final tut guide

8/2/2019 FInal Tut Guide

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DEPARTMENT OF FINANCE ANDINVESTMENT MANAGEMENT

FINANCIAL MANAGEMENT 3A 2012

BSR3A01: TUTORIAL GUIDE

CONTENTS PAGE

1. Introduction 2

2. Signing up for a tutorial 3

3. Tutorial Venues 7

4. Tutorial Timetable 8

5. Tutorial Bank 9


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1. INTRODUCTION

The University of Johannesburg academic rule 10.2.6 states: When a summativeassessment opportunity is used as a last (comprehensive) summative assessmentopportunity, a minimum module mark of 40% and where applicable , attendance of 80% of tutorial classes is required for admission to the summative assessment opportunity concerned.

Students must take note of the following regarding academic rule 10.2.6:

Attendance of tutorial classes is compulsory and academic rule 10.2.6 will be strictlyenforced;

If students fail to meet the 80% attendance required they will not, under anycircumstances, gain access to the final summative assessment;If a student cannot attend a tutorial class, the student must arrange with his/her lecturer

to be excused from the tutorial class, either before, or within two (2) days after thetutorial class; There will be four (4) contact sessions and four (4) Edulink tutorial assessments, seework program; and

Students must ensure that they have access to, and know how Edulink works, in order tocomplete the Edulink tutorial assessments, NO excuses will be accepted.


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2. SIGNING UP FOR A TUTORIAL

Students are required to sign up for tutorial groups on Edulink. Students will attend tutorial

contact sessions at times and venues allocated to the groups they have selected.STUDENTS MAY NOT CHANGE GROUPS DURING THE SEMESTER. Exceptional caseswill be dealt with by the lecturer at least a week prior to the contact session.

This is how you will access Edulink:

1. You can only access Edulink courses via the student portal.2. Log into the student portal at http://edulink.uj.ac.za/ 3. IF YOU ARE A FIRST TIME USER OF THE STUDENT PORTAL:

a. Click on the Register button in the top right hand of your screen. b. Specify your student number and ID number when prompted for them.c. Follow the steps on the screen to set up a password and for gotten your

password/challenge response. 4. Contact Biographics at (011) 559-3040 immediately if there is a problem with regard

to your ID number. Once they have corrected it, you can try to register on thestudent web again.

5. Contact the computer lab assistants at the computer labs on your campus if there isa problem with your password.

6. Click on the link Edulink under External Links to the left of the screen. 7. Click on the relevant module under the My Modules heading. 8. Contact the Edulink Helpdesk at (011) 559-3580 if you cannot see specific modules

that need to be activated on Edulink.

Once you have accessed Edulink, you will need to sign up for a group in the FinancialManagement 3A page. Below is a step-by-step guide on how to sign up for a tutorial onEdulink:
http://edulink.uj.ac.za/http://edulink.uj.ac.za/


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STEP 1:

On the Financial Management 3A Edulink Home Page click on GROUPS:


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STEP 2:

Select the best time per the timetable on Tutorial Venues below and click on the group thatbest suits you.


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STEP 3:

Confirm that the group is indeed the group you would like to sign up for by clicking on SIGNUP.


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Once you have selected your group the following screen should pop-up:


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3. TUTORIAL VENUES

Each student has ONE opportunity to sign up for a chosen tutorial group via Edulink. NOchanges will be allowed once a group has been selected. Itis the student s responsibilityto signup for a group before Wednesday 15 February 2012.

Below is a list of tutorial groups to choose from. Students are requested to study the tablebelow carefully and ensure that there are no clashes with class times or other engagements.Please refer to how to sign up for a group above for guidance on how to sign up for a groupon Edulink. Signing up for a group will be on a first-come-first-serve basis and the lecturers willnot entertain any queries regarding full groups.

