Financial information for managemetn paper 1 2 2003

PART FRIDAY DECEMBER 2003 QUESTION PAPER Time allowed hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered Section B ALL FIVE questions are compulsory and MUST be answered Formulae Sheet, Present Value and Annuity Tables are on pages 13, 14 and 15 Paper 1.2 Financial Information for Management Section A – ALL 25 questions are compulsory and MUST be attempted Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question Each question within this section is worth marks A cost is described as staying the same over a certain activity range and then increasing but remaining stable over a revised activity range in the short term What type of cost is this? A B C D A A A A fixed cost variable cost semi-variable cost stepped fixed cost The following quarterly adjustments have been calculated using the multiplicative model for time series analysis: Quarter 0·95 Quarter 1·25 Quarter 0·70 What would be the adjustment for quarter to two decimal places? A B C D 0·83 0·91 1·10 1·20 A company which uses marginal costing has a profit of £37,500 for a period Opening stock was 100 units and closing stock was 350 units The fixed production overhead absorption rate is £4 per unit What is the profit under absorption costing? A B C D £35,700 £36,500 £38,500 £39,300 The following could relate to contract costing: (i) Work is for a period of long duration (ii) Progress payments are amounts paid for the contract throughout the course of the contract (iii) Architects’ certificates are provided to establish the amount of work certified Which of the above are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i), (ii) and (iii) A company values stocks using the weighted average value after each purchase The following receipts and issues have been made with regards to materials for the last month: Date Receipts Issues Units £/unit Valuation Brought forward 100 £5 £500 4th 150 £5·50 £825 16th Units 100 20th 100 £6 £600 21st 75 What is the value of the closing stock using this weighted average method? A B C D £1,012·50 £976·50 £962·50 £925·00 Sydney wishes to make an investment on a monthly basis starting next month for five years The payments into the fund would be made on the first day of each month The interest rate will be 0·5% per month Sydney needs a terminal value of £7,000 What should be the monthly payments into the fund to the nearest £? A B C D £75 £86 £100 £117 A company has the following budget for the next month: Finished Product Sales Production units 7,000 units 7,200 units Materials Usage per unit Opening stock Closing stock kg 400 kg 500 kg What is the material purchases budget for the month? A B C D 20,900 21,100 21,500 21,700 kg kg kg kg [P.T.O 8 The (i) (ii) (iii) following could relate to optical mark readers: Specialist pens are always required for use Data entry is quick Computers carry out most of the work Which of the above would be considered to be advantages of using optical mark readers? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i), (ii) and (iii) Which of the following would be best described as a short term tactical plan? A B C D Reviewing cost variances and investigate as appropriate Comparing actual market share to budget Lowering the selling price by 15% Monitoring actual sales to budget 10 A company incurs the following costs at various activity levels: Total cost £ 250,000 312,500 400,000 Activity level Units 5,000 7,500 10,000 Using the high-low method what is the variable cost per unit? A B C D £25 £30 £35 £40 11 An investment gives the following results: Net present value £000 383 (246) Discount rate 10% 15% What is the estimated internal rate of return to the nearest whole percentage? A B C D 12% 13% 14% 17% 12 A company uses process costing to establish the cost per unit of its output The following information was available for the last month: Input units Output units Opening stock Closing stock 10,000 9,850 300 units, 100% complete for materials and 70% complete for conversion costs 450 units, 100% complete for materials and 30% complete for conversion costs The company uses the weighted average method of valuing stock What were the equivalent units for conversion costs? A B C D 9,505 9,715 9,775 9,985 units units units units 13 Which of the following is correct with regard to expected values? A B C D Expected values provide a weighted average of anticipated outcomes The expected value will always equal one of the possible outcomes Expected values will show whether the decision maker is risk averse, risk seeking or risk neutral The expected value will never equal one of the possible outcomes [P.T.O 14 The following graph has been established for a given set of constraints: 300 y 200 B C 100 A D OF 100 200 x 300 The objective function (OF) for the company has also been plotted on the graph and the feasible region is bounded by the area ABCD At which point on the graph will profits be