2 MBL914-N

MAY 2010 (TEST)

Multiple Choice Questions Choose the correct answer

1.

Contribution margin is equal to sales minus: 1) 2) 3) 4) All variable selling and administrative expenses Variable manufacturing cost of goods sold All fixed costs None of the above

2.

Cleveland Limited has issued 100,000 ordinary shares. The companys profit after tax is R750,000 and its P/E is 8. What is the companys share price? 1) 2) 3) 4) R20.00 R40.00 R50.00 R60.00

3.

Boykie Ltd marks its goods up by 60% of cost. Inventory at cost at the beginning of May is R120 000 which as a policy, represents the anticipated sales for May. Management plans as a matter of policy to reduce inventory levels by 40%. If sales for June are budgeted at R240 000, calculate the May purchases if the new policy is implemented. 1) 2) 3) 4) R90 000 R150 000 R120 000 R72 000

4.

Tina Ltd. has forecast sales of R960 000 in July, R880 000 in August, R720 000 in September and R800 000 in October. Cash Sales comprise 20% of monthly sales. Receipts from debtors average 70% in the month after sale and the balance in the following month; the budgeted cash receipts for October resulting from sales are: 1) 2) 3) 4) R928 000 R774 400 R1 113 600 R924 000

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MAY 2010 (TEST)

5.

Leakey Ltd wishes to improve its management of working capital. On average it collects accounts receivable in 50 days, pays its creditors within 35 days and converts inventory to credit sales in 70 days. The cash to cash cycle is: 1) 2) 3) 4) 50 days 85 days 120 days 155 days

6.

Net Working Capital is best described as: 1) 2) 3) 4) All assets less all liabilities All capital except that invested in property Current assets plus current liabilities Current assets less current liabilities

7.

A company has the following income statement. What is its net operation profit after taxed (NOPAT)?

Sales Costs Depreciation EBIT Interest expense EBIT Taxes (40%) PAT 1) 2) 3) 4) R180 R280 R300 R420

R2 000 1,200 ___100 R 700 ___200 R 500 ___200 R 300

8.

Which of the following might be attributed to efficient inventory management? 1) 2) 3) 4) High inventory turnover ration Low incidence of production schedule disruptions High total assets turnover Statements 1 and 3 are correct

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MAY 2010 (TEST)

9.

Which of the following statements is correct? 1) One of the benefits of incorporating your business is that you become entitled to unlimited liability. 2) Sole proprietorships are subject to more regulations than companies. 3) Sole proprietorships do not have to pay company tax. 4) All of the above are correct.

10. Which of the following actions will increase a companys quick ratio? 1) 2) 3) 4) Reduce inventories and use the proceeds to reduce long-term debt. Reduce inventories and use the proceeds to reduce current liabilities. Issue short-term debt and use the proceeds to purchase inventory. Issue equity and use the proceeds to purchase inventory.

11. Good Hope Supplies Limited has a current ratio of 3.0, a quick ratio of 2.4, and an inventory turnover ratio of 6. Good Hopes total assets are R1 million and it s debt ratio is 0.20. The firm has no long-term debt. What is good Hopes cost of sales figure? 1) 2) 3) 4) R720,000 R120,000 R360,000 R880,000

12. If easing a firms credit policy lengthens the collection period and results in a worsening of the aging schedule, then why do firms take such actions? 1) 2) 3) 4) It normally stimulates sales. To meet competitive pressures. To increase the firms deferral period of payables. All of the statements above are correct.

13. The Danger Company expects to have sales of R30 000 in January, R33 000 in February, and R38 000 in March. If 20 percent of sales are for cash, 40 percent are credit sales paid in the month following the sale, and 40 percent are credit sales paid 2 months following the sale, what are cash receipts from sales in March? 1) 2) 3) 4) R55, 000 R38, 000 R32, 800 R30, 000

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MAY 2010 (TEST)

14. If Plaatjie Limited has sales of R2, 027,773 per year (all credit) and its days sales outstanding was equal to 35 days, what was its average amount of accounts receivable outstanding? (Assume a 365-day year.) 1) 2) 3) 4) R194, 444 R57, 143 R5, 556 R97, 222

15. A firm is offered trade credit terms of 3/15, net 45 days. The firm does not take the discount, and it pays after 67 days. What is the nominal annual cost of not taking the discount? (Assume a 365 day year.) 1) 2) 3) 4) 21.71% 22.07% 22.95% 23.48%

16. On average, a firm sells R2 000 000 in merchandise a month. It keeps inventory equal to one-half of its monthly sales on hand at all times. If the firm analyzes its accounts using a 365-day year, what is the firms inventory conversion period? 1) 2) 3) 4) 182.5 days 30.3 days 15.2 days 10.5 days

17. The wealth of the shareholders of a listed company is represented by: 1) 2) 3) 4) Its share price Earnings per share Profits Cash flows

18. A companys current ratio is greater than 1. Purchasing raw materials on credit would: 1) 2) 3) 4) Increase the current ratio. Decrease the current ratio. Increase net working capital. Improve return on assets.

