edulink tutorials are questions loaded on Edulink for a limited period of time. Students are urged to complete the Edulink tutorials as soon as possible. If a student does not complete a certain tutorial within the specified period they will be marked absent for a tutorial. Students are also urged to complete the questions given below for the contact session PRIOR to attending the session. These questions must be handed in to the tutor and will be graded by the tutor. During this session the tutor will discuss the questions with the students. The solution will not be made available on Edulink at any stage and the lecturers shall not give these to the students.

Study Unit Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Unit 6 Unit 7 Unit 8

Tutorial Type Edulink Edulink Contact Edulink Contact Contact Edulink Contact

Dates Available 13/02/2012 - 17/02/2012 20/02/2012 24/02/2012 27/02/2012 -02/03/2012 05/03/2012 09/03/2012 16/04/2012 20/04/2012 23/04/2012 26/04/2012 30/04/2012 04/05/2012 14/05/2012 18/05/2012

Question Loaded on Edulink Loaded on Edulink 1.1 & 3.1 Loaded on Edulink 5.2 & 5.3 6.3 & 6.4 Loaded on Edulink 8.1 & 8.3



Attendance of tutorials is compulsory. Answers to some questions discussed during tutorials will NOT be provided to students who missed the tutorial for ANY reason.

Practical classes will be held for each unit after the theory and examples were discussed during lectures. These classes will be held during normal lecture times and all students must attend. Answers to some questions discussed during practical classes will NOT be provided to students who missed it for ANY reason.


After intense negotiations Heart Song (Pty) Ltd signed a contract with the internationally acclaimed singer, Josh Groban, to perform in South Africa. Heart Song paid a 50% nonrefundable deposit of R2 925 000 to secure the venue for the event that will take place on 19 September 2009. Heart Song will market two types of tickets for the event, VIP and normal. The VIP tickets will be sold at R950 each, while the normal tickets will sell for R400 each. In addition to having premium seats reserved, VIP ticket holders will also receive the following: an autographed Josh Groban CD, worth R120. Heart Song have negotiated with the producers to purchase the CD at a cost of R80; a five-star meal budgeted to cost Heart Song R150 per person; a full colour poster with a cost price of R20 each. Normal ticket holders will automatically be placed in a lucky draw to win one of 1000 autographed CDs. Heart Song will pay Josh Groban R7 million for the performance. Advertising for the event is estimated at R1, 5 million. The venue can accommodate 25 000 VIP seats and 40 000 normal seats. Total operational costs are a combination of various fixed and variable expenses. This includes costs such as the cost of ushers, security, cleaners etc. required for hosting a successful event. The following operational costs were incurred for similar events hosted by the company recently: Number of seats 20 000 45 000 75 000 100 000 Total operational cost 5 000 000 8 750 000 9 250 000 10 000 000

Assume that both VIP and normal seats consume equal operational costs. Heart Song has been in the music business for the past 25 years. Historically the sales ratio had been 1:1.6 (VIP: Normal sales). They expect that this show will follow the same trend. YOU ARE REQUIRED TO: Draft a report to the management of Heart Song (Pty) Ltd in which you address the following: 1.1 1.2 1.3 Calculate how many VIP and how many normal tickets should be sold in order to break even. Calculate the turnover would be at the breakeven point. Calculate what the profit would be if they sold all the tickets. (14) (3) (3)

Clearly show all calculations.


MasMill (Pty) Ltd is considering launching a new weekly student magazine at a selling price of R9.95 per copy. It is expected that 50% of the current UJ students of 43 000 will buy this magazine, but it is possible that the actual sales could be significantly different from this estimate. Two different methods of producing the magazine are being considered and neither would involve any additional capital expenditure. The estimated production costs for each of the two methods of manufacture, together with the additional marketing costs and distribution costs of selling the new magazine, are summarised below: Method A Variable manufacturing cost Manufacturing cost fixed R3.75 R300 000 per month Method B R3.00 R400 000 per month

Marketing and distribution: The following estimated semi-variable costs have been obtained: Method A R55 000 per month R65 000 per month R85 000 per month Method B R47 500 per month R52 500 per month R62 500 per month

60 000 copies 80 000 copies 100 000 copies

It may be assumed that the fixed cost content of the semi-variable cost will remain constant throughout the range of activity shown.

