examination : business numeracy 101 (bn101) date : may 2011 ... - imm
Page 1 of 6
EXAMINATION
:
BUSINESS NUMERACY 101 (BN101)
DATE
:
MAY 2011 PILOT EXAMINATION
TIME ALLOWED
:
3 HOURS
TOTAL MARKS
:
100
INSTRUCTIONS TO CANDIDATES 1. Please refer to the examination rules and regulations as found in the examination answer book. 2. Answer ALL the questions. 3. Section A is worth 90 marks. Section B is worth 10 marks. 4. Read all questions carefully to determine exactly what is required before attempting to answer. 5. Set your answers out in a systematic way under appropriate headings and sub-headings. 6. Number your answers clearly. 7. IMPORTANT: Indicate the questions attempted by drawing a circle around the question number as provided on the front cover of the answer book. 8. No programmable calculators are allowed. NOTE:
Examination answer books are the property of the IMM GSM and may not be removed from the examination hall.
Answers to examination questions should not include appendices in the form of personal notes to the examining panel.
© IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
Page 2 of 6
SECTION A (90 MARKS) Answer ALL the questions
QUESTION 1
[22]
1.1
Ntombi’s Beauty manufacturers a single product that has a selling price of R28 per unit. Ntombi’s fixed cost amounts to R37000 and her variable cost per unit is R12. Calculate the number of units Ntombi has to sell to ensure that she does not suffer a financial loss. (2)
1.2
You are the owner of a small manufacturing concern that is experiencing an increased demand for your products in the market place however your largest customers have also indicated to you that they require a line of trade credit. a.
What factors (both positive and negative) would you take into consideration when you decide whether to grant your customers credit or not. (6)
b.
List and briefly describe the factors that you will take into consideration when determining the credit worthiness of a potential customer. (14)
QUESTION 2
[18]
2.1
List and briefly explain the four (4) elements in any controlling function, including financial management. (8)
2.2
What could cause a profitable business to cease operations?
2.3
You have made a sale totaling R16872 inclusive of VAT with a gross margin of 42%:
2.4
(4)
a.
Calculate the amount of VAT charged.
(1)
b.
What was the cost of goods sold?
(1)
c.
What mark-up had to be charged to achieve the required 42% margin? (2)
Leon’s delivery service purchased a delivery vehicle for an amount of R300 000. His accountant informed him that he is allowed to depreciate the vehicle using the reducing balance method at a rate of 20% per year. What is the amount of depreciation Leon is allowed to charge against his income statement in the second year if he owns the vehicle for the full period? (2)
© IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
Page 3 of 6
QUESTION 3
[8]
Financial ratios can be used to analyse the financial health of a business as well as to set specific targets or goals for the business. List the four (4) classes or groups of financial ratios you have been exposed to in this course as well as their purpose.
QUESTION 4
[14]
You have been asked to assist a friend to prepare a cash budget for an entrepreneurial venture he has been running for the past couple of months. Your friend invented a new and innovative mousetrap that has proven to be very popular and have seen a consistent growth in sales volumes since its inception. Over the past four months the number of units have consistently increased by 10% per month resulting in the expected sales volume of 11 000 units for the month of January with a selling price of R27 each. If the current trend continues he believes he will be able to sell 12000 units for February, 12800 units for March and 14000 units for April. Historically 40% of sales for cash and 60% of sales were made on credit. Typically 90% of the debtors settle their accounts in the month following their purchase while the remaining 10% of debtors settle their accounts in the following month. 4.1
Prepare the sales budget for Mouse Trap Inc. for the months of January through April. (4)
4.2
Prepare the cash budget for Mouse Trap Inc. for the months of January through April. (10)
QUESTION 5
[20]
You have been presented with the following financial statements:
© IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
Page 4 of 6
Statement of Comprehensive Income (Income Statement) For the year ending 28 February 2011 2011 1,020,000 683,400 336,600
2010 900,000 655,000 245,000
Expenses Rent Salaries Telephone Repairs & Maintenance Marketing Depreciation
243,100 61,600 88,000 13,200 8,800 27,500 44,000
221,000 56,000 80,000 12,000 8,000 25,000 40,000
Operating Profit/(loss)
93,500
24,000
Interest Paid
27,000
13,000
Net Income before Tax Tax Net Income after Tax
66,500 18,620 47,880
11,000 3,080 7,920
Dividend Retained Earnings
12,000 35,880
7,920
Sales Less: Cost of Sales Gross Income
© IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
Page 5 of 6
Statement of Financial position (Balance Sheet) As at 28 February 2011
Non-Current Assets
2011 371,000
2010 265,000
Current Assets Inventory Debtors Bank Balance
227,000 122,000 47,000 58,000
159,000 89,000 56,000 14,000
Total Assets
598,000
424,000
Share Capital Retained Earnings Non-current portion of loan
100,000 43,800 298,000
100,000 7,920 146,000
Current Liabilities Creditors Current portion of loan Expenses in arrears
156,200 85400 68000 2,800
170,080 112,680 54,000 3,400
Equity & Liabilities
598,000
424,000
Using the data presented calculate the following financial ratios for 2011 (show all your workings): a. b. c. d. e. f. g. h. i. j.
