F2 6 Dec 2002 Ans

Answers

Part 1 Examination – Paper 1.2 FInancial Information for Management

December 2002 Answers

Section A 11 C 12 D 13 C 14 D 15 B 16 B 17 B 18 A 19 C 10 C 11 B 12 C 13 B 14 D 15 C 16 D 17 B 18 A 19 B 20 A 21 C 22 A 23 D 24 A 25 A

19

Section B 1 (a)

60 Sales Revenue £’000 £000 50

x x

x

x 40

x x

30

x 20

x

10

1

(b)

2

3

4

5

6

Advertising £’000 expenditure £000

Regression line: y = a + bx n ∑ xy – ∑ x ∑ y b = ––––––––––––––– n ∑ x2 – (∑ x)2

∑y b∑x a = ––– – ––– n n In this example the advertising expenditure is the independent variable (x) and the sales revenue the dependent variable (y). (8 × 1,055·875) – (26·35 × 289·5) 818·675 b = –––––––––––––––––––––––––––––– = –––––––– = 7·07 2 (8 × 101·2625) – 26·35 115·7775 289·5 26·35 a = ––––– – 7·07 × ––––– = 12·9 8 8 regression line: y = 12·9 + 7·07x where x and y are in £000 Line drawn on above graph.

20

Hi 0·95

2 Large Premises

F

E Good 0·8

Bad 0·2

Survey (50,000)

Large Premises

Lo 0·05

Abandon project

Hi 0·75

(550,000) A

600,000

(550,000)

B

1,500,000

1,500,000

C Lo 0·25

(300,000) Small Premises

600,000 Hi 0·6 1,500,000

D

Lo 0·4

600,000

EV(F) = 0·95 × 1,500 + 0·05 × 600 = 1,455 Cost at E = EV(F) – 550 = 1,455 – 550 = 905 EV(B) = 0·8 × cost at (E) + 0·2 × 0 = 0·8 × 905 + 0·2 × 0 = 724 EV(C) = 0·75 × 1,500 + 0·25 × 600 = 1,275 EV(D) = 0·6 × 1,500 + 0·4 × 600 =1,140 Decision at A: Survey = EV(B) – survey costs = 724 – 50 = 674 Build large premises with no survey = EV(C) – large premises costs = 1,275 – 550 = 725 Build small premises with no survey = EV(D) – small premises = 1,140 – 300 = 840 Better to build small premises without a survey. Conclusion: It would be better to build the small premises without any survey as this gives the largest expected value.

21

3

(a) Absorption costing Sales (£50 × 100,000) Cost of sales: Opening stock Production costs Variable (£19 × 120,000) Fixed (£3(w) × 120,000) Closing stock (£22 × 20,000) Under/over absorption

£000

£000 5,000

– 2,280 360 –––––– 2,640 (440) (60) (2,140) –––––– 2,860

Gross profit Selling costs Fixed Variable (£2 × 100,000)

(150) (200) –––––– 2,510 –––––– ––––––

Net profit Working Overhead absorption rate = £300,000/100,000 = £3 per unit (b) Marginal costing Sales (£50 × 100,000) Cost of sales: Opening stock Production costs Variable (£19 × 120,000) Closing stock (£19 × 20,000) Variable selling costs

£000

£000 5,000

– 2,280 –––––– 2,280 (380) 200 (2,100) –––––– 2,900

Contribution Fixed costs Production Selling

(300) (150) –––––– 2,450 –––––– ––––––

Net profit

22

4

Report To: Ms Swainsthorpe From: AN Accountant Re: Computerised accounts and stock control Date: December 2002 The following report addresses the advantages and disadvantages of implementing a computer system. It also explains what a management information system is and how it can be used. Finally it addresses your current stock control procedures. Computer system The advantages of a computer system is that it will be quicker to input entries to the accounting system and easier to extract management information. Another advantage is that fewer errors are likely to occur as the computer can check that all the debits equal the credits. The disadvantages are the expense of the new system. Also the training costs involved may be high and you may also experience some resistance from the employees to this new way of working. Finally you would not be able to switch over immediately as you would have a cost of running two parallel systems for a short time to check that everything is working correctly. Management Information System (MIS) A MIS is an accounting system that will provide management with appropriate information both routine and non-routine as required by the organisation. It is expected that management will be able to effectively utilise the output from the system to make efficient use of the resources of the business. The MIS will help you run the business as it will provide you with relevant information. This information will help with decisionmaking, planning and control and coordination of the organisation. The type of information extracted will depend on the needs of you, the user. Stock The current stock-take procedures seem onerous as they require the business to be closed once a month. This results in a loss of a day’s production and so will eventually impact on profit. If the bin card system is working effectively then an entire stock-take should only be necessary once or twice a year. Instead of a complete stock-take spot checks could be carried out comparing actual stock to the bin card value and any errors noted and the system updated. High value or high usage items could be checked more often than slower moving stock. In this way the business need not close so often.

5

(a)

Return on investment Division A Profit Net assets

£ 35,000 150,000

Return on investment = 35,000/150,000% = 23·3% Division B Profit Net assets

£ 70,000 325,000

Return on investment = 70,000/325,000% = 21·5% Using this method Divisions A’s project is better. Residual Income Division A = 35,000 – 150,000 × 0·15 = 12,500 Division B = 70,000 – 325,000 × 0·15 = 21,250 Using this method Division B’s project is better. (b)

Return on investment would be the better measure when comparing divisions as it is a relative measure (i.e. a % figure).

(c)

Service industry performance measures, in general terms, could include any of the following: Competitiveness Financial performance Quality of service Innovation Effective and efficient utilisation of resources

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Part 1 Examination – Part 1.2 Financial Information for Management

December 2002 Marking Scheme

Section A Each question is worth 2 marks each total 50.

Section B 1

(a)

(b)

2

3

21/2 1/ 2 1/ 2 11/2 —

points plotted correctly labelled axes presentation explanation of axes used

calculation of b calculation of a stating the regression line putting the regression line on the graph from (a)

2 11/2 1/ 2 1 —

correct formulation of the small premises branch correct formulation of the large premises branch correct formulation of the survey branch calculation of expected value at F calculation of cost at E calculation of expected value at B calculation of expected value at C calculation of expected value at D correct decision at A stating a conclusion

2 2 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1 1/ 2

(a)

1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2

(b)

correct sales figure variable production cost figure fixed overhead absorption rate fixed production cost figure calculation of closing stock units calculation of closing stock value variable and fixed selling costs under/over absorption including the term gross profit layout/presentation

1 1 1/ 2 1/ 2 —

5

5 — 10 —

10 —

6

1/ 2

including variable production costs only closing stock valuation including variable selling costs before contribution including the term contribution correct fixed costs layout/presentation

1 1/ 2 1/ 2

1 1/ 2

—

24

4 — 10 —

4

5

report format introduction to report three advantages of computer system (1/2 each point) three disadvantages of computer system (1/2 each point) definition of an MIS how it could be useful critical comment on current stock control methods suggestion for improvement

(a)

(b)

(c)

calculation of ROI for A and B comment calculation of RI for A and B comment

stating the preferred performance measure reason for choice

three examples of general performance measures 1 mark each measure

Marks 1/ 2 1/ 2 11/2 11/2 2 1 11/2 11/2

10 —

11/2 1 11/2 1 —

5

1 1 —

2

3 — 10 —

25