Group nr Day Time Venue1 Monday 12:30-13:15 D1 Lab 410

2 12:30-13:15 D1 Lab 4113 12:30-13:15 D1 Lab 412

4 12:30-13:15 D1 Lab 4135 13:20-14-:05 D1 Lab 410

6 13:20-14-:05 D1 Lab 4117 13:20-14-:05 D1 Lab 4128 13:20-14-:05 D1 Lab 413

9 14:10-14:55 D1 Lab 41210 14:10-14:55 D1 Lab 41311 14:10-14:55 D1 Lab 414

12 14:10-14:55 D1 Lab 415

13 Tuesday 15:30-16:15 D1 Lab 40514 15:30-16:15 D1 Lab 40615 15:30-16:15 D1 Lab 407

16 15:30-16:15 D1 Lab 40817 16:20-17:05 D1 Lab 405

18 16:20-17:05 D1 Lab 40619 16:20-17:05 D1 Lab 407

20 16:20-17:05 D1 Lab 408

21Friday

Afrikaans 10:30-11:15 D1 Lab 403

22 Friday 10:30-11:15 D1 Lab 41023 10:30-11:15 D1 Lab 411

24Wednesday

RAUNOX 19:40-20:25 D Les 408


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4. TUTORIAL TIMETABLE

Below is the timetable for this semester s tutorials. Please note that the Edulink tutorials arequestions loaded on Edulink for a limited period of time. Students are urged to complete theEdulink tutorials as soon as possible. If a student does not complete a certain tutorial within

the specified period they will be marked absent for a tutorial.

Students are also urged to complete the questions given below for the contact sessionPRIOR to attending the session. These questions must be handed in to the tutor and will begraded by the tutor. During this session the tutor will discuss the questions with the students.The solution will not be made available on Edulink at any stage and the lecturers shall notgive these to the students.

Study Unit Tutorial Type Dates Available Question

Unit 1 Edulink 13/02/2012 - 17/02/2012 Loaded on Edulink

Unit 2 Edulink 20/02/2012 24/02/2012 Loaded on EdulinkUnit 3 Contact 27/02/2012 -02/03/2012 1.1 & 3.1Unit 4 Edulink 05/03/2012 09/03/2012 Loaded on EdulinkUnit 5 Contact 16/04/2012 20/04/2012 5.2 & 5.3Unit 6 Contact 23/04/2012 26/04/2012 6.3 & 6.4Unit 7 Edulink 30/04/2012 04/05/2012 Loaded on EdulinkUnit 8 Contact 14/05/2012 18/05/2012 8.1 & 8.3


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5. TUTORIAL BANK

SOLUTIONS FOR THE FOLLOWING QUESTIONS ARE NOT INCLUDED IN THIS GUIDE.SOLUTIONS TO SELECTED QUESTIONS WILL ONLY BE AVAILABLE DURING THESCHEDULED LECTURE / PRACTICAL / TUTORIAL / WORKSHOP. NO SOLUTIONS

WILL BE LOADED ON EDULINK OR PROVIDED BY THE LECTURER AT A LATERSTAGE.

TUTORIALSAttendance of tutorials is compulsory. Answers to some questions discussed during tutorialswill NOT be provided to students who missed the tutorial for ANY reason.

PRACTICALSPractical classes will be held for each unit after the theory and examples were discussedduring lectures. These classes will be held during normal lecture times and all students mustattend. Answers to some questions discussed during practical classes will NOT be providedto students who missed it for ANY reason.


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UNIT ONE

QUESTION 1.1

After intense negotiations Heart Song (Pty) Ltd signed a contract with the internationallyacclaimed singer, Josh Groban, to perform in South Africa. Heart Song paid a 50% non-refundable deposit of R2 925 000 to secure the venue for the event that will take place on 19September 2009.

Heart Song will market two types of tickets for the event, VIP and normal. The VIP tickets willbe sold at R950 each, while the normal tickets will sell for R400 each. In addition to havingpremium seats reserved, VIP ticket holders will also receive the following:

an autographed Josh Groban CD, worth R120. Heart Song have negotiated with theproducers to purchase the CD at a cost of R80;

a five-star meal budgeted to cost Heart Song R150 per person;a full colour poster with a cost price of R20 each.

Normal ticket holders will automatically be placed in a lucky draw to win one of 1000autographed CDs.

Heart Song will pay Josh Groban R7 million for the performance. Advertising for the event isestimated at R1, 5 million.

The venue can accommodate 25 000 VIP seats and 40 000 normal seats.

Total operational costs are a combination of various fixed and variable expenses. Thisincludes costs such as the cost of ushers, security, cleaners etc. required for hosting asuccessful event. The following operational costs were incurred for similar events hosted bythe company recently:

Number of seats Total operational cost 20 000 5 000 000 45 000 8 750 000 75 000 9 250 000

100 000 10 000 000

Assume that both VIP and normal seats consume equal operational costs.

