Accounting homework help

CASE STUDY 1
ST SEMESTER 2020
PROGRAMME Bachelor of Business Administration;
MODULE Financial Planning and Control (known as Business Administration 3A)
YEAR Three (3)
INTAKE JAN 2020 semester 1
TOTAL MARKS 20
Answer ALL questions. [20 MARKS]
Medico Limited is in the process of planning for the 2021 financial year. The company manufactures
only one product, viz. Product Med. Your assistance is required in the preparation of budgets and
undertaking other calculations.
QUESTION 1 (10 Marks)
INFORMATION
The following information is available to determine the budget requirements of Medico Limited for
January 2021:
1. Projected sales of Product Med for January and February 2021:
January February
15 000 units at R30 each 12 000 units at R32 each
2. The policy of Medico Limited is to maintain a closing inventory equal to 40% of the budgeted sales
of the following month.
3. Two (2) labour hours are required to produce one unit of Product Med and the rate per hour is
R10.
4. Overheads are projected at a rate of R3 per direct labour hour.
5. The estimated total production costs per unit (including the costs above) are R40 for January 2021
and R38 for December 2020.
REQUIRED
Use the information provided above to prepare the following budgets for January 2021:
1.1 Sales Budget (units and Rands) (1 mark)
1.2 Production Budget (units) (3 marks)
1.3 Direct Labour Budget (Rands) (2 marks)
1.4 Overheads Budget (Rands) (2 marks)
1.5 Cost of Sales Budget (Rands) (2 marks)
QUESTION 2 (10 Marks)
INFORMATION
Medico Limited intends investing in a project during March 2021. The project is expected to cost
R2 500 000 with a five-year useful life, and no residual value. The annual volume of production for the
project is estimated at 150 000 units, which can be sold for cash at R12 per unit. Depreciation is
expected to be R500 000 per year. Annual cash operating costs are as follows:
Variable costs R225 000
Fixed costs R750 000
The cost of capital is 15%.
REQUIRED
Use the information provided above to calculate the following:
2.1 Net Present Value (3 marks)
2.2 Accounting Rate of Return on average investment (answer expressed to two decimal
places) (3 marks)
2.3 Internal Rate of Return, if the net cash flows are R720 000 per year for five years
(answer expressed to two decimal places). (4 marks)
TOTAL: 20 MARKS