Certificate in Advanced Business Calculations

ASE3003 Level 3 Thursday 6 June 2013 Time allowed: 3 hours

Information There are 8 questions in this examination. Total marks available: 100

Instructions Do not open this paper until you are told to do so by the supervisor. Answer all questions. Write your answers in blue or black ink/ballpoint. You can only use a pencil for graphs, charts, diagrams, etc. Please ensure your answers are written clearly. Begin your answer to each question on a new page. All answers must be correctly numbered but need not be in numerical order. Workings must be shown. You can use mathematical and statistical tables. You may use a calculator provided the calculator gives no printout, has no word display facilities, is silent and cordless. The provision of batteries and their condition is your responsibility.

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Education Development International plc 2013

QUESTION 1 The rate of interest on an account is 3.5% per annum. (a) (b) (c) Based on dividing the amount of interest equally between the first and second halves of the year, state the rate of interest for a 6-month period (simple interest method). (1 mark) Based on the same proportional increase in the amount over the first and second halves of the year, calculate the rate of interest for a 6-month period (compound interest method). (2 marks) Calculate the interest on 5,000 for a 6-month period using the rate calculated in (b). (2 marks)

Yoshi saves money as follows. At the start of the first year, he deposits 10,000. At the end of each year, the account earns 4% interest on the amount in the account at that time, and this is added to the account. (d) Calculate the amount of interest added at the end of the first year. (2 marks) At the start of each year after the first, Yoshi deposits an additional amount equal to 5% of the amount in the account during the previous year. (e) Calculate: (i) (ii) (iii) the amount in the account after Yoshis deposit at the start of the second year (2 marks) the amount in the account after Yoshis deposit at the start of the fourth year (3 marks) the equivalent annual rate of compound interest that would increase 10,000 to the amount in (e)(ii) by the start of the fourth year. (1 mark) (Total 13 marks)

QUESTION 2 Susan buys shares in three companies and later receives a dividend from each. She tabulates the figures as follows: Number of shares Nominal value of one share Buying price per share Brokers commission Total cost of shares, including commission Dividend (percentage of nominal value) Dividend () Supply the missing figures. (Total 12 marks) Company A 4,000 5.00 9.36 50 ? 4.5% ? Company B 2,500 ? 13.02 ? 32,625 5.2% 260 Company C ? 0.50 144p 60 17,340 ? 138

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Education Development International plc 2013

QUESTION 3 An industrial product may be manufactured using two methods of production. Using Method X, fixed costs are 2,300,000 per period and variable costs are 215 per unit of product. Using Method Y, fixed costs are 2,500,000 per period and variable costs are 190 per unit of product. (a) (b) Calculate the level of output for which the total cost of production using Method X is equal to the total cost of production using Method Y. (3 marks) Calculate the total cost of production per period for Method Y at this output. (2 marks)

The business owner chooses Method Y, and in the first production period produces and sells 12,000 units at a selling price per unit of 399. (c) Calculate the profit or loss in this period. (4 marks) In the second production period, the fixed and variable costs remain the same. The owner produces 15,000 units but only sells 13,500 units. Changes in technology mean that this product has become obsolete and no more can be sold. (d) Treating the unsold units as having zero value, calculate the profit or loss on production and sales. (4 marks) (Total 13 marks)

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Education Development International plc 2013

QUESTION 4 The following figures relate to a trading year for trader Amelia. Annual sales Annual purchases Sales returns Purchases returns Money owed by debtors at year end Money owed to creditors at year end Stock at start of year Stock at end of year Postage and telephone Heating and lighting Rent Bank at year end Cash at year end (a) Calculate the ratios for: (i) (ii) (b) overhead expenses to turnover (3 marks) end of year working capital. (3 marks) Calculate the ratios for: (i) (ii) average credit taken from creditors in days (3 marks) average credit given to debtors in days. (3 marks) State which of these, if either,: (iii) (iv) gives the average time it takes Amelia to pay her creditors (1 mark) gives the maximum time it takes Amelia to receive payment from her debtors. (1 mark) (Total 14 marks) 65,000 42,400 2,950 2,250 2,890 2,310 2,990 2,100 1,700 5,310 11,605 1,070 177

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QUESTION 5 Business owner A has a choice of 2 investment projects. Business adviser B estimates the costs and returns as follows: Project One Cost (year 0) Year 1 cash inflow Year 2 cash inflow Year 3 cash inflow Year 4 cash inflow (a) 700,000 150,000 300,000 300,000 200,000 Project Two 750,000 -200,000 (outflow) 500,000 500,000 250,000 (4 marks) The payback period for Project One is 2 years 10 months. (b) Advise the business owner which project is the better investment. (2 marks) Business adviser B uses a required rate of return of 10% and the following table of discount factors: Year Year 1 Year 2 Year 3 Year 4 (c) Discount factor 0.909 0.826 0.751 0.683

For Project Two calculate the payback period. Give your answer in years and months.

Using the above figures, calculate: (i) (ii) the present value of the expected cash inflow for Project One in year 4 (2 marks) the present value of the expected cash inflow and outflow for Project Two in years 1 and 2 combined. (2 marks)

Business adviser C estimates that the cash inflow for Project One in year 1 will be 200,000 and that the other figures will remain the same. (d) Calculate the payback period for Project One on the basis of the figures of business adviser C. (3 marks) (Total 13 marks)

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Education Development International plc 2013

QUESTION 6 A bankrupt trader owed 87,500 to her creditors, of which 28,100 was secured against assets. The assets of the business raised 52,500, out of which 4,204 was paid in fees during the process of bankruptcy. (a) (b) Calculate the ratio of assets, before fees, to liabilities, in its simplest terms. (2 marks) Calculate: (i) (ii) (iii) the amount available for unsecured creditors after payment of fees (2 marks) how much in the was paid to the unsecured creditors (3 marks) how much was paid to an unsecured creditor who was owed 5,500. (2 marks) The assets of the business at the time of bankruptcy were as follows: Asset Cash in hand Machinery Trade debtors Office equipment Vehicles Plus stock (c) Calculate the value realised for the stock. (2 marks) (Total 11 marks) Value realised () 72 8,500 18,300 3,060 11,950

QUESTION 7 Machine A has an initial cost of 290,000 and is depreciated by the equal instalment method, at the rate of 35,000 per year until the book value is less than 35,000. Calculate, for machine A: (a) (b) (c) the book value at the end of one year (2 marks) the anticipated life as a whole number of years (2 marks) the residual value at the end of that period. (2 marks) Machine B is depreciated by the diminishing balance method. It has an initial cost of 450,000 and a book value after one year of 270,000. Calculate, for machine B: (d) (e) (f) the rate of depreciation (2 marks) the book value after 2 years (2 marks) the amount of depreciation expected during year 3. (2 marks) (Total 12 marks)

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QUESTION 8 An index of retail prices at January 2013, based on January 2000 =100, is shown below: Group Food Housing Fuel and light Durable household goods Clothing and footwear Transport The totals include the missing figures for Food. A statistician calculates the weighted index for the above completed table to be 201.8. Calculate: (a) (b) (c) (d) (e) the missing figure for Weight for Food (2 marks) the missing figure for Weight x Index for Food (2 marks) the missing figure for Index for Food (2 marks) the weighted index for the above items that are not Food (4 marks) the percentage increase in the weighted index when Food is not included compared to when it is included. (2 marks) (Total 12 marks) Weight ? 299 121 152 61 187 1,000 Index ? 221.0 230.7 166.0 148.6 205.1 Weight x Index ? 66,079.0 27,914.7 25,232.0 9,064.6 38,353.7 201,798.0

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Education Development International plc 2013