Series 2 Examination 2011

CERTIFICATE IN ADVANCED BUSINESS CALCULATIONS

Level 3
Monday 11 April
Subject code: 3003
Time allowed: 3 hours

INSTRUCTIONS FOR CANDIDATES

Answer all 8 questions.

Write your answers in blue or black ink/ballpoint. Pencil may be used only for graphs, charts, diagrams, etc.

All answers must be correctly numbered but need not be in numerical order.

You must show all calculations, where applicable, on the answer paper provided.

You may use mathematical and statistical tables.

Your work should be accurate and neat.

Your 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.

3003/2/11

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ASE 3003 2 11 1

QUESTION 1
(a)

(i) Calculate the principal that will earn a total of 2,535 in 4 years at 3%
simple interest per annum
(ii)

(2 marks)

Calculate the amount of interest earned in the first year.

(2 marks)

(b)

(c)

Calculate the principal that will earn a total of 2,535 in 4 years at 3% compound
interest per annum. Give your answer correct to the nearest pound.

(4 marks)

An investment account of 59,000 attracts 3.55% compound interest per annum.

How much will be in the account after 3 years if the interest is compounded sixmonthly? Take the six-monthly rate as half of the annual rate.

(4 marks)

(Total 12 marks)

QUESTION 2
(a)

Annette bought 3% government stock at 87 per 100 nominal value.

She invested 34,800 in the stock, and held it for a period during which she received interest
of 5,600 in total for the period.
Calculate:
(i)

the nominal value of the stock purchased

(ii)

the number of years for which she held the stock

(iii)

the percentage yield on the amount invested for the period.

(2 marks)
(2 marks)
(2 marks)
(b)

Annette invested a further 34,800 in a unit trust with an offer price of 43.50 per unit,
and sold the units after 4 years at 52.20 per unit.
Calculate:
(i)

the number of units purchased

(2 marks)

(ii)

the increase in value of the units after 4 years.

(2 marks)

(c)

Compare the increase in value of the units, expressed as a percentage increase per annum,
with the yield on the government stock, also expressed as a percentage per annum:
(3 marks)
(Total 13 marks)

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QUESTION 3
(a)

In a particular period, manufacturer M makes and sells 109,000 units of product P.

It sells product P at a selling price of 29.50, and makes a profit of 204,750.
It has variable costs of 19 per unit of product.
Calculate the break-even point in units per period.

(4 marks)
(b)

Manufacturer M sells product Q at 45 per unit of product.

Manufacturing costs are as follows:
Fixed cost per period
Variable cost per unit of product

1,982,500
32

Calculate:
(i)

the profit or loss at an output of 150,000 units per period

(ii)

the break-even point in units per period.

(3 marks)
(2 marks)
(c)

Manufacturer M also produces product R.

Product R has unit costs of production during a period as follows:
Components
Labour
Production overheads
Distribution expenses

24.40
7.75
15.00
3.20

Additional Information

1
2
3
4
5

The cost of components varies directly with the number of units produced
80% of the labour costs vary directly with the number of units produced
The production overheads do not vary irrespective of how many units are produced
65% of the distribution expenses vary directly with the number of units produced
The rest of these expenses remain fixed.

Calculate:
(i)

the variable cost per unit

(2 marks)

(ii)

the variable cost as a percentage of the total cost for the period shown.
(2 marks)
(Total 13 marks)

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QUESTION 4
(a)

At the end of the year 2010 the following information applied to company C:
Current liabilities
Current ratio
Acid test ratio

4,450,000
2.6
1.4

Calculate:
(i)

the current assets

(ii)

the stock held by company C at that time

(iii)

State whether you think the liquidity of company C is healthy or not.

(2 marks)
(2 marks)

(1 mark)
(b)

During 2010 the following information relates to a trader T.

Net sales
Cost of goods sold
Initial stock value
Final stock value
Overhead expenses

805,000
540,000
25,600
24,400
112,000

Calculate:
(i)

gross profit

(ii)

net profit

(iii)

net purchases

(iv)

the rate of stockturn (stock turnover per annum).

(2 marks)
(2 marks)
(2 marks)
(3 marks)

(Total 14 marks)

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QUESTION 5
(a)

A business owner has a choice of two investment

projects. The estimated life of each project is 5 years.
Further information is as follows: (all figures estimated and in )
Project One
320,000

Initial cost
Repair and maintenance costs per annum

25,000

Project Two
280,000
15,000

Revenue returns before taking account of repair and maintenance cost

Year 1

30,000

40,000

Year 2
Year 3
Year 4
Year 5

60,000
100,000
100,000
75,000

80,000
80,000
80,000
75,000

Use the average rate of return method of investment appraisal to advise which project is the
better investment.

(7 marks)

(b)

The owner estimates the following figures for Investment Project Three.

2,247,500
500,000
750,000
750,000
750,000

Cost (year 0)
Year 1 Net cash inflow
Year 2 Net cash inflow
Year 3 Net cash inflow
Year 4 Net cash inflow

The owner calculates the net present value using a discount rate of 8.1% and the following table:

(i)

Discount rate
8.1%
Year 1

Discount
factors
0.925

Year 2
Year 3
Year 4

0.856
0.792
0.732

Calculate the net present value of Project Three on the basis of the figures given
(4 marks)

(ii)

Estimate the internal rate of return of Project Three.

(1 mark)
(Total 12 marks)

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QUESTION 6
(a)

A bankrupt trader owed 39,175 to fully secured creditors and 205,000 to unsecured creditors.
The assets of the business realised 138,600.
(i)

Express the business assets as a percentage of the liabilities

(ii)

State how much will be paid to the secured creditors

(iii)

Calculate how much in the will be paid to the unsecured creditors.

(2 marks)
(1 mark)

(3 marks)
(b)

In another bankruptcy, 33.5 pence in the was paid to unsecured creditors.

John was owed 24,000.
Calculate:
(i)

how much John was paid if he was an unsecured creditor

(ii)

how much John was paid if 10,000 of what he was owed was secured
against assets.

(2 marks)
(3 marks)

(Total 11 marks)
QUESTION 7
A factory machine that cost 8,500,000 is depreciated by 40% of its value each year using the
diminishing balance method.
(a)

Calculate:
(i)

the depreciation that occurs during the first year

(ii)

the book value at the end of the first year

(iii)

the book value at the end of the second year

(iv)

the depreciation that occurs during the third year.

(2 marks)
(2 marks)
(2 marks)
(2 marks)

(b)

Given that the book value at the end of year 4 is 1,101,600, prepare a depreciation schedule
for years 5 and 6 that shows, for each year, the yearly depreciation, the accumulated
depreciation and the book value at the end of the year.
(5 marks)

(Total 13 marks)

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Page 6 of

QUESTION 8
Company D sells Product S with the following prices and sales
Year

2007

Price ()
Sales (quantity)
(a)

2008

2009

2010

24.00

25.00

22.50

18.00

150,000

120,000

165,000

202,500

Calculate:
(i)

the price relative for Product S for year 2010 with year 2009 as the base year

(ii)

the chain base index of prices for Product S for the years 2007 to 2010

(2 marks)
(3 marks)
(iii)

an index for the sales (quantity) of Product S for the years 2007 to
2010 with year 2007 as the base year.

(4 marks)

The quantity relative for Product S for year 2007 with year 2006 as the base year was 1.25,
while the price decreased by 2.50 from year 2006 to year 2007.
(b)

Calculate the increase in total income from the sales of Product S in year 2007
as a percentage of the total income from sales of Product S in year 2006.

(3 marks)

(Total 12 marks)

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