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dear John
please help;
in a sep/Dec 15 hybrid question paper
question 4 (a) deriving the cost of sales in a projected position got me lost on how the arrived @ $115.4
there is also finance cost of $4.4
(which I believe should be 10%of $31.6)and the non current liabilities have increased with the unknown figure (not specified in question)
please help me understand this, I now believe the solution has got some errors or the question itself
The question and the answer are both perfectly correct.
The current cost of sales is 112.0 of which 40% (44.8M) and the rest (67.2) are variable.
The question says that the fixed will not change – so will stay at 44.8M, and that the variable will increase in line with income. Since the income increases by 5%, so to therefore the variable cost will increase by 5% and will be 67.2 x 1.05 = 70.56M.
So the total costs will be 44.8 + 70.56 = 115.36 (the examiner has rounded it to 115.4).The company is raising an additional 20M by an issue of 8% loan notes, so they will pay extra interest of 20M x 8% = 1.6M per year. They are already paying 2.8M and so in future they will be paying 2.8M + 1.6M = 4.4M per year.
The first line of the question says they are raising 20M by an issue of loan notes. So non-current liabilities have increased by 20M to 56M.
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