ACC10707 Session 1, 2020 Assessment 3
Business Analysis and Interpretation
1. A small business has the following business transaction estimates relating to the second quarter of 2020. (15 marks)
Transaction $ April $ May $ June
Credit Sales 165,600 195,200 198,000
Cash Sales 3,000 2,000 1,500
Receipts from A.R. Calculate Calculate Calculate
Wages 7,000 7,000 6,500
Electricity / Phone 4,400 0 0
Office Furniture 500 500 0
Prepayments 0 0 8,800
Admin . Expenses 500 500 600
Depreciation 1300 1300 1300
Receipt of Loan 0 402,000 0
Interest Received 0 0 170
Credit Purchases 60,000 60,000 58,000
Payment of A.P. Calculate Calculate Calculate
Accrued Expenses 0 0 5,800
1.Receipts from Accounts Receivable (A.R.) are calculated as 80% in the month following the Credit Sales with the balance of 20% in the second month following the Credit Sales.
Credit Sales for March 2020 were $110,000 as they were in February 2020.
Cash Sales were $3,200 in February 2020 and $3,100 in March of 2020.
2.Payment of Accounts Payable (A.P.) is paid 75% of purchases in the month of
purchase and the remaining 25% in the month following. Credit purchases in
March 2020 were $65,000.
3 The cash balance at 1 April 2020 was $168,050.
Prepare a cash budget month by month for the quarter ending 30 June 2020.
Note that marks will be deducted for each incorrect posting to the cash budget.
2. The company above having secured a loan intend to use some of the proceeds to introduce various aged items to their product in the near future. They have provided the following information relating to its planned activities.
Product 1 Product 2 Product 3
Sales Mix 75,000 50,000 125,000
Selling Price $28 $45 $20
Variable cost/unit 18 27 12
Total fixed cost = $400,800
a. Calculate the break-even point in total units and units per product based on the above data. (7 marks)
b. Calculate the before tax profit (loss) that would be achieved based on the above data. (1 mark)
c. Management is concerned about increasing competition for some of its products, and wants to try to increase its sales of Product 2 relative to Product 3. The initiative would increase annual fixed costs by $60 000 and alter the sales mix to 22 per cent for Product 1, 35 per cent for Product 2 and 43 per cent for Product 3. On the available data, would you recommend the initiative? Show any workings that justify your answer. (7 marks)
3. A company is investigating three independent investment projects. Each will cost $600 000 in the first instance. The net cash inflows in thousands of dollars each year of the projects are projected to be as in the following table. There is thought to be no residual value for any of the projects. The directors work on 10 per cent as being their RRR. Ignore taxation effects and assume all cash flows occur at the end of the relevant years. (15 marks)
Year A B C
1 180 150 150
2 240 330 270
3 300 270 330
4 240 270 210
a. Calculate Accounting rate of return (ARR), Payback Period (PP) and Net Present Value ( NPV) appraisal measures for each project. Show all workings or marks will be deducted.
b. Rank the projects and advise the directors which projects, if any, to accept and give your reasons.