ACC10707 Session 2, 2018 Assessment 3 Questions
Business Analysis and Interpretation
1. A garden supply company has the following business transaction estimates relating to the third quarter of 2018.
| $ | |
| Credit Sales | 160960 |
| Cash Sales | 122104 |
| Receipts from Accounts Receivable | 97546 |
| Wages | 60080 |
| Office Furniture | 12109 |
| Prepayments | 4722 |
| Administrative Expense | 18818 |
| Depreciation on Office Furniture | 1454 |
| Depreciation on PPE | 35000 |
| Provision for doubtful debts | 1454 |
| Receipt of Loan | 20000 |
| Credit Purchases | 85450 |
| Payments of Accounts Payable | 69110 |
| Accrued Wages and other expenses | 9854 |
| Prepayments – Other | 1597 |
The cash balance at 1 July 2018 was $106826.
Required
Prepare a cash budget for the quarter ending 30 September 2018. (15 Marks). Note that 1 mark will be deducted for each incorrect posting to the cash budget.
2. The garden supply company is considering introducing various aged trees to their product range in 2019. They have provided the following information relating to its planned activities.
| I year old | 2 years old | 3 years old | |
| Sales mix | 245,000 | 125,000 | 75,000 |
| Selling price | $15 | $25 | $40 |
| Variable cost/unit | 10 | 16 | 25 |
Total fixed cost = $351,900
Required
- Calculate the contribution margin, sales mix and weighted average cost margin for each product. Also, calculate the break-even point in total units and units per product based on the 2019 data. (15 marks)
- Management is concerned about competition for some of its trees and wants to alter its sales mix of trees. The total number of trees forecast to be sold remains as per question 2a. This initiative would increase annual fixed costs by $60 000 and alter the sales mix to 40 percent for 1-year-old trees, 30 percent for 2 years old trees and 30 percent for 3 years old trees. On the available data, would you recommend the initiative? Show workings. (15 marks)
3. The garden supply company is also considering buying a small truck which costs $126 500 and is expected to earn annual net cash inflows of $63 400, $57 400, $47 000 and $39 900, before it wears out sufficiently to be unreliable and must be sold for an estimated $17 400. (15 Marks)
Required
- If funds can earn 5 percent, what are the small trucks NPV?
- If funds earn 8 percent, what are the small trucks NPV?
- Advise management on your recommendation regarding the purchase of the small truck subsequent to your NPV calculations.
- What advice would you give management if the required payback period was two years?
Show calculations for a, b and d.
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