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MAY 2010 (TEST)

19. Ndlovu Company has an acid-test ratio of 0.8. Which of the following actions would improve the acid-test ratio? 1) 2) 3) 4) Collect some accounts receivable. Sell some equipment for cash. Use cash to pay off some accounts payable. Purchase inventories.

20. Assuming stable business conditions, a decrease in the accounts receivable turnover ratio could be explained by: 1) 2) 3) 4) An easing of policies with respect to the granting of credit to customers Stricter policies with respect to the granting of credit to customers A speedup in collection of accounts from customers A decrease in bad debts

21. Craft Technologies has the following relationships: Annual credit sales Current liabilities Days sales outstanding (DSO) (365-day year) Inventory Turnover ratio (based on sales) Current ratio R1, 200, 000 R 375, 000 40 4.8 1.2

The companys current assets consist of cash, inventories, and accounts receivable. How much cash do Craft have on its balance sheet? 1) R 8, 333 2) R68, 493 3) R125, 000 4) R200, 000

22. Mokwena Company has provided the following data: Inventory and prepaid expenses................. Current ration.............................................. Acid-test ratio.............................................. Matthew Companys current liabilities are: 1) 2) 3) 4) R120 000 R60 000 R90 000 R80 000 R72, 000 2.4 1.6

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MAY 2010 (TEST)

23. At the break-even point: 1) 2) 3) 4) Sales would be equal to contribution margin. Contribution margin would equal to fixed expenses. Contribution margin would equal to net operating profit. Sales would be equal to fixed expenses.

24. Break-even analysis assumes that: 1) 2) 3) 4) Total revenue is fixed in total. Variable cost is fixed per unit. Fixed costs are fixed per unit. Selling prices must fall in order to generated more revenue.

25. The Bronco Birdfeed Company reported the following information: Sales (400 units) Variable Expenses Contribution margin Fixed expenses Operating Profit R100 000 _ _60 000 R 40 000 __ 35 000 R 5 000

How much will the sale of one additional case add to Bronco operating profit? 1) 2) 3) 4) R250 R100 R150 R12-50

26. Target profit analysis is used to answer which of the following questions? 1) 2) 3) 4) What sales volume is needed to cover all expenses? What sales volume is needed to cover fixed expenses? What sales volume is needed to earn a specific amount of net operating income? What sales volume is needed to avoid a loss?

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MAY 2010 (TEST)

27. Ndlovu Limited, a company that produces and sells a single product, has provided its contribution format income statement for January. Sales (4200 units) Variable Expenses Contribution margin Fixed expenses Operating Profit R155 400 _ 100 800 R 54 600 _ _42 400 R 12 200

If the company sells 4,600 units, its total contribution margin should be closest to: 1) 2) 3) 4) R54 600 R59 800 R69 400 R13 362

28. Clark Company issued bonds with an interest rate of 10% The companys return on assets is 12%. Therefore, the companys return on shareholders equity would most likely: 1) 2) 3) 4) Increase. Decrease. Remain unchanged. Cannot be determined.

29. The ratio of total cash, marketable securities, accounts receivable, and short-term notes to current liabilities is: 1) 2) 3) 4) The debt-to-equity ratio. The current ratio. The acid-test ratio. Net working capital.

30. For an automobile manufacturer, the cost of a drivers side air bag purchased from a supplier and installed in every automobile would best be described as a: 1) 2) 3) 4) Fixed cost. Mixed cost. Indirect cost. Variable cost.

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31. With respect to a fixed cost, an increase in the activity level within the relevant range results in: 1) 2) 3) 4) An increase in fixed cost per unit. A proportionate increase in total fixed costs. An unchanged fixed cost per unit. A decrease in fixed cost per unit.

32. Francis Manufacturing Company is currently preparing its cash budget for next month and has gathered the following information: Expected cash receipts Expected cash payments: Direct materials Direct labour Manufacturing overhead Selling & Admin expenses R39 400 R12 000 9 000 11 500 R22 000

The beginning cash balance will be R6, 000 and the company requires a minimum cash balance at the end of the month of R5, 000. How much will Francis Manufacturing need to borrow to meet its cash needs for the month? 1) 2) 3) 4) R 9 100 R14 100 R20 100 None of these.
UNISA 2010

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