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B1-The question has more than 4 parts. Therfore, please answer them all and you can deduct this from the questions limit I have ( I have discussed this with online costumer service representative and she suggested the question to be weighted in 2 instead of one if its more than 4 parts.

Each question needs to be solved completely and provides how to do steps for the answer with it .

SECTION B ANSWER BOTH QUESTIONS QUESTION B1 Smith Ltd is a small company established in Exeter some years ago. Over the last couple of years, the company has been facing tough competition from some newly established local businesses, which is reflected in decreasing sales and annual profit of the company. From the beginning of last year, the managers of Smith Ltd have been considering two mutually exclusive projects (Project A and Project B) in order to widen the range of products offered by the company. The managers believe that this will reduce the vulnerability of Smith Ltd to local competition and improve the company's profitability Project A requires an initial capital investment of 160,000 with an expected economic life of five years, and no residual value at the end of the five-year period. Annual accounting profit after depreciation is expected to be 40,000 over the economic life of the project Project B requires an initial capital investment of 80,000 with an expected economic life of four years, and no residual value at the end of the four-year period. Expected sales and costs are summarised in the table below: Sales (E) Material cost (E) Labour cost () Fixed cost excluding depreciation () Year 1 110,000 40,000 20,000 10,000 Year 2 130,000 50,000 24,000 10,000 Year 3 148,000 59,000 27,600 10,000 Year 4 151,000 60,500 28,200 10,000 Information below is relevant for both projects: All sales are expected to be cash sales, and all costs are expected to be paid for in cash as and when incurred. Depreciation is charged on a straight-line basis over the economic life of each project Depreciation is the only adjustment difference between accounting profit and cash flows for each project. Required: (a) (0) Calculate for each project the payback period (Assume that cash flows will occur evenly throughout the year). (T) Advise the management of Smith limited as to which to which project to select in (a) (1) above (b) 0 Calculate the NPV of Project B using a cost of capital of 9%, (Assume that all cash flows occur at the year-end), (ii) Comment on the viability of the project. (c) For Project B: calculate the breakeven point in sales revenue for year 3. (d) In the third year of Project B. 700 units of the product were budgeted to be produced and sold. 0 Calculate for the third year the unit cost of the product under marginal costing and absorption costing. (b) What would be the impact of the difference in unit costs calculated in (a) on the year-end profit under the two costing methods? (H) If the production exceeds sales, explain which method would expect to show the higher profit, marginal costing or absorption costing, Focus McDoor Dro Present Value Tables Present value of 1. ie. (1+0) where r = discount rate n=number of periods untill payment Discount rates (0) 5% 6% 3% 7% Periods (n) 1% 10.990 2 0.980 0.971 0.961 5 0.951 6 0.942 7 0.933 0.923 9 0.914 10 0.905 11 0.896 12 0.887 13 0.879 14 0.870 15 0.861 COU AUNE 2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 4% 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.845 0.614 0.585 0.557 0.530 0.505 0.481 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.417 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 0.475 0.444 0.415 0.388 0.362 8% 9% 2.926 0.917 0.857 0.842 5.794 0.772 2.735 0.708 9.681 0.650 0.630 0.596 0.583 0.547 2.540 0.502 0.500 0.460 2.463 0.422 0.429 0.388 0.397 0.356 2.368 0.326 9.340 0.299 1.315 0.275 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 11% 12% 13% 14% 15% 16% 17% 20% 5 6 7 8 9 10 11 12 13 14 15 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352 0.317 0.286 0.258 0.232 0 209 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.885 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0237 0.208 0.182 0.150 0.140 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 0.215 0.187 0.163 0.141 0.123 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 0.855 0.731 0.624 0.534 0.456 0.390 0.333 0.285 0.243 0.208 0.178 0.152 0.130 0.111 0.095 18% 19% 0.847 0.840 0.718 0.706 0.609 0.593 0.516 0.499 0.437 0.419 0.370 0.352 0.314 0.296 0.266 0.249 0.225 0.209 0.191 0.176 0.162 0.148 0.137 0.124 0.116 0.104 0.099 0.088 0.084 0.074 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 8 I u ab x x APA Paragraph Styles Dict SAMPLE tlon B: Vicky Ltd is a small company established in Huddersfield some years ago. Over the last couple of years, the company has been facing tough competition from some newly established local businesses, which is reflected in decreasing sales and annual profit of the company. From the beginning of last year, the managers of Vicky have been considering two mutually exclusive projects (Project A and Project B) in order to widen the range of products offered by the company. The managers believe that this will reduce the vulnerability of Vicky to local competition and improve the company's profitability. Project A: requires an initial capital investment of 90,000 with an expected economic life of four years, and no residual value at the end of the four-year period. Expected sales and costs are summarised in the table below: Year 4 Sales () Material cost (2) Labour cost (5) Fixed cost excluding depreciation () Year 1 120,000 42,000 22.000 Year 2 140,000 54,000 26,000 Year 3 158,000 58,000 28,600 161,000 60,500 30,200 12,000 12.000 12,000 12,000 Project B: requires an initial capital investment of 160.000 with an expected economic life of five years, and no residual value at the end of the five-year period. Annual accounting profit after depreciation is expected to be 45,000 over the economic life of the project, Information below is relevant for both proiecte: All sales are expected to be cash sales, and all costs are expected to be paid for in cash as and when incurred. Depreciation is charged on a straight-line basis over the economic life of each project. Depreciation is the only adjustment difference between accounting profit and cash flows for each project Draw Design Layout >> Tell me Share Times New... 12 ' ' ADA BT U V , Paragraph Styles Dict Required: (1) Calculate for each project the payback period (Assume that cash flows will occur evenly throughout the year) I (ii) Advise Vicky's managers as to which project to select in (a) above. (b) Calculate the NPV of Project A using a cost of capital of 9%. (Assume that all cash flows occur at the year-end), (ii) Comment on the viability of the project, (c) For Project A: calculate the breakeven point in sales revenue for year 3. (d) In the third year of Project A, 800 units of the product were budgeted to be produced and sold. Assuming the material and labour costs are all variable costs: calculate the unit cost of the product under marginal costing and absorption costing for the third year. ( What would be the impact of the difference in unit costs calculated in (d) (1) on the year-end profit under the two costing methods? 12 po A Times New... ' Aav B Tab X, X ADA Paragraph SAMPLE PAPER ANSWER Styles Dictate Section B B1. Vieky Ltd 0 Payback Project A: Year 1 Year 2 Year 3 Year 4 Sales revenue (:) 120,000 140,000 158,000 161.000 Material cost (:) 42,000 54,000 58,000 60,500 Labour cost () 22,000 26,000 28,600 30,200 Other fixed cost (not including depreciation) 12.000 12,000 12,000 12,000 44.000 Net cash flows Cumulative cash Nows 48,000 59,400 58,300 -90,000 46,000 2.000 61.400 E119.700 Net Year cash flows Cumulative cash flows 0 90,000 90,000 44,000 346.000 2 248.000 2,000 3 59.400 E61,400 4 ESN,300 119,700 Payback periodist146000/48000 1.96 Sear 941 words Focus