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1. PART A
Jacobsen plc is a manufacturing firm which has just started up in business. The
company has provided the following unit data:
Per Unit
Selling Price £45
Material Cost £14
Labour Cost £18
Variable Overhead £6
Sales and Production information for the first three months of Year 1 are as follows:
January February March
Sales in units 3,800 4,900 5,000
Production in units 4,500 5,200 4,600
Fixed Overhead information is as follows:
Estimated Fixed Overheads per annum: £105,000
(based on expected annual production of 60,000 units)
Actual Fixed Overheads: January £8,000
February £9,000
March £8,500
(a) Calculate the Opening and Closing Inventory for January to March.
(b) Prepare a month by month Profit Statement for January to March using Marginal
Costing.
(c) Prepare a month by month Profit Statement for January to March using
Absorption Costing.
PART B
Elrick Subsea plc is considering investing in two mutually exclusive projects. It has
calculated the following financial information for each project:
YEAR PROJECT 1 PROJECT 2
Initial Cost £200,000 £200,000
Additional Cost 2 £10,000
Net Cash Inflows 1 £110,000 £95,000
2 £65,000 £54,000
3 £50,000 £76,000
4 £47,000 £38,000
Cost of borrowing for the firm is 10%.
DISCOUNT TABLE (FROM 10% TO 15%)
Present Value of £1 received after n years discounted at i%
i 10 11 12 13 14 15
n
1
2
3
4
5
0·909
0·826
0·751
0·683
0·621
0·901
0·812
0·731
0·659
0·593
0·893
0·797
0·712
0·636
0·567
0·885
0·783
0·693
0·613
0·543
0·877
0·769
0·675
0·592
0·519
0·870
0·756
0·658
0·572
0·497
(a) Calculate the Net Present Value for each project.
(b) Calculate the internal rate of return for both projects.
(c) Based on your findings in part (b), advise Elrick Subsea plc in which project to
invest.
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