Calculate the working capital cycle of Provalis Limited.

INFORMATION

The following financial information is provided by Provalis Limited

	R
Sales (all credit)	8 000 000
Cost of Sales	5 600 000
Purchases (60% on credit)	7 000 000
Accounts Receivable	1 800 000
Accounts Payable	1 200 000
Inventory	900 000

QUESTION 2 [8 MARKS]

INFORMATION

Premier International Limited expects to sell 3 000 desk fans at a price of R300 per unit. The cost to manufacture each fan is R200. If the sales are made on credit, collection costs of approximately R5 per unit sold will be incurred. The cost of capital to the company is 12%.

REQUIRED:

(Round amounts to the nearest Rand)

Calculate the profit to Premier International Limited if:

2.1 All the sales are on credit and the accounts are paid in 60 days (4 Marks)

2.2 All the sales are on credit and a 5% discount is granted if the accounts are paid in 20 days. Suppose that 60% of customers pay their accounts within 20 days. (4 Marks)

QUESTION 3 [10 MARKS] REQUIRED

Use the information provided below to determine the:

3.1 Economic order quantity if discounts are not available

(round up EOQ to the nearest whole number) (1 Mark)

1

3.2 Economic order quantity if discounts are available.

(where necessary round off amounts to two decimal places) (9 Marks)

INFORMATION

The following information was provided by Illovo Enterprises for a product that it sells:

Annual demand	120 000
Unit cost	R60
Fixed cost per order	R20
Annual carrying cost per unit	10% of unit cost

A supplier has offered the following discount scheme for purchases to Illovo:

Discount	Order size
0%	0-2 000
3%	2 001-5 000
4%	5 001 +

QUESTION FOUR [8 MARKS]

REQUIRED:

Consider the information provided below relating to Bricksave Stores and:

4.1 Calculate the incremental profit/loss after tax. (6 Marks)

4.2 Determine the incremental return on sales if these new customers are accepted. (2 Marks)

INFORMATION:

Bricksave Stores is considering extending credit to some customers who may be at risk of defaulting in payment. Sales will increase by R400 000 if credit is granted to these customers. From the new accounts receivable generated, 12% is expected to be uncollectable. Additional collection costs will be 3% of sales, and the production and selling costs will be 70% of sales. The firm is subject to tax at 28%.