1.1 REQUIRED Use the information provided below to calculate the following variances: 1.1.1 Material mix variance (3 marks) 1.1.2 Material yield variance (3 marks) 1.1.3 Fixed manufacturing overheads volume capacity variance (3 marks) 1.1.4 Fixed manufacturing overheads volume efficiency variance. (3 marks) Note: Each answer must indicate whether the variance is favourable or unfavourable. INFORMATION The following figures were extracted from the budgeted statement of comprehensive income of Maverick Limited for May 2018, a normal production month in which 40 000 units are expected to be produced: Materials: R Nix (20 000 metres at R3 per metre) 60 000 Max (20 000 metres at R7 per metre) 140 000 Direct labour (20 000 hours at R40 per hour) 800 000 Fixed overheads 400 000 The actual production for May 2018 was 48 000 units and the following is an extract of the statement of comprehensive income: Materials: Nix (32 000 metres at R2 per metre) R 64 000 Max Direct labour Fixed overheads (20 000 metres at R8 per metre) (25 000 hours at R43.15 per hour) 160 000 1 078 750 360 400 2.1 REQUIRED Use the information given below to prepare the following: 2.1.1 Projected Statement of Comprehensive Income for the year ended 31 October 2019. (8 marks) 2.1.2 Projected Statement of Financial Position as at 31 October 2019. (12 marks) INFORMATION Pulsar Ltd, a manufacturing concern, is making financial plans for one of its projects for the 12 months commencing 01 November 2018. The estimates of the operating results and financial position for the current year are shown in the statements below: Projected Statement of Comprehensive Income for the year ended 31 October 2018 Sales Cost of sales R 1 837 500 (1 176 000) 661 500 Gross profit Operating expenses (296 500) Selling expenses 100 000 Depreciation 86 250 Other general and administrative expenses 110 250 Operating profit 365 000 Interest expense (45 000) Profit before tax 320 000 Income tax Profit after tax (96 000) 224 000 Projected Statement of Financial Position as at 31 October 2018 ASSETS R Non-current assets Fixed/Tangible assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Shareholders' equity 1 100 000 1 100 000 950 000 650 000 250 000 50 000 2 050 000 720 000 Ordinary share capital 400 000 Retained earnings 320 000 Non-current liabilities 350 000 Long-term loan 350 000 Current liabilities 980 000 Trade and other payables 980 000 Total equity and liabilities 2 050 000 Assumptions for the financial year ending 31 October 2019: Projected sales are R2 500 000 as compared to the estimated R1 837 500 for the financial year ended 31 October 2018. The gross margin percentage for the year ended 31 October 2019 is expected to be the same as for the year ended 31 October 2018. Selling expenses are expected to rise by 40%. Other general and administrative expenses for the year ended 31 October 2019 should be the same percentage of sales as for the preceding financial year. Interest expense is estimated to be 3% of sales. Income taxes are estimated at 30% of pre-tax profits. New equipment costing R300 000 will be purchased during October 2019. Depreciation for the year ended 31 October 2019 is expected to total R110 000. The business maintains a cash balance of R50 000. Inventory usually represents 30% of sales. Trade and other receivables are expected to represent 20% of sales. Trade and other payables are budgeted at 10% of sales. 50 000 ordinary shares are expected to be issued at R3 each during January 2019. Dividends of R120 000 are expected to paid to the shareholders. The long-term loan balance is expected to be reduced by R50 000 during the financial year ended 31 October 2019. The amount of long-term debt required must be calculated. 4.1 REQUIRED 4.1.1 4.1.2 Use the information provided below to prepare a Performance Report for March 2018. Comment on your findings from the performance report. (12 marks) (5 marks) 4.2 INFORMATION Sefika Limited prepared the following budget for March 2018: Sales (84 000 units) R 672 000 Less: Expenses Direct materials Direct labour Overheads Budgeted profit (530 400) 67 200 243 600 219 600 141 600 Direct materials and direct labour costs are variable with sales. The variable portion of overheads is R0.30 per unit. The rest of the overheads are fixed. At the end of March 2018, the company sold 72 000 units. The following actual results were obtained for March 