YOU ARE REQUIRED TO: 1.1 Determine the net increase of the companys profit per month for each production method from the introduction of the new magazine at the estimated activity and sales levels. Calculate, for each production method, the amount by which sales volume of the new magazine could decline from the anticipated sales before the company makes no additional profit from the introduction of the new publication. Discuss the difference between the two methods with reference to fixed cost and sales contribution and explain, with reasons, which method you would recommend. Distinguish between the accountant and economists model of CVP analysis.




1.3 1.4

(6) (5)

Clearly show all calculations.


A new subject was launched in 2009 at the University, namely Social Behavior (SB01). This is the first year that the subject will be lectured and all first year students are obliged to take the course. There are 7 010 first year students in 2009 and all of them will therefore have SB01. The lecturer of SB01 wants to provide tutor classes for this new subject as he was certain that the students will battle with some of the concepts. He heard that the BSR3A01 students have been lectured on Decision-making under conditions of risk and uncertainty and immediately approached you to help him calculate his breakeven point as well as the chances for him to break even with his tutor classes. He gave you the following information: 1. It can be assumed that 10% of all the first year students will not even write their first test and will drop out of University. These students should therefore not be taken into account. 2. The student fee for the subject is R 1 050 and their text book will be R 350 each. The tutor classes will be R 550 extra per student. 3. Seven extra tutors will be needed at a salary of R 1 050 each per month for the whole year and the venue hire will be R 42 150 per month. Both these costs can be seen as fixed cost. 4. Each student will receive a tutor manual which is included in the study fee and will cost the University R 55 per manual. 5. The Department of Statistics have compiled the following probabilities that students will attend the tutor classes after a detailed discussion with the lecturer: Number of students 200 1 522 3 034 1 025 315 155 58 Probability 3% 2.5% 14% 55% 7% 8.5% 10%

YOU ARE REQUIRED TO 1. Calculate how many students should attend his classes in order to break even. 2. Calculate what his chances are that he would break even.


Towards the end of 2007, Forever Beautiful completed the development of a range of beauty products which was clinically proven to enhance a youthful complexion within just weeks of its use. The first product, Lovely, is intended to be used by ladies in the age group between 20 and 35 years, and the second product, Essence, is for use by ladies 35 years and older. The products were launched in June 2008 and management immediately embarked on a marketing campaign at a cost of R132 000. They didnt mind spending this money on marketing as they were confident that the product would be a success Forever Beautiful uses a specialised machine, the Olga, to produce two ingredients, Ingredient A and Ingredient B, which is used in Forever Beautifuls top selling product. The Olga will also be used to produce Lovely and Essence. Based on initial sales and production forecasts management budgeted to buy another Olga at a cost of R425 000 in the next financial year. However, as a result of the global economic downturn, quarterly results showed that Lovely and Essence did not sell as well as expected. In response a prudent decision was taken to postpone purchasing the new Olga. The Olga machine can work 3 300 hours per month and is currently running at a cost of R15 per hour. The labourers working on the production of the products are paid R21 per hour. Other variable costs are 50% of labour cost. The following labour and machine hours are being used by the respective products and ingredients: Lovely Essence Ingredient A Ingredient B Labour hours Machine hours 3 5 4 6 2.5 0.5 1.5 1.5

The direct material used in both Lovely and Essence, cost R50 per product. The direct material used in the manufacture of Ingredient A costs R10 and that used in Ingredient B R12.50. 700 units of Ingredient A and 500 units of Ingredient B are needed per month. Ingredient A and Ingredient B could also be bought from Clini for R95 and R100 respectively. Given the economic crisis the marketing team of Forever Beautiful estimated that a maximum of 300 units of Lovely and a maximum of 250 units of Essence will be sold for the month. This trend will probably continue for the rest of 2009. Lovely will be sold at R560 and Essence at R625. Forever Beautifuls fixed monthly rent amounts to R45 000 and the salaries of the administrative personnel are R150 000 per month.


YOU ARE REQUIRED TO 1 Advise the management of Forever Beautiful on the optimal production mix in order to maximize profit. Discuss qualitative factors that should be considered products/ingredients are discontinued or bought from Clini. before any of the


PAAIR (Pty) Ltd operates Litchi Air, a newly established low cost airliner. They service three return routes from Johannesburg to Cape Town, Durban and George. Subsequent to their launch pilot salaries have increased substantially. The trade union indicated that if Litchi does not increase pilot salaries to reflect those paid by other airliners, all pilots belonging to the union will be going on a three-day strike. Litchis current cash flow position does not allow for any increase in salaries. Management anticipates that there will only be enough pilots to operate 160 hours of flying time during the three day strike period. The following daily cost and distance information is available for the three return routes: Scheduled route Contribution Fixed cost Profit Total number of km in the route per day Cape Town R000 6 210 1 100 5 110 14 000 Durban R000 4 815 1 100 3 715 6 000 George R000 7 320 1 100 6 220 11 000 Total R000 18 345 3 300 15 045

Additional information: There are 5 flights every day to each destination. A return flight to Cape Town would be 2 800 km and need 6 hours flying and preparation time; to Durban 1 200 km and 3 hours flying and preparation time and to George 2 200 km and 4 hours flying and preparation time.

