Questions 1, 3 and 4 gained reasonable average marks, whereas Question 2 was poorly answered, especially parts (b),(c) and (f).

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Questions 1, 3 and 4 gained reasonable average marks, whereas Question 2 was poorly answered, especially parts (b),(c) and (f)."

Transcription

1 General Comments This sitting produced a reasonable pass rate for a resit paper although there was a large variation in pass rates between centres. It was clear that well-prepared candidates did not have difficulty completing the examination in the time allowed. Workings were generally comprehensive and clearly set out. Questions 1, 3 and 4 gained reasonable average marks, whereas Question 2 was poorly answered, especially parts (b),(c) and (f). In the narrative parts of questions, candidates frequently failed to answer the question asked. There was a general tendency to simply describe processes rather than, for example, to explain purposes (Q2a) or to discuss effectiveness (Q2c). In Q3b candidates often described, rather than discussed, the gross profit differences. In Q3c candidates often discussed sales pricing, product mix and/or marketing rather than explaining how the information could be used for cost management purposes. In Q4b candidates often described other measures, especially payback and IRR, rather than other factors. Candidates performance in the multiple-choice questions (1.1 to 1.5) was reasonable. Q1.3, requiring the calculation of a material mix variance, proved to be the most difficult of the five questions, with many calculating the correct figure but then failing to differentiate correctly between adverse and favourable. In the remainder of Question 1, 1.6 was not always attempted and many candidates had difficulty with the formula which was often applied as ( )² rather than ( ²). Candidates should have been alerted to the fact that something was wrong because the resulting budgeted figure was $24,070 in comparison with actual cost of $106,500. Also, many candidates failed to apply inflation to the calculated figure and/or failed to indicate whether their variance was adverse or favourable or they indicated the wrong sign. Q1.7 was generally answered well although a common failing was to simply calculate the present value of the cash inflows from the project as the answer to the question, thus ignoring the investment amount. In Q1.8 many candidates were unable to calculate the correct discount on the Treasury bill and/or did not then deduct the discount from the face value. Calculating the discount incorrectly as [$1,000 (91 365)] was quite common. Candidates were generally knowledgeable about the features of a Treasury bill. Question 2 was poorly answered overall. Surprisingly, the calculation parts (b) and (f), on breakeven analysis and production/materials budgets respectively, were especially poorly answered or were not attempted. Part (c), requiring a discussion of the effectiveness of the economic order quantity (EOQ) model, was also not answered at all well. Candidates frequently wrote a lot but merely demonstrated that they did not understand the model. In Question 3, high average marks were gained for part (a). Candidates have, from experience of past questions on the topic of activity-based costing (ABC), seemingly now mastered the process. Also, the calculations required in this question were slightly more straightforward than in some previous papers. Answers to the narrative parts (b) and (c) were frequently disappointing especially because they often failed to address the questions asked (see comments above). In Question 4, candidates scored reasonably high average marks for the numerical parts, especially (a) and (c)(i), but did not do well on the narrative part (b), as noted above. Part (c)(ii) was also poorly answered. Further analysis of candidates performance on Questions 2, 3 and 4 is provided later in these guidance notes. The Chartered Institute of Management Accountants 2014 Page 1

2 Section A 20 marks ANSWER ALL EIGHT SUB-QUESTIONS IN THIS SECTION Question A certificate of deposit is best described as: A B C D A debt instrument which offers a fixed rate of interest over a fixed period of time and with a fixed redemption value. A negotiable instrument which provides evidence of a fixed term deposit with a bank. A document which sets out a commitment to deposit a sum of money at a specified point in time. A certificate which shows ownership of part of the share capital of a company. (2 marks) The correct answer is B Question A company is considering offering its customers an early settlement discount. The company currently receives payments from customers on average 65 days after the invoice date. The company is considering offering a 2% early settlement discount for payment within 30 days of the invoice date. The effective annual interest rate of the early settlement discount using compound interest methodology and assuming a 365 day year is: A 22.94% B 20.86% C 23.45% D 27.85% The correct answer is C (2 marks) Workings Payment will be made 35 days early. Number of compounding periods = 365/35= r = (1.00/0.98) r = The effective annual interest rate of the early settlement discount is 23.45% The Chartered Institute of Management Accountants 2014 Page 2

