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    9706 s21 in 33-Pages-2

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    The document discusses a company's cash budget and production budget for July and August. It provides sales forecasts and costs information like raw materials, wages, overhead. It asks to prepare the budgets and calculate the minimum credit sales discount needed to achieve a cash target. It also discusses investment analysis methods like NPV, ARR, IRR to evaluate buying a new machine.

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    9706 s21 in 33-Pages-2

    Uploaded by

    Kaashif
    20 views4 pages
    The document discusses a company's cash budget and production budget for July and August. It provides sales forecasts and costs information like raw materials, wages, overhead. It asks to prepare the budgets and calculate the minimum credit sales discount needed to achieve a cash target. It also discusses investment analysis methods like NPV, ARR, IRR to evaluate buying a new machine.

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    The document discusses a company's cash budget and production budget for July and August. It provides sales forecasts and costs information like raw materials, wages, overhead. It asks to prepare the budgets and calculate the minimum credit sales discount needed to achieve a cash target. It also discusses investment analysis methods like NPV, ARR, IRR to evaluate buying a new machine.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    20 views4 pages

    9706 s21 in 33-Pages-2

    Uploaded by

    Kaashif
    The document discusses a company's cash budget and production budget for July and August. It provides sales forecasts and costs information like raw materials, wages, overhead. It asks to prepare the budgets and calculate the minimum credit sales discount needed to achieve a cash target. It also discusses investment analysis methods like NPV, ARR, IRR to evaluate buying a new machine.

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    9

    Section B: Cost and Management Accounting

    Question 5

    Source B1

    N Limited produces and sells one product. The product has a unit selling price of $160. The budgeted
    sales for July and August are as follows:

    July August
    $ $
    Budgeted sales 198 400 240 000

    The following information is available.

    1 Cash sales are 20% of total sales in all months. The remainder are credit sales receivable in the
    following month. The actual sales for June were $214 000.

    2 N Limited intends to achieve the following inventory level at the end of each month.

    July August
    Units 300 200

    N Limited had 240 units in inventory on 30 June.

    3 Raw materials are purchased in the month of production. Each unit requires 5 kilos of raw materials
    at $18 per kilo. To get a 2% cash discount, N Limited pays its suppliers in the month of purchase.

    4 Direct wages are $40 per unit, payable in the month in which they are incurred. In any month
    where sales exceed $200 000, workers are paid a total bonus of 10% on the excess. The bonus is
    paid one month after the relevant sale.

    5 Fixed overhead for June was $60 000. It is expected to increase by 5% from July. Of these, 60% of
    overhead is paid in the month it is incurred and the remainder in the following month.

    6 A new machine at a cost of $40 000 is to be purchased in August.

    7 Cash at bank at 1 July is expected to be $80 600.

    Answer the following questions in the question paper. Questions are printed here for reference
    only.

    (a) State two benefits of preparing a cash budget. [2]

    (b) Prepare a production budget (in units) for each of the months July and August. [4]

    (c) Prepare a cash budget for each of the months July and August. [11]

    © UCLES 2021 9706/33/INSERT/M/J/21 [Turn over


    10

    Additional information

    N Limited wishes to improve the cash position at the end of August and wants to have a minimum
    ending bank balance of $24 500. To achieve this, one of the directors proposes that a cash
    discount of 4% be offered to some of the credit customers in August so that they will make an
    early payment in August.

    (d) Calculate the minimum amount of credit sales to be offered the cash discount in order to
    achieve an ending bank balance of $24 500. [4]

    (e) Explain two other methods to improve the cash position at the end of August. [4]

    [Total: 25]

    © UCLES 2021 9706/33/INSERT/M/J/21


    11

    Question 6

    Source B2

    The directors of W Limited plan to buy a new machine costing $220 000 for making a new product. The
    machine will have a useful life of 4 years with no scrap value.

    The cash inflows and cash outflows from the new product for four years are expected to be as follows:

    Inflows Outflows
    $ $
    Year 1 100 000 36 000
    Year 2 132 000 50 000
    Year 3 160 000 68 000
    Year 4 92 000 50 000

    The cost of capital is 8%.

    The following discount factors are given:

    8% 12%
    Year 1 0.926 0.893
    Year 2 0.857 0.797
    Year 3 0.794 0.712
    Year 4 0.735 0.636

    Answer the following questions in the question paper. Questions are printed here for reference
    only.

    (a) Calculate for the new machine:

    (i) the accounting rate of return (ARR) [5]

    (ii) the net present value (NPV) [3]

    (iii) the internal rate of return (IRR) [4]

    (b) Advise the directors whether or not they should buy the new machine. Justify your answer.
    [3]

    Additional information

    The directors are of the view that the NPV method should be used to make decisions on
    investment.

    (c) State three advantages of using the NPV method. [3]

    Additional information

    Due to a change in economic conditions, the directors consider that the cost of capital should
    be 12%.

    (d) Explain the effect on the directors’ decision on investment of the change in the cost of capital.
    [2]
    © UCLES 2021 9706/33/INSERT/M/J/21 [Turn over
    12

    Additional information

    The directors also consider that the negative impact from the increase of cost of capital can be
    offset by increasing the revenue. Additional advertising costing $20 000 incurred in year 1 can
    help increase the sales revenue in years 2 and 3. Year 2 sales revenue is expected to increase by
    $24 000.

    (e) Calculate the minimum increase in sales revenue in year 3 to justify the directors deciding to
    buy the new machine. [5]

    [Total: 25]

    Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
    reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
    publisher will be pleased to make amends at the earliest possible opportunity.

    To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
    Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download
    at www.cambridgeinternational.org after the live examination series.

    Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
    Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.

    © UCLES 2021 9706/33/INSERT/M/J/21

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