YOU ARE REQUIRED TO: Recommend which route(s) should be operated on the three days of the strike to maximize profit on those days.



Cyber Space Ltd developed a new GPS system, Anywhere Anytime, which promises to be the most technologically advanced GPS in the world. Initially, it took technicians 6.5 hours to assemble the first unit. They then assembled the second unit in 5.85 hours. Impressed with the new product, the marketing team took the two GPS units to a Techno Expo where they launched the new product. Due to all the extra features of Anywhere Anytime the response was overwhelming. They immediately received an order of 50 Anywhere Anytime from a leading outdoor retail chain. The marketing team promised to provide a quote to them by the next day. Upon returning from the Expo the marketing team approached you, to help them determine a selling price for Anywhere Anytime. They supplied you with the following information: 1. 2. The technicians charge R 550 per hour for the assembly of the GPS unit. The specialised parts for the first two units assembled amounted to R 1 650 in total. Since then the price of the parts increased by 12%. Other variable costs are estimated to stay constant at R 125 per unit. Management requires a profit margin of 25% on the cost price of a unit.

3. 4.

YOU ARE REQUIRED TO: 1 2 Calculate a selling price per Anywhere Anytime unit for the outdoor retail chain order. Assume an extra order of 10 units is placed by another retail chain. Calculate the time spent on assembling the 60th Anywhere Anytime. (20)



Tyre Trend (Pty) Ltd has developed a new type of tyre for the South African Market called SApot. This tyre is manufactured from a new type of rubber that can withstand the most common size potholes. They predict that accidents due to tyre bursts can be reduced by 80% with their SApot product. They will produce the tyres in batches of 16 each, although any number of tyres can be purchased. Followed by their very successful launching at the biggest motor show, all the biggest South African tyre companies as well as some African tyre companies shown great interest. Tyre Trend (Pty) Ltd decided to sell the first 80 tyres at a special price.

The researchers at Tyre Trend (Pty) Ltd took two years to do all the research of this new tyre and spend R950 thousand on the research. They estimate that they can manufacture 100 000 tyres, before their competitors will catch up on this new product and therefore before they have to spend more money on research again. It took the specialists 10 hours to produce the 1st batch and 9 hours to produce the 2nd batch. The job card of the first batch of SApot revealed the following information: Rubber A Direct material Direct labour (relation 4:3:2:1) Variable overheads Fixed overheads 248.00 48 304.00 60 12.00 24 14.00 28 R2 480.00 360.00 Rubber B R3 040.00 270.00 Component A+ R120.00 180.00 Component B+ R140.00 90.00

Variable overheads are allocated to products and components on direct labour cost and fixed overheads are allocated per tyre. Trend (Pty) Ltd would like a 25% profit on selling price. Tyre Trend (Pty) Ltd established that they can buy Component A+ and B+ from an outside supplier at a cost of R15 and 25 per tyre. YOU ARE REQUIRED TO: 1. Calculate the special price that Tyre Trend (Pty) Ltd could charge per tyre. (25) 2. Advise management if they should purchase component A+ and/or B+ from the outside supplier (ignore the learning curve in your calculation) (7) 3. Identify qualitative factors for your decision in 2 above. (3)


FishAway (Pty) Ltd has designed a new type of fishing boat. The cost and sales price of the first boat is as follows: R 60 000 22 500 33 750 116 250 34 875 151 125

Material (R500 per meter) Labour (R75 per hour) Overheads(150% of labour cost) Mark-up Sales price

An 80% learning curve for labour and 90% for material is expected. FishAway (Pty) Ltd also budgeted for an increase in salaries of 7% and an increase in material cost of 10% for the month of April. Unfortunately, the market showed little interest in the new boat. A company from Mozambique, however, is interested in the new boat, but with the current economic conditions and deteriorating exchange rate, they cannot afford to pay R151 125 per boat, especially since they plan to buy two or even four boats. YOU ARE REQUIRED TO: 1. 2. 3 Calculate the minimum price that FishAway (Pty) Ltd could ask for the second boat if it is ordered in March.