3 The following information is given for sub-questions 1.3 and 1.4 below A company produces a product that requires two materials, Material A and Material B. Details of the material quantities and costs for August are given in the table below. Material A Material B Budget Actual Budget Actual Quantity (kg) 24,000 23,000 36,000 38,000 Cost per kg $2.40 $2.30 $1.30 $1.38 Budgeted and actual output of the product for August was 12,000 units. Question The material mix variance for August is: A B C D $1,540 Favourable $1,540 Adverse $1,288 Favourable $1,288 Adverse (2 marks) The correct answer is A Workings Material Actual mix (kg) Actual actual mix (kg) Variance Kg Standard cost $ Variance $ A 24,400 23,000 1,400 F ,360 F B 36,600 38,000 1,400 A ,820 A 61,000 61,000 1,540 F The Chartered Institute of Management Accountants 2014 Page 3

4 Question 1.4 The material yield variance for August is: A B C D $200 Adverse $1,740 Adverse $200 Favourable $1,740 Favourable (2 marks) The correct answer is B Workings Weighted average standard cost (24,000kg x $2.40) + (36,000kg x $1.30) = $104,400 $104,400 / 60,000 kg = $1.74 per kg Standard kg of input per unit of output = 5kg 12,000 units output x 5kg = 60,000kg of input Actual input = 61,000 kg Variance = 1,000kg A Standard cost per kg = $1.74 Variance = 1,000kg x $1.74 = $1,740 A Or alternatively: 61,000kg should yield 61,000/5kg = 12,200 units Actual yield = 12,000 units Yield variance = 200 units A Standard material cost per unit = (2kg x $2.40) + (3kg x $1.30) = $8.70 Yield variance = 200 units x $8.70 = $1,740 A The Chartered Institute of Management Accountants 2014 Page 4

5 Question 1.5 A purchasing manager is deciding how many units of a product to purchase for the winter season. The demand for the product is uncertain. The purchasing manager has prepared a regret matrix showing the regret based on the contribution that each of the possible outcomes would earn. Regret Matrix Quantity purchased (units) Demand 10,000 15,000 20,000 25,000 10,000 $0 $35,000 $70,000 $105,000 15,000 $21,000 $0 $32,000 $62,000 20,000 $120,000 $26,000 $0 $33,000 25,000 $180,000 $120,000 $22,000 $0 If the manager applies the minimax regret criterion to make decisions, which quantity would be purchased? A B C D 10,000 units 15,000 units 20,000 units 25,000 units (2 marks) The correct answer is C Workings The maximum regret if 10,000 units are purchased is $180,000 The maximum regret if 15,000 units are purchased is $120,000 The maximum regret if 20,000 units are purchased is $70,000 The maximum regret if 25,000 units are purchased is $105,000 Therefore if the manager wants to minimise the maximum regret 20,000 units will be purchased. The Chartered Institute of Management Accountants 2014 Page 5

6 Question A company budgets maintenance costs by analysing past data and then adjusting for inflation. Required: The relationship between the monthly maintenance costs and activity levels, before adjusting for inflation, was determined to be: y = 22, x 2 where y = total monthly maintenance costs ($) and x = machine hours An inflation rate of 4% was then applied to the above formula to determine the budgeted costs for August. In August the actual machine hours were 1,820 and the actual maintenance cost incurred was $106,500. Calculate the maintenance cost variance for August. (3 marks) Workings Budgeted maintenance cost for August: y = 22, x 2 y = 22, (1,820 2 ) y = 22, ,810 y = 104,810 Increase for inflation: $104,810 x 1.04 = $109,002 The maintenance cost variance for August is therefore: $109,002 - $106,500 = $2,502 Favourable The Chartered Institute of Management Accountants 2014 Page 6

7 Question 1.7 A company is considering an investment project for which the possible cash inflows and their respective probabilities are given in the table below: Year 1 Year 2 Cash inflow Probability Cash inflow Probability $000 $ The cash flows for Year 1 and Year 2 are independent. The initial cash outflow for the project is $300,000. The company s cost of capital is 10% per annum. Ignore tax and inflation. Required: Calculate the expected value of the net present value of the project. (3 marks) Workings Expected cash inflow in Year 1 = ($200k x 0.2) + ($300k x 0.7) + ($360k x 0.1) = $286k Expected cash inflow in Year 2 = ($100 x 0.6) + ($320 x 0.4) = $188k Expected value of the net present value Year Cash flow Discount factor Present value $ $ 0 (300,000) (300,000) 1 286, , , ,288 Net present value 115,262 The Chartered Institute of Management Accountants 2014 Page 7

