Introduction to Accounting and Finance

UMUT SERCAN ERDOGAN

Question 1
Income statement
Balance sheet
Question 2
a. Calculation of contribution per unit
Particul
ars
Figur
es (in
£)
Material
s 5.25
Labour 2.95
Variable
overhead
s
1.85
Total
variable
cost per
unit 10.05
Particul
ars
Figu
res
(in £)
Selling
price per
unit 13

Total
variable
cost per
unit 10.05
Contribut
ion per
unit 2.95
Assessment of total fixed cost
Particul
ars
Figur
es (in
£)
Producti
on
5900
0
Selling
etc.
4760
0
Total
fixed
cost
1066
00
b.
BEP calculation
Particulars Formula Figures (in £)
Total fixed
cost 106600
Contribution
per unit 2.95
BEP in
units
Total fixed
cost /
Contributio
n per unit 36136
BEP in
GBP
BEP in units
* Selling
price per
unit 469763

Margin of safety: actual sales – BEP sales
Particula
rs
Actua
l
BEP
level
Margi
n of
safety
Tables in
terms of
units
70000 36136 33864
Tables in
terms of
monetary
value
91000
0
46976
8
44023
2
c.
Particula
rs
Figur
es
Figur
es (in
£)
Produces
and Sells
48000
tables
62400
0
BEP
36136
units
46976
3
Profit
15423
7
Question 3
Calculation of payback period

Year
Cash
inflow
Cumulativ
e cash
inflows
1
1060000
0 10600000
2
1060000
0 21200000
3
1060000
0 31800000
4
1060000
0 42400000
5
1060000
0 53000000
Payback period: 3 + 8200000 / 10600000
= 3.8 years or approx 3 years and 8 months
Calculation of average rate of return
Year
Cash
inflow
1 10600000
2 10600000
3 10600000
4 10600000
5 10600000
Average profit 10600000
Average
investment 22500000
ARR 47.11%
Average rate of return: Average Earnings after tax / Average investment * 100
ARR = 47.11%
Average investment: (40000000 + 5000000) / 2

= 22500000
Computation of depreciation
Particulars Figures
Cost of new
machine 40000000
Scrap value 5000000
Expected life
(in years) 5
Depreciation 7000000
Computation of NPV
Yea
r
Cash
inflow
Less:
Cash
outflo
w
Less:
depreciati
on
Gross
cash
inflow
Add:
depreciati
on
Cash
inflow
PV
facto
r @
7%
Discount
ed cash
inflows
1 17000000
64000
00 7000000
36000
00 7000000
106000
00
0.934
6
9906542.
06
2 17000000
64000
00 7000000
36000
00 7000000
106000
00
0.873
4
9258450.
52
3 17000000
64000
00 7000000
36000
00 7000000
106000
00
0.816
3
8652757.
5
4 17000000
64000
00 7000000
36000
00 7000000
106000
00
0.762
9
8086689.
25
5 17000000
64000
00 7000000
36000
00 7000000
106000
00
0.713
0
7557653.
5
Total
discounte
d cash
inflows
43462092
.8
Less:
initial
investmen
t 40000000
NPV
(Total
discounte
d cash
inflow –
3462092.
82

initial
investme
nt)