If the customer bought two boats now, calculate the lowest price per boat for the third and forth boat, Discuss the learning curves application in pricing decisions, work scheduling and setting of standards.



A company manufactures 2 products namely gizmos and gadgets. Both these products are manufactured in the same 2 departments, processing and finishing. Gizmos sell at R50 per unit. Gadgets sell at R70 per unit. There is an unlimited market for gizmos, but they sell only 13 000 gadgets each year. They restrict the manufacturing hours for both the processing and finishing departments to 2 400 hours per annum respectively. Variable costs per unit are R30 for gizmos and R40 for gadgets.

Processing costs per 100 units: Processing Gizmos Gadgets 6 8 Finishing 4 12

An agreement was reached in terms of which work methods would be changed. This would lead to an increase of 5% in the output of all departments.



calculate the product mix that would yield maximum contribution: (i) (ii) at existing levels of output; if there is a 5% improvement in production;


to calculate the total amount of the productivity bonus if the employees were to receive 40% of the additional contribution.

NOTE: (i) (ii) You must use the graphical programming with algebraic solution of vertexes. All calculation should be rounded to the nearest integer.



You are the financial manager of Pool Safety Ltd. The management team instructed you to determine how the marketing budget available for advertising in newspapers and magazines that appear monthly can best be spent to ensure that the sales of safety nets for swimming pools are promoted. After discussing the matter with a friend who works at an advertising agency in your vicinity, you have the following information at your disposal: (a) An advertisement in a home improvement magazine comprises one page and costs R3 000 while an advertisement in the local newspaper comprises a page and costs R1 200. According to the latest circulation figures the readership of the home improvement magazine amounts to 35 000 and the local newspaper has a circulation run of 45 000 copies. With the aid of statistical sampling the advertising agency determined that at least 1 575 000 readers should be exposed to advertising in one of the two publications being considered. Assume for purposes of the question that a person, who reads the magazine, does not also read the local newspaper. Research has shown that an advertisement should comprise 25 pages on any topic to have any influence. The number of full-page advertisements available in the magazine is 40, while the local newspaper has advertising space for 30 half-page advertisements.





YOU ARE REQUIRED TO: (a) set up the linear programming model for the above problem with the purpose of keeping the advertising expenses as low as possible; solve the problem graphically, clearly showing the feasible region; determine the optimal solution for the model and indicate what the costs amount to for this optimal solution; confirm this solution using the algebraic method of solution.

(b) (e)



(40 MARKS) PART A Consider the following 3 projects. Project A Selling price per unit: R10,00 Economic condition 1 2 3 4 Project B Selling price per unit: R8,00 Economic condition 1 2 3 4 Project C Selling price per unit: R10,00 Economic condition 1 2 3 4 Probability 0,53 0,16 0,12 0,19 Number of units 8 000 5 400 4 500 3 900 Probability 0,16 0,50 0,09 0,25 Number of units 8 125 5 375 5 000 4 750 Probability 0,25 0,35 0,18 0,22 Number of units 8 500 5 400 2 300 1 850 (30 Marks)

REQUIRED 1. Assuming that the investor is risk averse, calculate which project is the most desirable. (Show all calculations in support of your recommendation)



If Project A above is selected, which percentage of sales would be higher than R 88 037,58?




(10 Marks)

Queen Pie wants to launch new types of pies during 2009. In order to manage the risk The Board of Directors decided to start with only one new type. The product developers compiled a list of three new types of pie that can be introduced to the market. These are: spinach and feta, bacon and cheese and Frankfurter. No market research was done to prove that any of these new types would be popular. However the financial department estimated the following profits if the products were made: New Type Spinach and Feta Bacon and cheese Frankfurter Highly successful 23 000 31 250 24 150 Successful 20 000 25 540 21 180 Average 18 000 16 000 19 950 Not successful 4 000 6 000 8 000

REQUIRED Use the MINIMAX method and calculate which new type to introduce in the market. (10)


At the moment Malaga Limited sells product N at R5 per unit. The sales manager believes that the sales of product N will be between 80 000 and 120 000 units for the following financial year, and that the probability that different figures will be achieved is as follows: Sales 80 000 90 000 100 000 110 000 120 000 Probability 0,1 0,2 0,3 0,3 0,1

Fixed costs amount to R150 000 per annum, but if the production is going to exceed 100 000 units, additional fixed costs of R8 000 will have to be incurred to lease additional machinery. No material inventories are maintained. The sales manager also informs you that if selling prices are decreased by 40c per unit, all the figures mentioned above could be increased by 20 000 units. Variable costs amount to R3 per unit. YOU ARE REQUIRED TO: a) Give the manager advice regarding the question of whether or not the additional machinery should be leased; Calculate the expected net profit that will be achieved in the following year with the sale of Product N (on the assumption that management will accept your advice).