maximised? A B C D 15 The following information has been obtained for sales of two products for a three year period: Price 2000 (base year) 2001 2002 Product A 100 125 130 What is the Paasche quantity index for 2002? A B C D Quantity Product B 150 140 135 0·86 0·89 1·19 1·20 Product A 2 Product B 4 16 A company has just secured a new contract which requires 500 hours of labour There are 400 hours of spare labour capacity The remaining hours could be worked as overtime at time and a half or labour could be diverted from the production of product X Product X currently earns a contribution of £4 in two labour hours and direct labour is currently paid at a rate of £12 per normal hour What is the relevant cost of labour for the contract? A B C D 17 The (i) (ii) (iii) £200 £1,200 £1,400 £1,800 following statements relate to performance evaluation methods: Residual income is not a relative measure The return on investment figure is a relative measure Residual income cannot be calculated for an individual project Which of the above are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i), (ii) and (iii) 18 A company uses variance analysis to control costs and revenues Information concerning sales is as follows: Budgeted selling price Budgeted sales units Budgeted profit per unit £15 per unit 10,000 units £5 per unit Actual sales revenue Actual units sold £151,500 9,800 units What is the sales volume profit variance? A B C D £500 favourable £1,000 favourable £1,000 adverse £3,000 adverse 19 A company has the following budgeted information for the coming month: Budgeted sales revenue Budgeted contribution Budgeted profit £500,000 £200,000 £ 50,000 What is the budgeted break-even sales revenue? A B C D £125,000 £350,000 £375,000 £450,000 [P.T.O 20 An investment has the following cash inflows and cash outflows: Time Cash flow per annum £000 (20,000) 1-4 13,000 5-8 17,000 10 (10,000) What is the net present value of the investment at a discount rate of 8%? A B C D (£2,416) £7,046 £6,981 £2,351 21 Which of the following is correct? A B C D When considering limiting factors the products should always be ranked according to contribution per unit sold If there is only one scarce resource linear programming should be used In linear programming the point furthest from the origin will always be the point of profit maximisation The slope of the objective function depends on the contributions of the products 22 A company has over absorbed fixed production overheads for the period by £6,000 The fixed production overhead absorption rate was £8 per unit and is based on the normal level of activity of 5,000 units Actual production was 4,500 units What was the actual fixed production overheads incurred for the period? A B C D £30,000 £36,000 £40,000 £42,000 23 A company uses process costing to value its output The following was recorded for the period: Input materials Conversion costs Normal loss Actual loss 2,000 units at £4·50 per unit £13,340 5% of input valued at £3 per unit 150 units There were no opening or closing stocks What was the valuation of one unit of output to one decimal place? A B C D £11·8 £11·6 £11·2 £11·0 24 Which of the following are correct with regard to regression analysis? (i) In regression analysis the n stands for the number of pairs of data (ii) ∑ x2 is not the same calculation as (∑ x)2 (iii) ∑ xy is calculated by multiplying the total value of x and the total value of y A (i) and (ii) only B (i) and (iii) only C (ii) and (iii) only D (i), (ii) and (iii) 25 The following information relates to labour costs for the past month: Budget Labour rate Production time Time per unit Production units £10 per hour 15,000 hours hours 5,000 units Actual Wages paid Production Total hours worked £176,000 5,500 units 14,000 hours There was no idle time What were the labour rate and efficiency variances? A B C D Rate variance £26,000 adverse £26,000 adverse £36,000 adverse £36,000 adverse Efficiency variance £25,000 favourable £10,000 favourable 1£2,500 favourable £25,000 favourable (50 marks) [P.T.O Section B – ALL FIVE questions are compulsory and MUST be attempted A business operates with two production centres and three service centres Costs have been allocated and apportioned to these centres as follows: Production Centres Service Centres A B C £2,000 £3,500 £300 £500 £700 Information regarding how the service centres work for each other and for the production centres is given as: Work done for: Production Centres Service Centres A B C By A 45% 45% – 10% – By B 50% 20% 20% – 10% By C 60% 40% – – – Information concerning production requirements in the two production centres is as follows: Units produced Machine hours Labour hours Centre 1,500 units 3,000 hours 2,000 hours Centre 2,000 units 4,500 hours 6,000 hours Required: (a) Using the reciprocal method calculate the total overheads in production centres and after reapportionment of the service centre costs (7 