Test 3 Engineering Business Management (EBM307B)
Answer on one excel spreadsheet with a sheet for each section.
Section 1
50 Marks Time 120 Minutes
20Marks
Dealing Company is a merchandiser that provided a balance sheet as of September 30 as shown below:
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and equipment, net of depreciation . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Stockholders’ Equity
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . .
.
R 59 000
90 000
32 400
214 000
R 395 400
R 73 000
216 000
106 400
R 395 400
The company is in the process of preparing a budget for October and has assembled the following data:
1. Sales are budgeted at R240 000 for October and R250 000 for November. Of these sales, 35% will be for cash; the
remainder will be credit sales. Forty percent of a month’s credit sales are collected in the month the sales are made,
and the remaining 60% is collected in the following month. All of the September 30 accounts receivable will be
collected in October.
2. The budgeted cost of goods sold is always 45% of sales and the ending merchandise inventory is always 30% of
the following month’s cost of goods sold.
3. All merchandise purchases are on account. Thirty percent of all purchases are paid for in the month of purchase
and 70% are paid for in the following month. All of the September 30 accounts payable to suppliers will be paid
during October.
4. Selling and administrative expenses for October are budgeted at R78 000, exclusive of depreciation. These
expenses will be paid in cash. Depreciation is budgeted at R2 000 for the month.
Required:
Using the information provided, calculate or prepare the following:
1.1. The budgeted cash collections for October.
1.2. The budgeted merchandise purchases for October.
1.3. The budgeted cash disbursements for merchandise purchases for October.
1.4. The budgeted net operating income for October.
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Section 2
15Marks
Chairbase Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the
company’s products far exceeds its manufacturing capacity. The bottleneck (or constraint) in the production process
is upholstery labor-hours. Information concerning three of Chairbase’s products appears below:
Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Upholstery labor-hours per unit . . . . . . . . . . . . . . . . . . . . . . . . . .
Recliner
R1 400
R 800
8 hours
Sofa
R1 800
R1 200
10 hours
Love Seat
R1 500
R1 000
5 hours
Required:
2.1 Chairbase is considering paying its upholstery laborers hourly compensation, in addition to their usual
salaries, to work overtime. Assuming that this extra time would be used to produce sofas, up to how much
of an overtime rate per hour should the company be willing to pay to keep the upholstery shop open after
normal working hours?
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2.2 A small nearby upholstering company has offered to upholster furniture for Chairbase at a price of R45 per
hour. The management of Chairbase is confident that this upholstering company’s work is high quality and
their craftsmen can work as quickly as Chairbase’s own craftsmen on the simpler upholstering jobs such as
the Love Seat. How much additional contribution margin per hour can Chairbase earn if it hires the nearby
upholstering company to make Love Seats?
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2.3 Should Chairbase hire the nearby upholstering company? Explain.
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Test 3 Engineering Business Management (EBM307B)
Answer on one excel spreadsheet with a sheet for each section.
50 Marks Time 120 Minutes
Section3
15Marks
Andrew’s Scrapery Service is investigating the purchase of a new machine for cleaning and unblocking Stormwater
pipes in Kwazulu Natal. The machine would cost R137 320, including freight and installation. Andrew’s estimated the
new machine would increase the company’s cash inflows, net of expenses, by R40 000 per year.
The machine would have a five-year useful life and no salvage value.
Required:
3.1. What is the machine’s internal rate of return to the nearest whole percent?
3.2. Using a discount rate of 14%, what is the machine’s net present value? Interpret your results.
3.3 Plot the NPV of the machine for different interest rates on a graph. Show the IRR on the graph.
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