Your friend wishes to start an employment agency with the aim of introducing people with wordprocessing experience to potential employers. However, he does not know whether he should test a potential applicant before taking her/him on as a candidate. If he does not test an applicants abilities it would appear that such a person has a 60% chance of being successful in a position if he/she were employed. The aptitude tests available to test an applicant cost R2 000 per test. The supplier of these tests indicates that 50% of the candidates who undergo this test will pass it. The probability of an applicant who has passed the test being successful in a post is 90%, while those candidates who did not pass the test are nonetheless successful in 30% of placements. The agencys fee amounts to 10% of a successful candidates annual salary if the placement is successful, and 1% if the applicant is not successful. The average monthly salary of an applicant who has passed the aptitude test is calculated as R10 000 per month and an applicant who either did not pass the test or did not write the test is estimated to earn R7 500 per month.

YOU ARE REQUIRED TO: Advise your friend on the decision by means of a decision tree.


Slimmers Paradise Ltd is a manufacturing company and specializes in producing health shakes that will contribute to a balanced weight loss diet. One of their top selling shakes is Slim Forever. The two main ingredients that are used in Slim Forever are Ingredient A and Ingredient B and the cost to purchase these ingredients are R2.50 and R1.65 respectively. Slimmers Paradise Ltd needs on average 120 000 kg of Ingredient A and 135 000 kg of Ingredient B per annum. The suppliers of both these Ingredients take no more than 5 days to deliver the orders placed. The depreciation on the equipment used to make Slim Forever amounts to R105 000 per year and there are an eminent possibility that new equipment to the value of R650 000 will need to be bought within the next year. The following costs are also associated with the two ingredients that are used: 1. 2. 3. The incremental insurance costs are 5 cents per ingredient bought per month. The incremental clerical costs of preparing a purchase order amounts to R0.75 per order. The incremental material handling costs are R0.15 per ingredient per year.

After months of salary negotiations the management agreed to give the storekeeper an increase of 12% on top of his current salary of R107 500 per year. Slimmers Paradise was recently approached by another company who would like to rent the storage space where Slimmers Paradise is currently storing Ingredient B. The company is prepared to pay R10 000 per month for the space. This would amount to R 1.50 per Ingredient B per month. The supplier of Ingredient A phoned Slimmers Paradise and offered a 0.5% discount if they would order no less than 1 000 of Ingredient A at a time.

YOU ARE REQUIRED TO 1. 2. Calculate the economic order quantity of Ingredient B. Calculate whether Slimmers Paradise should accept the discount offered on Ingredient A or not. Calculate the reorder point of Ingredient B if it is assumed that Slimmers Paradise does keep safety inventory. Assume average daily use of 281 kg and maximum daily use of 380 kg.


Briefly discuss the advantages and disadvantages of using the JIT (Just in Time) approach.

26 QUESTION 6.2 You are the Financial Manager of AeroArms Ltd, a company that manufactures ammunition for the South African Airforce. The company sells 180 000 units per annum of an explosive device called ZX3, and 100 000 units of a similar, but stronger device, called ZX Super. Both ZX3 and ZX Super use the same explosive called BIGBOOM! with ZX3 requiring 1kg and ZX Super 1,5kg of BIGBOOM! The annual price increase for BIGBOOM! came into effect recently and no price increase is anticipated for the next 12 months. The price of BIGBOOM! is R1,10 per kilogram. The supplier of BIGBOOM! offers a bulk discount of 2,5% on orders of 18 000 kg or more. A recent investigation revealed that a buying clerk at AeroArms is paid R180 000 per annum and that the average buying clerk is able to process an average of 7,2 orders per day. Assume 250 working days per year. Only the salary of a buying clerk is considered a cost of ordering. Due to the nature of BIGBOOM! very strict security is needed at the storage facility, located at the far end of the AeroArms property. A dedicated warehouse was built to store explosives and as such most costs are fixed, except for insurance which is payable at R0.50 per kilogram per year of BIGBOOM! in inventory. The BIGBOOM! supplier is very strict about quality control, and as such the product is not always available immediately. Lead time varies between 10 and 13 working days. The probabilities for lead time are as follows: Lead time in days 10 11 12 13 YOU ARE REQUIRED TO: 1. 2. Calculate the Economic Order Quantity (EOQ) . (5) Probability 65% 20% 10% 5%

