problem 1) Part A
Read the following and answer the problem below.
On 31 December 2006 the bank column of John cash book showed a debit balance of Rs. 15,000.
The monthly bank statement written up to 31 December 2006 showed a credit balance of Rs. 29,500.
On checking cash book with the bank statement it was discovered that the following transactions had not been entered in the cash book:
i) Dividends of Rs. 2,400 had been paid directly to the bank.
ii) A credit transfer (Customs and Excise VAT refund of Rs. 2,600) had been collected by the bank.
iii) Bank charges Rs. 3,000.
iv) A direct debit of Rs. 7,000 for the RAC subscription had been paid by the bank.
v) A standing order of Rs. 2,000 for John loan repayment had been paid by the bank.
vi) John deposit account balance of Rs. 14,000 was transferred into his bank current account.
A further check revealed the following items:
i) Two cheques drawn in favour of Sam Rs. 2,500 and John Rs. 2,900 had been entered in the cash book but had not been presented for payment.
ii) Cash and cheques amounting to Rs 6,900 had been paid into the bank on 31 December 2006 but were not credited by the bank account until 2 January 2007.
(a) Starting with the debit balance of Rs 15,000, bring the cash book (bank columns) up to date and then balance the bank account.
(b) Prepare a bank reconciliation statement as at 31 December 2006.
Five years ago Nick became directly involved in the family bakery business, NTB Ltd. He is considering introducing a new range of luxury products that can be sold at a premium. He provides the following costings for the proposed development of luxury items.
• Purchase of computerised machineries Rs.80, 000
• Maximum output from ovens 80,000 units per day
• Raw material costs Rs.6.25 per unit
• Fuel costs per day per unit Rs.1.32 per unit
• Labour costs per day Rs.74 per unit
• Suppose all output can be sold at average revenue of Rs.12.50.
• Estimated Annual Turnover associated with the proposal Rs.900, 000
Using the information given above:
(a) Produce a graph to show the break-even point associated with the proposal to purchase new machinery.
(b) Compute margin of safety associated with the estimated level of output.
(c) prepare down 4 limitations of break even analysis.