8 Question A Treasury bill with 91 days to maturity and a face value of $1,000 is issued at a discount yield of 7% per annum. Required: (i) Calculate the issue price of the Treasury bill, to the nearest $0.01, assuming there are 365 days in the year. (2 marks) (ii) State FOUR features of a Treasury bill. (2 marks) (Total for sub-question 1.8 = 4 marks) Workings (i) The discount = $1000 x 7% x 91/365 = $17.45 The issue price is therefore $1,000 - $17.45 = $ (ii) Treasury bills are negotiable instruments issued by the Government They have a maturity of less than one year, normally 91 days They have high credit quality and therefore low risk and low return They are redeemable at face value They are issued at a discount to face value There is a large and active secondary market in treasury bills The Chartered Institute of Management Accountants 2014 Page 8

9 Section B 30 marks ANSWER ALL SIX SUB-QUESTIONS. YOU SHOULD SHOW YOUR WORKINGS AS MARKS ARE AVAILABLE FOR THE METHOD YOU USE Question 2(a) Budgeting has a number of different purposes including: Planning; Control; Performance evaluation; Motivation. Required: Explain TWO of the above purposes of budgeting and how the two purposes that you have explained could conflict with each other. (5 marks) Rationale The question assesses learning outcome B1(b) explain the purposes of budgeting including planning, communication, co-ordination, motivation, authorisation, control and evaluation, and how these may conflict. It examines candidates ability to explain two of the purposes of budgeting and how these may conflict. Suggested Approach Candidates should clearly explain two of the stated purposes of budgeting and how these may conflict with each other. Marking Guide Explanation of two purposes of budgeting Explanation of how the two purposes conflict Maximum marks awarded Marks Up to 2 marks per explanation Up to 2 marks for how they conflict 5 marks The Chartered Institute of Management Accountants 2014 Page 9

10 Examiner s comments Most candidates scored 2 or 3 marks for this question. The main failing was candidates propensity to describe the processes rather than to explain the purpose of each process. For example, the purposes of planning are to force management to look ahead, to anticipate problems and to set targets. Estimating costs and revenues for the budget period is part of the process. Also, instead of explaining the purpose of planning, some candidates described instead, and at some length, the different approaches to preparing budgets, for example top down/bottom up, zerobased/incremental. This was not required by the question other than as a possible source of conflict where motivation was one of the purposes explained. Common errors 1. Failure to address the specific question asked; 2. Descriptions of process rather than explanation of purpose; 3. Describing different approaches to the setting of budgets e.g. top down versus bottom up. The Chartered Institute of Management Accountants 2014 Page 10

11 Question 2(b) A company manufactures a single product. Budget and standard cost details for next year include: Required: Selling price per unit $24.00 Variable production cost per unit $8.60 Fixed production costs $650,000 Fixed selling and distribution costs $230,400 Sales commission 5% of selling price Sales 90,000 units (i) (ii) Calculate the break-even point in units. Calculate the percentage by which the budgeted sales can fall before the company begins to make a loss. The marketing manager has suggested that the selling price per unit can be increased to $25.00 if the sales commission is increased to 8% of selling price and a further $10,000 is spent on advertising. (iii) Calculate the revised break-even point based on the marketing manager s suggestion. (5 marks) Rationale The question assesses learning outcome D1(a) analyse the impact of uncertainty and risk on decision models that may be based on relevant cash flows, learning curves, discounting techniques etc. It examines candidates ability to use cost volume profit analysis to identify the sensitivity of budgeted profit figures. Suggested Approach Candidates should firstly determine the fixed and variable costs from the budgeted information given and then calculate the contribution per unit. In part (i) the break-even point can be calculated by dividing the fixed costs by the contribution per unit. In part (ii) the margin of safety can be calculated by comparing the budgeted sales to the break even sales and expressing the difference as a percentage of the budgeted sales. In part (iii) the effect of the changes on the contribution per unit and the fixed costs should be calculated and then a revised break-even point should be calculated. Marking Guide (i) Contribution per unit = $ $8.60 $1.20 = $14.20 Break-even point = $880,400/ $14.20 = 62,000 units (ii) Margin of safety = (90,000 62,000) / 90,000 = 31.1% (iii) Revised contribution per unit = $ $ $2.00 = $14.40 Break-even point = $890,400 / $14.40 = 61,833 units Maximum marks awarded Marks 5 marks The Chartered Institute of Management Accountants 2014 Page 11