Calculate the safety stock as well as the reorder point if AeroArms is prepared to carry a 5% stockout risk. (5) Calculate the total carrying cost as well as the total ordering cost per annum, assuming AeroArms will accept a 5% stockout risk. (5) Calculate and recommend whether AeroArms should accept the bulk discount. (10)




Soutpansberg Limited uses 108 000 units per annum of unit A in its production process. A recent investigation indicated that it costs R75 to place an order and R0,60 to carry a unit A for a year. The company works for 360 days per annum and every unit A costs R4. The lead-time between placing and receiving an order fluctuates between 6 and 11 days. The probabilities are given below: Lead time in days Probability

6 7 8 9 10 11 YOU ARE REQUIRED TO:

80% 10% 3% 3% 3% 1%

1. 2.

Calculate the most economic order quantity; Calculate the safety stock as well as the re-order point assuming that Soutpansberg is prepared to carry a 7% risk of a stock shortage. Calculate the safety stock assuming Soutpansberg is prepared to take a 1% risk; Calculate the total annual cost (purchases, ordering and carrying cost), assuming that Soutpansberg is willing to take a 1% risk of a stock shortage; and Calculate whether it would still be to Soutpansberg's advantage to order the economic order quantity if the following quantity discounts are available: Order quantity 5 000 20 000 50 000 100 000 Discount 0,5% 1% 3% 4%

3. 4.


Round all figures to the nearest integer.


PART A Creed Manufacturing produces casings for stereo sets: large and small. In order to produce the different casings, equipment must be set up. Each setup configuration corresponds to a particular type of casing. The setup cost per production run for either casing is R8 000. The cost of carrying small casings in inventory is R8 per casing per year. The cost of carrying large casings is R12 per year. To satisfy demand, the company produces 98 000 small casings and 300 000 large casings per year. REQUIRED: 1. Compute the number of small casings that should be produced per setup to minimize total setup and carrying costs for this product. Compute the total setup and carrying costs associated with the economic order quantity for the small casings. Compute the number of large casings that should be produced per setup to minimize total setup and carrying costs for this product. Compute the total setup and carrying costs associated with the economic order quantity for the large casings.





Refer to part A above. Assume the economic lot size for small casings is 14 000 and that of the large casings is 20 000. Creed Manufacturing sells an average of 392 small casings per workday and an average of 1 200 large casings per workday. It takes Creed two days to set up the equipment for small or large casings. Once set up, it takes seven workdays to produce a batch of small casings and 10 days for large casings. There are 250 workdays available per year. REQUIRED: 1. What is the reorder point for small casings and the reorder point for large casings? Using the economic order batch size, is it possible for Creed to produce the amount that can be sold of each casing? Does scheduling have a role here? Explain


Holiday Forever (Pty) Ltd is the holding company of a chain of different holiday destinations that specialises in luxury accommodation. They are well-known for quality service delivery. Recently they acquired a hotel close to George in the Western Cape that was poorly managed by the previous owners and was declared bankrupt during 2008. Holiday Forever (Pty) Ltd bought the hotel on an auction at a discount price of R23 000 000. Holiday Forever (Pty) Ltd renovated the hotel to adhere to their high standards of quality. The new hotel will be launched on 1 April 2010. Holiday Forever (Pty) Ltds management team normally submits their annual budget to the Board of Directors at the end of March each year. They approached you, their Financial Manager, to help them with the budget for the new hotel that they purchased. They supplied you with the following information: 1. 2. The budget should be prepared in four quarters starting in April 2010. The hotel currently has 330 rooms. In addition to that they still plan to finish 4 penthouses by the end of the first quarter. With years of extensive experience, management expects that the room occupancy rate will show the following trend: 60% in the first quarter; 70% in the second quarter; 75% in the third quarter and 80% in the fourth quarter. These rates will also apply to the penthouses once they are finished. The average rate per room will also rise and fall along with the holiday seasons: Quarter 1 2 3 4 4. Normal rooms R 1 200 R 1 050 R 1 500 R 1 050 Penthouses


