QUESTION 5 (20 Marks) REQUIRED Prepare the Cash Budget for October, November and December 2023 from the information provided below. Note: Where applicable, round off amounts to the nearest Rand. Use separate monetary columns for each month. INFORMATION The information given below has been made available by Pep Retailers to assist in the preparation of the cash budget for the fourth quarter of 2023. 1. Estimated cash sales after a 10% cash discount are as follows: 2. Forty percent (40%) of the sales is for cash and 60% is on credit. 3. Payments by debtors for credit sales are received in the month after the sale. 4. Expected inventory purchases (excluding discounts) are as follows: FORMATIVE ASSESSMENT 2 [100 MARKS] QUESTION 1 (20 Marks) REQUIRED Study the information provided below and answer the following questions. 1.1 Were there any additions to or disposals of property, plant and equipment during the financial year ended 31 December 2022? Motivate your answer. (3 marks) 1.2 Comment on the decrease in retained earnings. (3 marks) 1.3 Comment on FIVE (5) other significant changes that occurred in the company's financial position during 2022. (10 marks) 1.4 Apart from the Statement of Financial Position and ratio analysis, what other financial information should be considered when commenting on the financial health of the company? (4 marks) INFORMATION \begin{tabular}{|l|r|r|} \hline Retained earnings & 9000000 & 17890000 \\ \hline Non-current liabilities & 10000000 & 3400000 \\ \hline Long-term loan & 10000000 & 3400000 \\ \hline Current liabilities & 3200000 & 2000000 \\ \hline Accounts payable & 3200000 & 2000000 \\ \hline & 25200000 & 25690000 \\ \hline \end{tabular} Note: All the income and expenses of both companies are included in the figures above. It is anticipated that: There will be no work-in-process at the end of any month. Finished units equal to 40% of the expected sales of the following month will be in inventory at the end of each month. The budgeted production and production costs for the year ending 31 December 2023 are as follows: INFORMATION Emerald Limited has the choice of purchasing one of two machines viz. Machine X and Machine Y but funding is available to invest in only one of them (if at all). Each machine costs R10000 000 and a useful life of five years is anticipated. The residual value of each machine is estimated to be R1000 000. The annual volume of production for each machine is estimated to be 150000 units, which can be sold for cash at R48 per unit. Depreciation is calculated on the machines using the straight-line method over their respective useful lives. Annual cash operating costs are as follows: The cost of capital is expected to be 15%. 4.2 REQUIRED Use the information provided below to calculate the expected production cost for November 2023. (6 marks) INFORMATION Malvern Limited manufactures Product Mac. An estimate of the number of units to be sold during November and December 2023 is given below: REQUIRED Refer to the information given below and answer each of the following questions independently: 3.1 Calculate the margin of safety (in units). (4 marks) 3.2 Calculate the total Contribution Margin and Operating Profit/loss if an increase in the salaries expense of salespersons by R480000 is expected to increase sales by 450 units. (3 marks) 3.3 Suppose Sinclair Limited decided to set the sales price at R1 728 per unit. If sales drop to 3500 units, how much more can the company spend on advertising and be able to generate an operating profit of R1 000000 ? (4 marks) 3.4 Should management consider a drop of R60 per unit in the selling price if the sales volume is expected to increase to 4400 units? Motivate your answer with the relevant calculations. (4 marks) 3.5 Determine the selling price per unit that will enable the company to achieve an operating profit of R1 602000 . (5 marks) Inventory purchases are paid for in the month of the purchase to take advantage of a 10% discount. 5. Details regarding recurring monthly expenses are as follows: 5.1 The salary bill for December 2023 is R316 800, 10\% more than the salaries for each of the preceding two months. 5.2 Other monthly expenses are paid monthly and amount to R384 000, including depreciation of R80 000 . 6. Pep Retailers is expected to obtain a long-term loan of R560 000 on 01 November 2023 with an expansion project in mind for 2024 . Interest is charged at 18% per annum. Capital repayments of R20 000 and interest are to be paid monthly, commencing 30 November 2023. 7. The annual property rates will be paid 01 November 2023. The assessment for the year is calculated at R4 per R100 of the property value. The property is valued at R1 800000 . 8. Pep Retailers expects to have an unfavourable bank balance of R 100000 on 30 September 2023. REQUIRED Use the information provided below to answer the following questions. (Answers to ratios must be expressed to two decimal places.) 2.1 Compare and comment on the profitability of both companies by using the following ratios: 2.1.1 Return on capital employed (4 marks) 2.1.2 Profit margin (Net profit margin) (4 marks) 2.2 Calculate the earnings retention ratio of both companies and explain how shareholders can benefit from a higher retention ratio. (6 marks) 2.3 Compare the two companies regarding the amount of debt that each company uses to finance its assets (as a percentage). (4 marks) 2.4 Suggest TWO (2) ways in which KLM Limited can improve its gross profit margin ratio, without increasing its selling prices. (2 marks) INFORMATION Extracts for the year ended 31 December 2022 of the Statement of Comprehensive Income and Statement of Financial Position are given below for two companies viz. KLM Limited and ZAP Limited