12 Examiner s comments This question was frequently not attempted and, when attempted, was often badly answered. Candidates generally did not know how to calculate a break-even point in parts (i) and (iii). They either did not know the break-even formula or they could not apply it correctly. They also did not understand the concept of margin of safety that was being asked for in part (ii). Common errors 1. Calculating break-even as (total costs selling price); 2. Calculating break-even as [fixed production costs (selling price variable production costs per unit)] 3. Calculating break-even as [total fixed costs (selling price variable production costs per unit)]; 4. Calculating break-even as [(total fixed costs + sales commission) (selling price variable production costs per unit)]; 5. Calculating margin of safety as (break-even units sales units); 6. Calculating margin of safety as [(sales units break-even units) break-even units]. The Chartered Institute of Management Accountants 2014 Page 12

13 Question 2(c) Discuss the effectiveness of the economic order quantity (EOQ) model for inventory management purposes. (5 marks) Rationale The question assesses learning outcome E1(g) analyse the impacts of alternative policies for stock management. It examines candidates ability to discuss the effectiveness of the EOQ model for inventory management purposes. Suggested Approach Candidates should explain how the EOQ model operates and discuss its benefits and limitations for inventory management purposes. Marking Guide Explanation of how the EOQ model operates Discussion of the benefits and limitation of the model Marks Up to 2 marks for explanation of the EOQ Max 5 marks for benefits and limitations of the model Maximum marks awarded 5 marks Examiner s comments This question was very poorly answered with candidates rarely demonstrating any understanding of the EOQ model. Some candidates were aware of assumptions made by the model but were rarely able to discuss its effectiveness. Others merely put the EOQ formula into words. Common errors 1. Incorrectly believing that the EOQ model: measures the holding costs and/or ordering costs; minimises the holding costs or the ordering costs rather than minimising the combination of both; helps to reduce inventory; ensures sufficient inventory and avoids stock-outs or over stocking; reduces or avoids wastage and obsolescence; can be used in conjunction with JIT. 2. Confusing EOQ with the reorder level; 3. Failing to appreciate that constant, as well as known, demand is an assumption of EOQ; 4. Not answering the question about the effectiveness of the EOQ model, for example simply describing each component in the formula. The Chartered Institute of Management Accountants 2014 Page 13

14 Question 2(d) A company has to decide which of three machines to purchase to manufacture a product. Each machine has the same purchase price but the operating costs of the machines differ. Machine A has low fixed costs and high variable costs; Machine B has average fixed costs and average variable costs whilst Machine C has high fixed costs and low variable costs. Machine A would consequently be preferable if demand was low and Machine C would be preferable if demand was high. There is a 35% chance that demand will be high, a 40% chance that demand will be medium and a 25% chance that demand will be low. The company uses expected value to make this type of decision. The estimated net present values for each of the possible outcomes are as follows: Demand Machine A Machine B Machine C $ $ $ High 100, , ,000 Medium 150, , ,000 Low 200, ,000 80,000 A market research company believes it can provide perfect information on product demand. Required: Calculate the maximum amount that should be paid for the information from the market research company. (5 marks) Rationale The question assesses learning outcome D1(e) calculate the value of information. It examines candidates ability to calculate the value of perfect information where there is uncertainty regarding expected net present values. Suggested Approach Candidates should firstly apply the probabilities for the demand levels to calculate the expected value of the net present values for each of the machines without perfect information. They should then select the best outcome for each of the possible demand levels and apply the probabilities to these to calculate the expected value with perfect information. The value of perfect information can then be calculated as the difference between the expected value with perfect information and the best of the expected values without perfect information. The Chartered Institute of Management Accountants 2014 Page 14

15 Marking Guide Calculation of the expected value without perfect information Calculation of the expected value with perfect information Calculation of the value of perfect information Marks 1 ½ marks 2 ½ marks Maximum marks awarded 5 marks Examiner s comments This question was correctly answered by many candidates who seemingly have learned from similar questions in several previous diets. Common errors 1. Correctly calculating the EV of each machine (145, 138 & 139) but then calculating the maximum amount that should be paid for perfect information as = $7,000; 2. Adding together the EV of each machine to derive an impossible figure of $422,000 which was then used to calculate the maximum amount that should be paid for perfect information; 3. Determining the maximum amount that should be paid for perfect information by identifying the best expected value for each machine ( = 187) rather than basing the calculation on the best value for each level of demand (180, 160 & 200). The Chartered Institute of Management Accountants 2014 Page 15