Heart Song has been in the music business for the past 25 years. Historically the sales ratiohad been 1:1.6 (VIP: Normal sales). They expect that this show will follow the same trend.

YOU ARE REQUIRED TO:

Draft a report to the management of Heart Song (Pty) Ltd in which you address the following:

1.1 Calculate how many VIP and how many normal tickets should be sold in order tobreak even. (14)

1.2 Calculate the turnover would be at the breakeven point. (3)1.3 Calculate what the profit would be if they sold all the tickets. (3)

Clearly show all calculations.


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QUESTION 1.2

MasMill (Pty) Ltd is considering launching a new weekly student magazine at a selling priceof R9.95 per copy. It is expected that 50% of the current UJ students of 43 000 will buy thismagazine, but it is possible that the actual sales could be significantly different from this

estimate.Two different methods of producing the magazine are being considered and neither wouldinvolve any additional capital expenditure. The estimated production costs for each of thetwo methods of manufacture, together with the additional marketing costs and distributioncosts of selling the new magazine, are summarised below:

Method A Method B Variable manufacturingcost R3.75 R3.00

Manufacturing fixedcost R300 000per month R400 000 per month

Marketing and distribution: The following estimated semi-variable costs have been obtained:

Method A Method B 60 000 copies R55 000 per month R47 500 per month 80 000 copies R65 000 per month R52 500 per month 100 000 copies R85 000 per month R62 500 per month

It may be assumed that the fixed cost content of the semi-variable cost will remain constant

throughout the range of activity shown.


1.1 Determine the net increase of the company s profit per month for each productionmethod from the introduction of the new magazine at the estimated activity and saleslevels. (12)

1.2 Calculate, for each production method, the amount by which sales volume of the newmagazine could decline from the anticipated sales before the company makes noadditional profit from the introduction of the new publication. (7)

1.3 Discuss the difference between the two methods with reference to fixed cost and salescontribution and explain, with reasons, which method you would recommend. (6)

1.4 Distinguish between the accountant and economist s model of CVP analysis. (5)

Clearly show all calculations.


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QUESTION 1.3

A new subject was launched in 2009 at the University, namely Social Behavior (SB01). Thisis the first year that the subject will be lectured and all first year students are obliged to takethe course. There are 7 010 first year students in 2009 and all of them will therefore have

SB01. The lecturer of SB01 wants to provide tutor classes for this new subject as he wascertain that the students will battle with some of the concepts. He heard that the BSR3A01students have been lectured on Decision- making under conditions of risk and uncertainty andimmediately approached you to help him calculate his breakeven point as well as the chancesfor him to break even with his tutor classes. He gave you the following information:

1. It can be assumed that 10% of all the first year students will not even write their first testand will drop out of University. These students should therefore not be taken intoaccount.

2. The student fee for the subject is R 1 050 and their text book will be R 350 each. Thetutor classes will be R 550 extra per student.

3. Seven extra tutors will be needed at a salary of R 1 050 each per month for the wholeyear and the venue hire will be R 42 150 per month. Both these costs can be seen asfixed cost.

4. Each student will receive a tutor manual which is included in the study fee and will costthe University R 55 per manual.

5. The Department of Statistics have compiled the following probabilities that students willattend the tutor classes after a detailed discussion with the lecturer:

Number of students Probability 200 3%

1 522 2.5% 3 034 14% 1 025 55%

315 7% 155 8.5%

58 10%

YOU ARE REQUIRED TO

1. Calculate how many students should attend his classes in order to break even.2. Calculate what his chances are that he would break even.


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YOU ARE REQUIRED TO

1 Advise the management of Forever Beautiful on the optimal production mix in order tomaximize profit.

2 Discuss qualitative factors that should be considered before any of theproducts/ingredients are discontinued or bought from Clini.

QUESTION 2.2

PAAIR (Pty) Ltd operates Litchi Air, a newly established low cost airliner. They service threereturn routes from Johannesburg to Cape Town, Durban and George. Subsequent to theirlaunch pilot salaries have increased substantially. The trade union indicated that if Litchidoes not increase pilot salaries to reflect those paid by other airliners, all pilots belonging tothe union will be going on a three- day strike. Litchi s current cash flow position does notallow for any increase in salaries. Management anticipates that there will only be enoughpilots to operate 160 hours of flying time during the three day strike period.

