Accounting and finance for mangers

Formal Exams SP52, 2019 LB5212 Accounting and Finance for Managers

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LB5212 Accounting and Finance for Managers

Formal Exams SP52, 2019

Formal Examination for JCUS student only

College of Business, Law and Governance

Examination Duration: 120 minutes

Reading Time: 10 minutes

Exam Conditions:

This is a FORMAL exam. This is a closed book exam.

Non-programmable calculator is permitted.

English/Bilingual Dictionary YES

This exam paper MUST be handed in.

Materials Permitted In The Exam Venue:

(No electronic aids are permitted e.g. laptops, phones)

None

Materials To Be Supplied To Students:

Examination Booklets required YES

Scanner Sheets required NO

Formula Sheet and PV Tables (3 pages) YES

Instructions To Students:

Answer ALL questions on the answer booklet provided. Each question is worth 25 marks.

This examination is worth 100 marks.

Each question must start on a fresh page.

Venue ____________________

Seat Number ________

Student Number |__|__|__|__|__|__|__|__|

Family Name _____________________

First Name _____________________

Formal Exams SP52, 2019 LB5212 Accounting and Finance for Managers

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Answer ALL questions on the answer booklet provided. Each question is worth 25

marks. This examination is worth 100 marks.

Question 1 (25 marks)

The following information relates to the business of Regina Catering. The owner is

concerned about the profitability and financial structure of the business at 30 June 2018,

especially since the bank requires repayment of the business’s overdraft.

Items 30 June 2017 30 June 2018

Revenues (sales on credit) $110,000 $142,000

Cost of sales 70,400 99,000

Other expenses 30,000 38,040

Cash and cash equivalents 76,000 (80,000)

Inventories 38,000 48,000

Trade accounts receivable (net) 72,000 118,000

Non-current assets (net) 120,000 174,000

Trade accounts payable 54,000 58,000

Regina’s Capital 252,000 200,000

Non-current liabilities 0 2,000

Inventory at 1 July 2016 was $40,000

Required:

a) Calculate the following ratios for 2017 and 2018:

1. profit margin

2. gross profit margin

3. return on owner’s equity

4. current ratio

5. quick ratio

6. debt to total assets

7. inventory turnover. (14 marks)

b) Write a short report to the owner, Regina, in relation to the profitability and financial stability of the business. (7 marks)

c) Write any four limitations of financial ratios (4 marks)

(Total marks 25)

Formal Exams SP52, 2019 LB5212 Accounting and Finance for Managers

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Question 2 (25 marks)

ABC Ltd. provides the following data:

Selling price per unit: $ 50

Variable cost per unit: $ 30

Total fixed costs: $450,000

Expected sales (units) 25,000 units

Required:

(a) Calculate budgeted profit 3 marks (b) Contribution margin ratio 2 marks (c) Break-even point (in units) 2 marks (d) Break-even point (in dollars) 3 marks (e) Sales quantity required to achieve a target profit of $90,000 3 marks (f) Sales value required to achieve a target profit of $90,000 3 marks (g) Margin of safety units, value and percentage 3 marks (h) Explain how CVP analysis can be used for managerial planning. 6 marks

(Total marks 25)

Formal Exams SP52, 2019 LB5212 Accounting and Finance for Managers

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QUESTION 3 (25 Marks)

The following information has been presented to you for the purpose of preparing a cash

budget.

May

2019

$

June

2019

$

July

2019

$

Aug.

2019

$

Sept.

2019

$

Oct.

2019

$

Nov.

2019

$

Dec.

2019

$

Sales 70000 90000 110000 130000 140000 150000 160000 180000

Purchases 40000 60000 80000 90000 110000 130000 140000 150000

Salaries 10000 12000 16000 20000 24000 28000 32000 36000

Overheads 10000 10000 15000 15000 15000 20000 20000 20000

Depreciation 6000 6000 6000 6000 8000 8000 8000 11000

Dividend

declaration

20000 40000

In addition, the following information has also been furnished:

(i) All purchases are paid in the month following the purchase.

(ii) Sales are 50% credit, 40% cash and the balance is bad debts. Credit sales are collected two months after the month of sale.

(iii) 75% of salaries are paid in the same month and the balance in the following month.

(iv) Overheads are paid one month after being incurred.

(v) Dividends are paid three months after they are declared.

(vi) Cash balance at the end of June 2019 was expected to be $45,000. Required:

a) Prepare a cash budget for each of the months of July 2019 to December 2019. (15 marks)

b) Explain the different reasons why a manager might submit a budget estimate that is biased. How do you guard against this? (5 marks)

c) In the past you have always thought that budgets and forecasts were pretty much the same thing. Describe how they’re different.

(5 marks)

(Total 25 marks)

Formal Exams SP52, 2019 LB5212 Accounting and Finance for Managers

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Question 4 (25 marks)

Star Limited uses a variety of machines for manufacturing. One of these machines

is to be replaced and the management is considering two possible alternatives.

Details of these two machines, both of which have estimated life of Five years, are

as follows:

Machine ‘X’ Machine ‘Y’

Cost of Machine $300,000 $ 360,000

Expected Net Cash Flows:

Year1 $48,000 $ 72,000

Year 2 96,000 144,000

Year 3 120,000 120,000

Year 4 60,000 72,000

Year 5 84,000 108,000

Given the following Present value of one unit of currency:

Year 1 2 3 4 5

10% 0.9091 0.8264 0.7513 0.6830 0.6209

15% 0.8696 0.7561 0.6575 0.5718 0.4972

Required:

A. Calculate which of the two machines is likely to yield the better return (based on discounting factor) using

(a) 10% rate

(b) 15% rate (15 marks)

B. Calculate Payback period for both the machines (4 marks)

C. The payback method has been criticised for not taking into account the time value of money. Could this limitation be overcome? If so, would this

method then be preferable to the NPV method? (6 marks)

(Total marks 25)

--End of Examination Paper--

Formal Exams SP52, 2019 LB5212 Accounting and Finance for Managers

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Appendix A

Financial Ratios

Quick ratio Current assets less inventory

Current liabilities

Current Ratio Current Assets

Current Liabilities

Gross profit margin (ratio) Gross profit x100

Sales or Revenue

Inventory turnover ratio Cost of Goods Sold

Average Inventory

Debt collection period (days) Accounts receivables × 365

Sales

Profit margin Net profit before interest and tax

Net sales revenue

Debt to total assets ratio Total Liabilitiesx100

Total Assets

Return on owners’ equity Profit available for distribution x100

Average equity

Earnings per share Net income

Number of shares