R 4 050 R 6 000 R 4 050

Normally all clients pay cash for their stay, but Holiday Forever (Pty) Ltd do allow corporate companies to pay on credit. Their debtors therefore normally amount to 20% of their total sales. The credit terms are strictly 30 days, but history suggests that 15% of debtors will only pay after 60 days and 5% of debtors will never pay. In the first quarter Holiday Forever (Pty) Ltd will sell some of the old furniture and kitchen equipment that was used by the previous owners. The total purchase price of all these furniture and equipment amounts to R 1 050 000, of which 80% have already been depreciated as at 31 March 2009. Management expects to make a total profit of at least R55 000 on the sale. The new furniture and equipment bought by Holiday Forever (Pty) Ltd amounted to R5 066 000 and was financed by the holding company in January 2009. The depreciation on these is 10% per year. The salaries of all the staff working at the hotel amount to R3 150 000 per month. Salary negotiations are normally conducted in June and management expects a 10% across the board increase (i.e. for all categories of employees and at all levels) from 1 July 2010. However, the salaries of the finance team working at the hotel will be paid by the holding company. This amounts to R250 000 per quarter and forms part of the total salary amount above.




30 8. Variable costs per normal room amount to R500 per day from 1 April 2010 and for the penthouse it will be R1 050 per day once the penthouses open in July 2010. These tariffs are inclusive ofmeals and accommodation and is expected to increase by 5% every quarter. Holiday Forever (Pty) Ltd has built up a very good reputation in the market and their suppliers allow them to pay on 60 days terms. Of their variable costs, 40% is paid cash and 60% on credit.


10. The cost to complete the penthouses is estimated at R1 040 000. Of this amount, 70% will be paid cash and 30% on the normal credit terms. 11. A dividend is normally paid as December bonuses to the Directors of Holiday Forever (Pty) Ltd and amounts to 30% of the available cash balance at the end of quarter two. 12. Royalties of 5% of actual sales need to be paid to the holding company in cash each quarter, regardless of whether the sales has been collected or not. 13. The property tax is paid annually in September and will amount to R250 000. 14. Other expenses paid on a monthly basis are: a. Telephone R15 000 b. Internet R1 050 c. Garden services R18 000 d. Pool cleaning services R1 200 e. Maintenance is estimated at R32 000 per quarter. REQUIRED 1 Prepare a report addressed to the holding company, evaluating the financial feasibility and affordability of this project for the first semester. Your report should include the cash budget for the first two quarters.


Winter Woolies Manufacturers (WWM) has a seasonal sales pattern, with high sales in the second quarter of the year. They also experience a minor sales peak in December due to a special contract with a customer in the Northern Hemisphere. It is the beginning of January 2007 and the opening cash balance is R5 000. The sales pattern for the upcoming six months, together with the sales for the past quarter, is shown in the table below: October 2006 November 2006 December 2006 January 2007 February 2007 100 000 120 000 180 000 150 000 120 000 March 2007 April 2007 May 2007 June 2007 140 000 150 000 200 000 240 000

WWM's terms of sale are 2/30 net 60. Their actual experience of collections is that 30 percent of customers take the discount, 60 percent pay in 60 days and 10 percent pay in 90 days. Bad debts have never exceeded 0.2 percent of sales.

Production costs, equal to 60 percent of expected sales, consist of labour (25 percent of expected sales) and bought out materials (35 percent of expected sales). Labour is paid in the same month as the labour expense is incurred. Materials are paid for in the second month following purchase.

Office salaries of R30 000 are paid in the month they are incurred. Staff receive a double cheque at Christmas time. Depreciation on non-current assets is R5 000 per month. Other expenses, expected to remain at R22 000 for the whole year, are paid in the month following that in which they are incurred.

The firm's term loan, which at the end of December 2006 stood at R300 000 attracts interest at a fixed rate of 16 percent per annum, calculated quarterly. The loan, which is being repaid in equal quarterly installments in arrears, has 6 years to run.

In May the firm will be buying a new computer, for R15 000. WWM estimates its second provisional tax payment, due in February will be R20 000. Its next payment, expected to be R23 000, will be at the end of August. The company's tax rate is 29 percent.


Prepare the cash budget for January to June 2007.