The following daily cost and distance information is available for the three return routes:

Scheduled route Cape Town Durban George Total R 000 R 000 R 000 R 000

Contribution 6 210 4 815 7 320 18 345 Fixed cost 1 100 1 100 1 100 3 300 Profit 5 110 3 715 6 220 15 045

Total number of kmin the route per day

14 000 6 000 11 000

Additional information:

There are 5 flights every day to each destination. A return flight to Cape Town would be 2800 km and need 6 hours flying and preparation time; to Durban 1 200 km and 3 hours flyingand preparation time and to George 2 200 km and 4 hours flying and preparation time.


Recommend which route(s) should be operated on the three days of the strike tomaximize profit on those days. (15)


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UNITTHREE

QUESTION 3.1

Cyber Space Ltd developed a new GPS system, Anywhere Anytime, which promises to bethe most technologically advanced GPS in the world. Initially, it took technicians 6.5 hours toassemble the first unit. They then assembled the second unit in 5.85 hours.

Impressed with the new product, the marketing team took the two GPS units to a TechnoExpo where they launched the new product. Due to all the extra features of AnywhereAnytime the response was overwhelming. They immediately received an order of 50Anywhere Anytime from a leading outdoor retail chain. The marketing team promised toprovide a quote to them by the next day.

Upon returning from the Expo the marketing team approached you, to help them determine aselling price for Anywhere Anytime. They supplied you with the following information:

1. The technicians charge R 550 per hour for the assembly of the GPS unit.

2. The specialised parts for the first two units assembled amounted to R 1 650 in total.Since then the price of the parts increased by 12%.

3. Other variable costs are estimated to stay constant at R 125 per unit.

4. Management requires a profit margin of 25% on the cost price of a unit.


1 Calculate a selling price per Anywhere Anytime unit for the outdoor retail chain order. (20)

2 Assume an extra order of 10 units is placed by another retail chain. Calculate the timespent on assembling the 60 th Anywhere Anytime. (10)


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QUESTION 3.2

Tyre Trend (Pty) Ltd has developed a new type of tyre for the South African Market called

SApot. This tyre is manufactured from a new type of rubber that can withstand the most

common size potholes. They predict that accidents due to tyre bursts can be reduced by80% with their SApot product. They will produce the tyres in batches of 16 each, although

any number of tyres can be purchased. Followed by their very successful launching at the

biggest motor show, all the biggest South African tyre companies as well as some African

tyre companies shown great interest. Tyre Trend (Pty) Ltd decided to sell the first 80 tyres at

a special price.

The researchers at Tyre Trend (Pty) Ltd took two years to do all the research of this new tyre

and spend R950 thousand on the research. They estimate that they can manufacture 100

000 tyres, before their competitors will catch up on this new product and therefore before

they have to spend more money on research again. It took the specialists 10 hours to

produce the 1 st batch and 9 hours to produce the 2 nd batch. The job card of the first batch of

SApot revealed the following information:

Rubber A Rubber B Component A + Component B +

Direct material R2 480.00 R3 040.00 R120.00 R140.00

Direct labour

(relation 4:3:2:1)

360.00 270.00 180.00 90.00

Variable overheads 248.00 304.00 12.00 14.00

Fixed overheads 48 60 24 28

Variable overheads are allocated to products and components on direct labour cost and

fixed overheads are allocated per tyre. Trend (Pty) Ltd would like a 25% profit on selling

price.

Tyre Trend (Pty) Ltd established that they can buy Component A+

and B+

from an outsidesupplier at a cost of R15 and 25 per tyre.


