Fishers
Fishers manufactures baseball caps. In 2017, it sold 75 000 caps. The variable cost per cap was $6. 70 % of Fishers’s annual sales occur from April to September. Starting in March, Fishers experiences a significant increase in current assets and current liabilities, which start to decrease in October.
Table 1: Selected data for Fishers for 2017 (figures in $000s)
Sales price per cap will remain the same as in 2017.
a. Define the term current assets.[2]
b. Using Table 1, calculate Fishers’s net profit before interest and tax for 2017 (show all your working).[2]
c.i. Using Table 2, calculate the following forecasted figures for 2018 :[1]
sales revenue
c.ii.Using Table 2, calculate the following forecasted figures for 2018 :[1]
total variable costs
c.iiiUsing Table 2, calculate the following forecasted figures for 2018 :
income tax
c.ivUsing Table 2, calculate the following forecasted figures for 2018 :
net profit after interest and tax.
d. Explain why Fishers experiences a significant increase in current assets and current liabilities from March to October. [2]
▶️Answer/Explanation
Ans:
a. Current assets are items either owned by a business or owed to that business with a life of less than twelve months.
Candidates are not expected to word the definition exactly as above.
N.B. no application required. Do not credit examples on their own, though correct examples can provide reinforcement to answers.
Award [1] for a basic definition that conveys partial knowledge and understanding.
Award [2] for a full definition.
b. Sales revenue – variable costs – fixed costs $=$ net profit before interest and tax
$
900000-(6 \times 75000)-55000=\$ 395000
$
To receive [2], candidates must show workings.
c.i. $\$ 990000$
Accept responses if candidates do not include 000s: $\$ 990$
Apply OFR where applicable. Candidates are not required to show workings.
c.ii. $\$ 577500$
Accept responses if candidates do not include 000s: $\$ 577.5$
Apply OFR where applicable. Candidates are not required to show workings.
c.iiiPLEASE NOTE: Income tax is not included in the syllabus for 2024 exams onward (although tax is included in the profit and loss exemplar in the Business Management Guide for first exams 2024). Related parts of this multi-part question may be used.
$\$ 65,500$
If a candidate calculates tax before deducting interest expense, award [0]. The answer is incorrect.
Accept responses if candidates do not include 000s: $\$ 65.5$
Apply OFR where applicable. Candidates are not required to show workings.
c.ivPLEASE NOTE: 3.4.2 Net profit after tax is not included in the syllabus for 2024 exams onward. It is now referred to as profit per period for a for profit organization. Related parts of this multi-part question may be used.
$\$ 262,000$
If a candidate calculates tax before deducting interest expense in question (c)(iii), award [0]. The answer is incorrect. However, if the candidate then produces the answer \$256 000 for
(c)(iv), award [1] for that question based upon the OFR.
Accept responses if candidates do not include 000s: $\$ 262$
Apply OFR where applicable. Candidates are not required to show workings.
d. In anticipation of increased sales during the period April through September, Fishers must increase production starting in March. Thus, it buys more stock, which increases both current assets (stock, which later become debtors) and current liabilities (short-term borrowings and creditors). Fishers maintains this higher volume of trading (and levels of current assets and current liabilities) until sales start to contract in October. In anticipation of lower sales from October through March, the reverse of the process above occurs.
If candidates simply say that the increase is “due to peak sales” (or something very similar), do not award credit.
N.B. Application may be limited or nominal, which is acceptable, provided that the response is relevant.
Award [1] for a basic explanation that conveys partial understanding.
Award [2] for a full explanation that conveys knowledge and understanding similar to the above.