marks) (b) Using the most appropriate basis establish the overhead absorption rate for production centre Briefly explain the reason for your chosen absorption basis (3 marks) (10 marks) 10 Break-even charts and profit-volume charts are commonly associated with cost-volume-profit analysis (break-even analysis) Required: (a) (i) Sketch a break-even chart and indicate where the break-even point would be for a single product firm Clearly label the axes and indicate the following lines: – total revenue; – variable cost; – fixed costs; and – total cost (ii) How would contribution be established from your chart in (a)(i)? (b) (i) (6 marks) Sketch a profit-volume chart and indicate where the break-even point would be for a single product firm Clearly label the axes and indicate the profit line and fixed costs (ii) How would contribution be established from your chart in (b)(i)? (4 marks) [Note: no specific numbers are required.] (10 marks) A company has obtained the following information regarding costs and revenue for the past financial year: Original budget: Sales Production 10,000 units 12,000 units Standard cost per unit: Direct materials Direct labour Fixed production overheads Selling price Actual results: Sales Revenue Production Material cost Labour cost Fixed production overheads £ ––– 22 ––– 30 9,750 units £325,000 11,000 units £65,000 £100,000 £95,000 There were no opening stocks Required: (a) Produce a flexed budget statement showing the flexed budget and actual results Calculate the variances between the actual and flexed figures for the following: – sales; – materials; – labour; and – fixed production overhead (7 marks) (b) Explain briefly how the sales and materials variances calculated in (a) may have arisen (3 marks) (10 marks) 11 [P.T.O 4 A business currently orders 1,000 units of product X at a time It has decided that it may be better to use the Economic Order Quantity method to establish an optimal reorder quantity Information regarding stocks is given below: Purchase price £15/unit Fixed cost per order £200 Holding cost 8% of the purchase price per annum Annual demand 12,000 units Current annual total stock costs are £183,000, being the total of the purchasing, ordering and holding costs of product X Required: (a) Calculate the Economic Order Quantity (2 marks) (b) Using your answer to (a) above calculate the revised annual total stock costs for product X and so establish the difference compared to the current ordering policy (4 marks) (c) List ways in which discounts might affect this Economic Order Quantity calculation and subsequent stock costs (4 marks) (10 marks) A company manufactures a single product, product Y It has documented levels of demand at certain selling prices for this product as follows: Demand Selling price per unit Cost per unit Units £ £ 1,100 48 24 1,200 46 21 1,300 45 20 1,400 42 19 Required: Using a tabular approach calculate the marginal revenues and marginal costs for product Y at the different levels of demand, and so determine the selling price at which the company profits are maximised (10 marks) 12 Formulae Sheet Laspeyres’ price index = Paasche price index = Laspeyres’ quantity index = Paasche quantity index = 13 [P.T.O Present Value Table 3UHVHQW YDOXH RI  LH   U²Q :KHUH U Q GLVFRXQW UDWH QXPEHU RI SHULRGV XQWLO SD\PHQW 'LVFRXQW UDWH U 3HULRGV Q                ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă           ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă           ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă      Q                ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă           ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă           ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă      14 Annuity Table 3UHVHQW YDOXH RI DQ DQQXLW\ RI  LH :KHUH U Q  ²   U²Q ³³³³²² U GLVFRXQW UDWH QXPEHU RI SHULRGV 'LVFRXQW UDWH U 3HULRGV Q                ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă           ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă           ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă      Q                ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă           ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă           ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă ă      End of Question Paper 15 ... D 15 The following information has been obtained for sales of two products for a three year period: Price 20 00 (base year) 20 01 20 02 Product A 10 0 12 5 13 0 What is the Paasche quantity index for. .. flow per annum £000 (20 ,000) 1- 4 13 ,000 5-8 17 ,000 10 (10 ,000) What is the net present value of the investment at a discount rate of 8%? A B C D ( 2, 416 ) £7,046 £6,9 81 2, 3 51 21 Which of the following... unit Cost per unit Units £ £ 1, 100 48 24 1, 20 0 46 21 1,300 45 20 1, 400 42 19 Required: Using a tabular approach calculate the marginal revenues and marginal costs for product Y at the different