Accounting for Managers: Interpreting accounting information for decision-making

SOLUTIONS TO QUESTIONS 409

Capital 200,000

Profit and Loss account 30,000

230,000

6.2
See Table A2.2.

6.3
Answer e: Although the operating profit has increased (from £137,000 to £139,000), the
operating margin has decreased (from 11.6% to 11.1%) asa result of a reduction in the gross
margin (from 39% to 37%) and higher expenses (from £323,000 to £324,000), despite sales
growth (of 6.4%). See Table A2.3.

6.4
See Table A2.4.

6.5
a Prepayment

The annual payment is 24×£400=£9,600 (this is £800/mth). The prepayment at 31 March
is 9/12 (Apr – Dec) @ £800=£7,200.

Table A2.2

Fixed assets 250,000

Current assets 125,000

−Creditors −75,000

Working capital 50,000

Capital employed 300,000

−Long-term debt −125,000

Shareholders’ capital 175,000

Table A2.3

2001 2000

Sales 1,250,000 1,175,000

Sales growth 6.4%

Cost of sales 787,000 715,000

Gross profit 463,000 460,000

Gross margin 37% 39%

Selling and admin. expenses 324,000 323,000

Operating profit 139,000 137,000

Operating margin 11.1% 11.6%