Gross Income (profit) margin Current Ratio Acid test ratio Debtors collection period (all sales on credit) Creditors payment period Inventory Turnover rate Net Income Margin Debt Ratio Interest Coverage Ratio Profitability of own capital
QUESTION 6 6.1
(2) (2) (2) (2) (2) (2) (2) (2) (2) (2)
[8]
List four (4) strategies that a business can employ to increase its net margin. (4)
© IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
Page 6 of 6
6.2
Distinguish between fixed and current assets and give an example of how each category of asset might be financed.
(4)
SECTION B (10 MARKS) Answer ALL the questions
QUESTION 7
[10]
Answer the following question in your examination answer book. Read the following statements and indicate TRUE or FALSE: a.
An organisation’s capital needs are impacted by factors such as the industry in which it operates, the length of its working capital cycle, capital intensity as well as a host of external factors.
b.
It is fair to assume that a business’ future performance will equate to its own past performance, if business operations or the average performance of the industry in which it operates, remains the same.
c.
Borrowing money to fund a business is an example of external capital.
d.
The owners of a company (its members or shareholders) will always have a preferential claim over the assets and profits of the business.
e.
If profitability of enterprise earnings before interest and tax (EBIT) is greater than the interest rate on borrowed capital, the owners of the business will experience an increase in the profitability of their personal investment in return on equity (ROE) as a consequence of the borrowed funds.
f.
As long as a business remains profitable it will remain both solvent and liquid.
g.
Credit is a debt that results whenever goods and services are rendered without full payment. At the same time creditors are current liabilities for an organisation.
h.
Stock is one of the cheapest and easiest ways for any business to increase its sales revenue and since it is a current asset its impact on a business is always positive.
i.
A debt ratio of 1:1 means that the business is funded without any external capital.
j.
Financial management is the most important function in any organisation due to its overarching role.
EXAM TOTAL: 100 © IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
EXAMINATION
:
BUSINESS NUMERACY 101 (BN101)
DATE
:
MAY 2011 PILOT EXAMINATION
TIME ALLOWED
:
3 HOURS
TOTAL MARKS
:
100
INSTRUCTIONS TO CANDIDATES 1. Please refer to the examination rules and regulations as found in the examination answer book. 2. Answer ALL the questions. 3. Section A is worth 90 marks. Section B is worth 10 marks. 4. Read all questions carefully to determine exactly what is required before attempting to answer. 5. Set your answers out in a systematic way under appropriate headings and sub-headings. 6. Number your answers clearly. 7. IMPORTANT: Indicate the questions attempted by drawing a circle around the question number as provided on the front cover of the answer book. 8. No programmable calculators are allowed. NOTE:
Examination answer books are the property of the IMM GSM and may not be removed from the examination hall.
Answers to examination questions should not include appendices in the form of personal notes to the examining panel.
© IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
Page 2 of 6
SECTION A (90 MARKS) Answer ALL the questions
QUESTION 1
[22]
1.1
Ntombi’s Beauty manufacturers a single product that has a selling price of R28 per unit. Ntombi’s fixed cost amounts to R37000 and her variable cost per unit is R12. Calculate the number of units Ntombi has to sell to ensure that she does not suffer a financial loss. (2)
1.2
You are the owner of a small manufacturing concern that is experiencing an increased demand for your products in the market place however your largest customers have also indicated to you that they require a line of trade credit. a.
What factors (both positive and negative) would you take into consideration when you decide whether to grant your customers credit or not. (6)
b.
List and briefly describe the factors that you will take into consideration when determining the credit worthiness of a potential customer. (14)
QUESTION 2
[18]
2.1
List and briefly explain the four (4) elements in any controlling function, including financial management. (8)
2.2
What could cause a profitable business to cease operations?
2.3
You have made a sale totaling R16872 inclusive of VAT with a gross margin of 42%:
2.4
(4)
a.
Calculate the amount of VAT charged.
(1)
b.
What was the cost of goods sold?
(1)
c.