2018: Sales (72 000 units) Less: Expenses Direct materials Direct labour Overheads Budgeted profit R 576 000 (534 240) 72 000 252 000 210 240 41 760 Depending on a business's objectives and situation, there is more than likely a need to develop several types of projections. Explain the FOUR (4) main types of projections. (8 marks) Limpopo Limited, South Africa, is a specialist manufacturer of security doors and gates. In seeking to expand its operations, it has the opportunity to acquire a Dutch subsidiary company, Baboo Guard, or set up a new division in its home market. The relevant figures for these two options are: Set up new division at home Cost of setting up premises Cost of machinery Annual sales Annual variable cost Additional head office expenses Rand 95 000 000 38 000 000 106 000 000 29 000 000 6 000 000 Existing head office expenses Depreciation: machinery 10% on cost annually Acquisition Acquire shares from existing shareholders Redundancy costs Annual Sales Annual variable costs Annual fixed costs Consultants fees Additional information: -The project is expected to last for 10 years. 7 600 000 8 000 000 Euro 42 000 000 12 000 000 138 000 000 34 000 000 17 000 000 16 000 000 - Limpopo Limited, current cost of capital is 12%. - The Dutch inflation is expected to be below the South African inflation by 1% per year, throughout the life of this investment. -The current exchange spot rate is R17 to the Euro (). Required: 2.1 Make all necessary calculations for the two options. (22 marks) 2.2 Advise Limpopo Limited on the viability of these two opportunities. (3 marks) ABC Limited did a comparison of its actual spending of its manufacturing overhead costs with its forecasted spending for the 2nd quarter of 2018 and compiled the following variance report: Forecast Actual Variance Variance R R R % Indirect labour Management salaries (FC) 135 000 140 000 5 000 U 3.70% Hourly wages (VC) 1 035 000 1 210 000 175 000 U 16.91% Plant and infrastructure Rent expense (FC) Insurance (FC) 18 000 18 000 0 0.00% 15 000 15 500 500 U 3.33% Maintenance (VC) 330 000 339 000 9 000 U 2.72% Electricity and water (VC) 18 000 23 000 5 000 U 27.78% Total manufacturing overheads 1 551 000 1 745 500 194 500 U 12.54% The production and sales forecast was 2 000 units but 2 100 units were actually produced and sold. Explain in detail the steps that ABC Limited should take in conducting its budget variance analysis. 1.1 REQUIRED Use the following information to prepare the Pro Forma Statement of Financial Position of Simbithi Limited as at 31 December 2018. Where applicable, round off amounts to the nearest Rand. INFORMATION (17 marks) Sales of Simbithi Limited for 2017 amounted to R6 000 000. The sales for 2018 are expected to increase by R2 000 000. All sales are on credit. Accounts payable must be calculated using the percentage-of-sales method: Accounts receivable is based on a collection period of 36.5 days. The following ratios are forecast for 2018: Gross margin (Net) Profit margin 25% 10% All purchases of inventory are on credit. Purchases for 2018 are projected at R5 000 000. The business expects to show a net increase in cash of R100 000 at the end of 2018. Machinery with a cost price of R800 000 and accumulated depreciation of R800 000 is expected to be scrapped at the end of 2018. Machinery costing R4 800 000 will be purchased to replace the machinery that will be scrapped. Total depreciation for 2018 is forecasted at R600 000. 200 000 ordinary shares are expected to be sold at R4 each during January 2018. Dividends of R600 000 are expected to be recommended by the directors during December 2018. These dividends will be paid during 2019. R1 100 000 will be paid to Neb Bank during 2018. This includes R400 000 for interest on loan. The amount of external funding (non-current debt) required must be calculated. SIMBITHI LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017 ASSETS R Non-current assets 6 000 000 Fixed/Tangible assets 6 000 000 3 800 000 Current assets Inventories Accounts receivable Cash and cash equivalents 1 880 000 1 600 000 320 000 Total assets 9 800 000 EQUITY AND LIABILITIES Shareholders' equity 4 680 000 Ordinary share capital 3 400 000 Retained earnings 1 280 000 Non-current liabilities Long-term loan (Neb Bank) Current liabilities Accounts payable Total equity and liabilities 4 400 000 4 400 000 720 000 720 000 9 800 000