Question 5 (Marks: 30) Consider the information provided below as well as the financial statements and answer the questions that follow. Pearson & Litt is a manufacturing company in the Eastern Cape. Their factory manufactures glass wine bottles for the Blue Valley Beer Co. 2019 2020 Sales price per unit R15 R19 Variable cost per unit R6 R7 Fixed cost (FC) per annum R650 000 R 855 500 Fixed cost per unit R3 R4 Current assets R450 600 R560 700 Current liabilities R510 000 R780 000 Retained profit R21 809 R17 600 Net Sales R2 900 320 R 3 100 100 Cost of sales R390 000 R475 000

Q.5.1 a. Calculate the break-even point for Pearson & Litt for 2019 and 2020 (7).

b. Compare the results of the 2019 and 2020 break-even points and explain why there might be a difference (3). (10)

Q.5.2 a. Calculate the current ratio for Pearson & Litt for 2019 (4).

b. Explain the results of the current-test ratio (3). (HINT: Include the minimum ratio recommended for the ratio in your answer.) (7)

Q.5.3 a. Calculate the gross profit margin for Pearson & Litt for 2020 (4).

b. Explain the results of the gross profit margin calculation (2).

Q.5.4 a. Differentiate between traditional budgeting and zero-base budgeting (4).

b. Recommend one of these budgeting methods to Pearson & Litt and provide reasons for your recommendation (3)