What mark-up had to be charged to achieve the required 42% margin? (2)
Leon’s delivery service purchased a delivery vehicle for an amount of R300 000. His accountant informed him that he is allowed to depreciate the vehicle using the reducing balance method at a rate of 20% per year. What is the amount of depreciation Leon is allowed to charge against his income statement in the second year if he owns the vehicle for the full period? (2)
© IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
Page 3 of 6
QUESTION 3
[8]
Financial ratios can be used to analyse the financial health of a business as well as to set specific targets or goals for the business. List the four (4) classes or groups of financial ratios you have been exposed to in this course as well as their purpose.
QUESTION 4
[14]
You have been asked to assist a friend to prepare a cash budget for an entrepreneurial venture he has been running for the past couple of months. Your friend invented a new and innovative mousetrap that has proven to be very popular and have seen a consistent growth in sales volumes since its inception. Over the past four months the number of units have consistently increased by 10% per month resulting in the expected sales volume of 11 000 units for the month of January with a selling price of R27 each. If the current trend continues he believes he will be able to sell 12000 units for February, 12800 units for March and 14000 units for April. Historically 40% of sales for cash and 60% of sales were made on credit. Typically 90% of the debtors settle their accounts in the month following their purchase while the remaining 10% of debtors settle their accounts in the following month. 4.1
Prepare the sales budget for Mouse Trap Inc. for the months of January through April. (4)
4.2
Prepare the cash budget for Mouse Trap Inc. for the months of January through April. (10)
QUESTION 5
[20]
You have been presented with the following financial statements:
© IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
Page 4 of 6
Statement of Comprehensive Income (Income Statement) For the year ending 28 February 2011 2011 1,020,000 683,400 336,600
2010 900,000 655,000 245,000
Expenses Rent Salaries Telephone Repairs & Maintenance Marketing Depreciation
243,100 61,600 88,000 13,200 8,800 27,500 44,000
221,000 56,000 80,000 12,000 8,000 25,000 40,000
Operating Profit/(loss)
93,500
24,000
Interest Paid
27,000
13,000
Net Income before Tax Tax Net Income after Tax
66,500 18,620 47,880
11,000 3,080 7,920
Dividend Retained Earnings
12,000 35,880
7,920
Sales Less: Cost of Sales Gross Income
© IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
Page 5 of 6
Statement of Financial position (Balance Sheet) As at 28 February 2011
Non-Current Assets
2011 371,000
2010 265,000
Current Assets Inventory Debtors Bank Balance
227,000 122,000 47,000 58,000
159,000 89,000 56,000 14,000
Total Assets
598,000
424,000
Share Capital Retained Earnings Non-current portion of loan
100,000 43,800 298,000
100,000 7,920 146,000
Current Liabilities Creditors Current portion of loan Expenses in arrears
156,200 85400 68000 2,800
170,080 112,680 54,000 3,400
Equity & Liabilities
598,000
424,000
Using the data presented calculate the following financial ratios for 2011 (show all your workings): a. b. c. d. e. f. g. h. i. j.
Gross Income (profit) margin Current Ratio Acid test ratio Debtors collection period (all sales on credit) Creditors payment period Inventory Turnover rate Net Income Margin Debt Ratio Interest Coverage Ratio Profitability of own capital
QUESTION 6 6.1
(2) (2) (2) (2) (2) (2) (2) (2) (2) (2)
[8]
List four (4) strategies that a business can employ to increase its net margin. (4)
© IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
Page 6 of 6
6.2
Distinguish between fixed and current assets and give an example of how each category of asset might be financed.
(4)
SECTION B (10 MARKS) Answer ALL the questions
QUESTION 7
[10]
Answer the following question in your examination answer book. Read the following statements and indicate TRUE or FALSE: a.
An organisation’s capital needs are impacted by factors such as the industry in which it operates, the length of its working capital cycle, capital intensity as well as a host of external factors.
b.
It is fair to assume that a business’ future performance will equate to its own past performance, if business operations or the average performance of the industry in which it operates, remains the same.
c.
Borrowing money to fund a business is an example of external capital.
d.
The owners of a company (its members or shareholders) will always have a preferential claim over the assets and profits of the business.
e.
If profitability of enterprise earnings before interest and tax (EBIT) is greater than the interest rate on borrowed capital, the owners of the business will experience an increase in the profitability of their personal investment in return on equity (ROE) as a consequence of the borrowed funds.
f.
As long as a business remains profitable it will remain both solvent and liquid.
g.
Credit is a debt that results whenever goods and services are rendered without full payment. At the same time creditors are current liabilities for an organisation.
h.
Stock is one of the cheapest and easiest ways for any business to increase its sales revenue and since it is a current asset its impact on a business is always positive.
i.
A debt ratio of 1:1 means that the business is funded without any external capital.
j.
Financial management is the most important function in any organisation due to its overarching role.
EXAM TOTAL: 100 © IMM Graduate School of Marketing May 2011 Pilot Examination
BN101