1. Calculate the special price that Tyre Trend (Pty) Ltd could charge per tyre. (25)2. Advise management if they should purchase component A+ and/or B+ from the outside

supplier (ignore the learning curve in your calculation) (7)3. Identify qualitative factors for your decision in 2 above. (3)


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QUESTION 3.3

FishAway (Pty) Ltd has designed a new type of fishing boat. The cost and sales price of thefirst boat is as follows:

R Material (R500 per meter) 60 000 Labour (R75 per hour) 22 500 Overheads(150% of labour cost) 33 750

116 250 Mark-up 34 875 Sales price 151 125

An 80% learning curve for labour and 90% for material is expected. FishAway (Pty) Ltd alsobudgeted for an increase in salaries of 7% and an increase in material cost of 10% for the

month of April. Unfortunately, the market showed little interest in the new boat. A companyfrom Mozambique, however, is interested in the new boat, but with the current economicconditions and deteriorating exchange rate, they cannot afford to pay R151 125 per boat,especially since they plan to buy two or even four boats.


1. Calculate the minimum price that FishAway (Pty) Ltd could ask for the second boat ifit is ordered in March. (10)

2. If the customer bought two boats now, calculate the lowest price per boat for the third and forth boat,

3 Discuss the learning curve s applicati on in pricing decisions, work scheduling andsetting of standards. (5)


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UNITFOUR

QUESTION 4.1

A company manufactures 2 products namely gizmos and gadgets. Both these products aremanufactured in the same 2 departments, processing and finishing.

Gizmos sell at R50 per unit. Gadgets sell at R70 per unit. There is an unlimited market forgizmos, but they sell only 13 000 gadgets each year. They restrict the manufacturing hoursfor both the processing and finishing departments to 2 400 hours per annum respectively.

Variable costs per unit are R30 for gizmos and R40 for gadgets.

Processing costs per 100 units:

Processing Finishing

Gizmos 6 4Gadgets 8 12

An agreement was reached in terms of which work methods would be changed. This wouldlead to an increase of 5% in the output of all departments.


(a) calculate the product mix that would yield maximum contribution:

(i) at existing levels of output;(ii) if there is a 5% improvement in production;

(b) to calculate the total amount of the productivity bonus if the employees were toreceive 40% of the additional contribution.

NOTE:

(i) You must use the graphical programming with algebraic solution of vertexes.

(ii) All calculation should be rounded to the nearest integer.


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UNITFIVE QUESTION 5.1

(40 MARKS)

PART A (30 Marks)

Consider the following 3 projects.

Project A

Selling price per unit: R10,00

Economic condition Probability Number of units1 0,25 8 5002 0,35 5 4003 0,18 2 3004 0,22 1 850

Project B



Project C



REQUIRED

1. Assuming that the investor is risk averse, calculate which project is the most desirable.(Show all calculations in support of your recommendation) (25)

2. If Project A above is selected, which percentage of sales would be higher thanR 88 037,58? (5)


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QUESTION 6.2

You are the Financial Manager of AeroArms Ltd, a company that manufactures ammunitionfor the South African Airforce.

The company sells 180 000 units per annum of an explosive device called ZX3, and 100 000units of a similar, but stronger device, called ZX Super. Both ZX3 and ZX Super use thesame explosive called BIGBOOM! with ZX3 requiring 1kg and ZX Super 1,5kg of BIGBOOM!The annual price increase for BIGBOOM! came into effect recently and no price increase isanticipated for the next 12 months. The price of BIGBOOM! is R1,10 per kilogram. Thesupplier of BIGBOOM! offers a bulk discount of 2,5% on orders of 18 000 kg or more.

A recent investigation revealed that a buying clerk at AeroArms is paid R180 000 per annumand that the average buying clerk is able to process an average of 7,2 orders per day.Assume 250 working days per year. Only the salary of a buying clerk is considered a cost ofordering.

Due to the nature of BIGBOOM! very strict security is needed at the storage facility, locatedat the far end of the AeroArms property. A dedicated warehouse was built to storeexplosives and as such most costs are fixed, except for insurance which is payable at R0.50per kilogram per year of BIGBOOM! in inventory.

The BIGBOOM! supplier is very strict about quality control, and as such the product is notalways available immediately. Lead time varies between 10 and 13 working days.

The probabilities for lead time are as follows:

Lead time in days Probability

10 65%11 20%12 10%13 5%


1. Calculate the Economic Order Quantity (EOQ) . (5)

2. Calculate the safety stock as well as the reorder point if AeroArms is prepared to carrya 5% stockout risk. (5)

3. Calculate the total carrying cost as well as the total ordering cost per annum, assumingAeroArms will accept a 5% stockout risk. (5)

4. Calculate and recommend whether AeroArms should accept the bulk discount. (10)


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