A company operates a number of hairdressing establishments which are managed on a franchise arrangement. The franchisor offers support using a PC package which deals with profit budgeting and control information. Budget extracts of one franchisee for November are shown below analysed by male and female clients. For the purposes of budget projections average revenue rates are used. At the month end these are compared with the average monthly rates actually achieve using variance analysis. Sales price, sales quantity, sales mix and cost variances are routinely produced in order to compare the budget and actual results. Staff working in this business is paid on a commission basis in order to act as an incentive to attract and retain clients. The labour rate variance is based on the commission payments; any basic pay is part of the monthly fixed cost. Budget Clients Average revenue (per client) Average commission (per client) Total monthly fixed cost Actual results Clients Average revenue (per client) Average commission (per client) Total monthly fixed cost REQUIRED: (a) Reconcile the budgeted and actual profit for November by calculating appropriate price, quantity, mix and cost variances, presenting the information in good form. You should adopt a contribution style, with mix variances based on units (i.e. clients). Write a short memorandum to the manager of the business commenting on the result in (a) above. Male 2 000 (R) 8,0 3,5 R24 000 Female 2 000 (R) 20,0 11,0 Male 4 000 (R) 7,5 3,0 R20 000 Female 1 000 (R) 18,0 10,0


(ACC Paper 8 Managerial Finance)


PART A Nice Limited (Nice) operates a chain of fast-food restaurants. The company uses a standard marginal costing system to monitor the costs incurred in its outlets. The standard cost of one of its most popular meals is as follows: Rands per meal R 1.18 R 0.15 R 0.06 R 1.99

Ingredients (1.08 units) Labour (1.5 minutes) Variable conversion costs (1.5 minutes) The standard selling price of this meal is

In one of its outlets, which has budgeted sales and production activity level of 50,000 such meals, the number of such meals that were produced and sold during April 2010 was 49,700. The actual cost data was as follows: Rands R 58,450 R 6,800 R 3,250 R 96,480

Ingredients (55 000 units) Labour (1 200 hours) Variable conversion costs (1 200 hours) The actual revenue from the sale of the meals was YOU ARE REQUIRED TO: 1. Calculate 1.1. The total budgeted contribution for April 2010; 1.2. The total actual contribution for April 2010.

(3 marks)

2. Present a statement that reconciles the budgeted and actual contribution for April 2010. Show all variances to the nearest R1 and in as much detail as possible. (marks will be awarded for presentation) (17 marks) (Part A Total 20 marks) CIMA Management Accounting Performance Management

PART B YOU ARE REQUIRED TO: 1. Discuss ways in which standards may be seen as useful aids in management accounting decision making. (6 marks) 2. Discuss ways in which the use of standards may be seen as having a dysfunctional effect in relation to decision making about each of:

34 2.1. Materials; 2.2. Labour; and 2.3. Overhead cost. (9 marks) (Part B Total 15 Marks) ACCA Paper 9 Information for Control and Decision Making


Electo Limited (Electo) makes and sells three types of electronic games for which the following budget / standard information and actual information is available for a four-week period: Model Budget sales (units) Standard unit data Selling price (R) Superb Excellent Good 30,000 50,000 20,000 100 80 70 Variable cost (R) 40 25 22 Actual Sales (units)

36,000 42,000 18,000

Budgeted fixed costs are R2,500,000 for the four-week period. Budgeted fixed costs should be changed to the product units at an overall budgeted average cost unit where it is relevant to do so. Additional Information: 1. The actual selling price and variable cost of Electo are 100% and 50% lower respectively, than the original budget/standard. 2. General market prices have fallen by 6% from the original standard. Short-term strategy by Electo accounts for the residual fall in selling price. 3. 3% of the variable cost reduction from the original budget/standard is due to an over-estimation of a wage award, the remainder, 2% is due to short-term operational improvements. YOU ARE REQUIRED TO: 1. Calculate the sales volume variance for each model and in total for the four-week period where: 1.1. Turnover; 1.2. Contribution; and 1.3. Net profit is used as a valuation base. (9 marks) 2. Discuss the relative merits of each of the valuation bases of the sales volume variance calculated in 1 above. (6 marks) 3. Calculate the total sales quantity and sales mix variance for Electo for the four-week period, using contribution as the valuation base. (Individual model variances are not required.) (4 marks) 4. Comment on why the individual model variances for sales mix and sales quantity may provide misleading information to management. (No calculations are required.) (4 marks) 5. Prepare a summary for the four-week period for model Superb only, which reconciles original budget contribution with actual contribution where planning and operational variances are taken into consideration. (8 marks) 6. Comment on the usefulness to management of planning and operational variance analysis in feedback (historic performance) and feedforward (future planning) control. (4 marks)