# ACC107 Session 2, 2019 Assessment 3

Questions

1. Garden Enterprises has the following business transaction estimates relating to the final quarter of 2019.

\$                      \$                       \$

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OCTOBER           NOVEMBER       DECEMBER

Credit Sales                                                       255600                  296200                  240000

Cash Sales                                                              45000                    47500                    49000

Receipts from Accounts Receivable `1.   calculate              calculate              calculate

Wages                                                                    50000                 50000                   70000

Office Furniture                                                                    16050                 18950                           0

Prepayments                                                             0                          0                    9890

Depreciation on Office Furniture                    3200                   3600                     4000

Receipt of Loan                                                              0               550000                0

Credit Purchases                                             100000               105000                108000                               Payments of Accounts Payable 2.          calculate            calculate                calculate

Accrued Expenses                                                         0                          0                     8800

Notes

1. Receipts from Accounts Receivable are calculated as 70% in the month following the Credit Sales with the balance of 30% in the second month following the Credit Sales.

Credit Sales for September 2019 were \$220,000 as they were in August 2019.

Cash Sales were \$28,000 in August 2019 and September of 2019.

2.Payment of Accounts Payable is paid 65% of purchases in the month of

purchase and the remaining 35% in the month following. Credit purchases in

September 2019 were \$70,500.

3 The cash balance at 1 October 2019 was \$78,010.

Required

Prepare a cash budget month by month for the quarter ending 31 December 2019.

Note that marks will be deducted for each incorrect posting to the cash budget.

(15 Marks).

2. Garden Enterprises having secured a loan intend to use some of the proceeds to introduce various aged trees to their product range in 2021. They have provided the following information relating to its planned activities.

I year old       2 years old                3 years old

Sales mix                                                                             50,000                     35,000                      15,000

Selling price                                                                            \$12                           \$18                            \$30

Variable cost/unit                                                                 8                                 12                              18

Total fixed cost = \$220,500

Required

a.            Calculate the contribution margin, sales mix and weighted average contribution margin for each product. Also calculate the break-even point in total units and units per product based on the provided 2021 data.                                                                                                                                                                                                                                                                                                                                          (15 marks)

b.            Management is concerned about competition for some of its trees, and wants to alter its sales mix of trees. This initiative would increase annual fixed costs by \$40 000 and alter the sales mix to 40 percent for 1 year old trees, 30 per cent for 2 years old trees and 30 per cent for 3 years old trees . On the available data, would you recommend the initiative? Show all workings.                                                                                                                                                                                  (15 marks)

3. Garden Enterprises is considering buying a truck to transport its various aged trees. This truck which would costs \$156 000 is expected to earn annual net cash inflows of negative \$35,000 in the current year (specialised set up costs of the truck for tree transportation) followed by positive cash flows of \$62 000, \$62 000, \$57 000, \$41 900 and \$36 500 in the following 5 years before it wears out sufficiently to be unreliable and will be sold for an estimated \$32 200.           (15 Marks)

Required

a. If funds can earn 5 per cent, what is the small trucks NPV?

b. If funds earn 7 per cent, what is the small trucks NPV?