PROJECT

PROGRAMME Bachelor of Commerce in Financial Management

MODULE Introduction to Financial Management (known as Financial Management 1A)

YEAR One (1)

INTAKE JULY 2020 semester 1

TOTAL MARKS 60
Answer ALL questions in this project. [60 MARKS]

QUESTION 1 (20)

1.1 REQUIRED
Use the information provided below to prepare the following for February and March 2021. (Use
separate monetary columns for each month.)
1.1.1 Sales Budget (2)
1.1.2 Production Budget (6)
1.1.3 Cost of Sales Budget. (8)
1.2 State FOUR (4) external factors that may influence the preparation of the sales
budget. (4)

INFORMATION
Fiamma Limited sells a single product at a price of R50 per unit. The estimated sales volume for
three months of 2021 are as follows:
Units
February 10 000
March 8 000
April 9 000

■ Management’s policy is to maintain an ending inventory of finished goods each month at a

level equal to 40% of the next month’s budgeted sales.
■ To make one unit of a finished product, two kilograms of raw materials are required. The cost
per kilogram of raw materials is R5.
■ Other production costs per unit are as follows:
January February March April
Direct labour R12 R12 R13 R13
Overheads R8 R8 R8.50 R8.50

■ The first-in-first-out (FIFO) method is used to value inventories.

QUESTION 2 (20 Marks)

REQUIRED
Use the information provided below to answer the following questions:
2.1 Calculate the break-even quantity. (4)
2.2 Calculate the break-even value using the marginal income ratio. (3)
2.3 Calculate the margin of safety (as a percentage). (3)
2.4 Calculate the number of units that must be sold to achieve a net profit of
R320 000. (4)
2.5 Calculate the expected net profit/loss in each of the following independent
cases:
2.5.1 If advertising is increased by R25 000 and the sales volume is expected to
increase from 500 units to 620 units. (3)
2.5.2 A decrease in the selling price by R100 and an increase in salespersons’
salaries by R50 000 is expected to increase sales by 280 units. (3)

INFORMATION
Southgate Manufacturers makes a single product and the management accountant has provided
the following budget to produce 500 units:
R
Sales 500 000
Direct materials cost 175 000
Direct labour cost 80 000
Variable manufacturing overheads 20 000
Fixed manufacturing overheads 80 000
Fixed selling and administrative costs 20 000
Sales commission (5% of sales) 25 000

Production and sales are expected to be 500 units.

QUESTION 3 (20 Marks)
3.1 REQUIRED
Study the information given below and answer the following questions:
3.1.1 Should Siyakha Limited make or buy the component? Support your answer with
the relevant calculations. (6)
3.1.2 State TWO (2) qualitative factors that Siyakha Limited should consider before
making the decision to buy or make the component. (2)
INFORMATION
Siyakha Limited manufactures a component for one of its products. The cost per unit for the
component is expected to be R70 for materials and R50 for direct labour. The manufacturing
overheads are expected to be R100 per unit, 30% of which are variable. The company has
sufficient capacity to manufacture 21 000 units of the component for 2020. An analysis revealed
that the component can be purchased from an outside supplier at a cost of R200 per unit.

3.2 REQUIRED
Study the information provided below and answer the following questions:
3.2.1 Does Imbalito Limited have spare capacity to accept the special order?
Motivate your answer. (2)
3.2.2 Should the company accept the special order? Show all the relevant
calculations. (6)
3.2.3 Explain TWO (2) possible disadvantages of accepting the special order. (4)
INFORMATION
Imbalito Limited expects to manufacture 36 000 units of Product K, using 90% of its normal
capacity. The costs to manufacture 36 000 units of Product K are as follows:
R
Fixed factory overheads 360 000
Variable factory overheads 75 600
Direct materials cost 259 200
Direct labour cost 201 600
Variable marketing costs 68 400
Fixed marketing and administrative costs 640 000

The selling price per unit is R40. However, a customer has offered to pay R24 per unit for an
additional 3 800 units.

TOTAL: 60
Project format
● Text: Arial or Times New Roman (12); Spacing 1½ lines. All text must be justified at each
margin.
● Where applicable, use formats and formulas from your study guide.
● Start each question on a new page.
● You may make use of a spreadsheet (e.g. Microsoft Excel) to assist you only with the
construction of tables and formats.
● Solutions generated by software packages will not be marked.
● No marks will be awarded if only the final answers are given. All relevant workings must be
shown.