16 Question 2(e) When deciding how much cash to hold for operating purposes, a company needs to strike a balance between the cost of holding too little cash and the cost of holding too much cash. Required: Explain the costs involved in the cash trade-off described above. (5 marks) Rationale The question assesses learning outcome E1(d) discuss measures to improve a cash forecast situation. It examines candidates ability to explain the trade off between the cost of holding too much cash and too little cash. Suggested Approach Candidates should clearly explain the costs involved with holding too much cash and how this needs to be balanced with the costs involved with holding too little cash. Marking Guide Marks A number of costs are involved with holding too little cash as follows: Late payments to suppliers could lead to reluctance to supply and eventually to liquidation; Inability to react quickly to unexpected events e.g. competitor action, strikes etc. Missed opportunities e.g. contracts, lucrative investments; Loss of early settlement discounts from suppliers; Higher cost of borrowing because unexpected cash requirements need to be met from temporary borrowings; Transaction costs involved with acquiring cash e.g. cost of selling securities or arrangement fees for overdrafts. Up to 3 marks The costs of holding too little cash have to be balanced with the costs of holding cash i.e. the loss of interest and the loss of purchasing power as inflation erodes the value of cash. 2 marks Maximum marks awarded 5 marks The Chartered Institute of Management Accountants 2014 Page 16

17 Examiner s comments This question was answered reasonably well by the majority of candidates although they tended at times to write about the impacts, for example being unable to pay wages/suppliers, rather than the costs/consequences. Some candidates, however, described instead the motives for holding cash and did not explain the costs resulting from holding too little or too much cash. Others described ways of increasing the cash balance, for example chasing receivables or delaying payables. Common errors 1. Focusing on impacts rather than costs; 2. Focusing on the transaction, speculative and precautionary motives for holding cash; 3. Focusing on ways of increasing the cash balance; 4. Discussing the preparation of a cash budget; 5. Suggesting that holding too much cash meant that a company would not be investing in new projects/products. The Chartered Institute of Management Accountants 2014 Page 17

18 Question 2(f) A company produces two products, A1 and A2 that are sold to retailers. The budgeted sales volumes for the next quarter are as follows: Product Units A1 32,000 A2 56,000 The inventory of finished goods is budgeted to increase by 1,000 units of A1 and decrease by 2,000 units of A2 by the end of the quarter. Materials B3 and B4 are used in the production of both products. The quantities required of each material to produce one unit of the finished product and the purchase prices are shown in the table below: B3 B4 A1 8 kg 4 kg A2 4 kg 3 kg Purchase price per kg $1.25 $1.80 Budgeted opening inventory 30,000 kg 20,000 kg The company plans to hold inventory of raw materials, at the end of the quarter, of 5% of the quarter s material usage budget. Required: Prepare the following budgets for the quarter: (i) The production budget (in units) (ii) The material usage budget (in kg) (iii) The material purchases budget (in kg and $) (5 marks) Rationale The question assesses learning outcome B3(a) prepare a budget for any account in the master budget, based on projections/forecasts and managerial targets. It examines candidates ability to prepare a production budget and a materials usage and purchases budget. Suggested Approach In part (i) candidates should calculate the number of units required to be produced after adjusting for the change in inventory of finished goods. In part (ii) candidates should calculate the materials usage budget based on the production budget calculated in part (i). In part (iii) candidates should calculate the material purchases budget in kg after adjusting for the change in materials inventory. The material purchases budget in $ can then be calculated by multiplying the budget in kg by the price per kg of material. The Chartered Institute of Management Accountants 2014 Page 18

19 Marking Guide Marks (i) Calculation of the production budget for Product A1 and A2 (ii) Calculation of the materials usage budget for Materials B3 and B4 2 marks ( each) (ii) Calculation of materials purchase budget for Materials B3 and B4 inventory adjustment total purchases Maximum marks awarded 5 marks Examiner s comments Many candidates did not attempt this question which is surprising. The key to answering the question was being able to adjust correctly and at the right stage for changes in both finished goods and materials inventories, in getting from a sales budget via finished goods production and materials usage, to a material purchases budget. Many candidates who attempted the question failed to do this successfully. Common Errors Part (i): 1. Failing to correctly adjust the sales units of the two products for the change in finished goods inventory in order to determine the production units. Frequently the inventory adjustment for both products was applied in the same direction despite A1 requiring an increase in inventory and A2 requiring a decrease; 2. Calculating the closing inventory of A1 to be 33,000 units and A2 to be 54,000 units. Part (ii): 1. Calculating the total materials required for the production of each of products A1 and A2 rather than the total materials required of each of materials B3 and B4; 2. Adjusting by the budgeted opening inventory of each material to determine the usage quantities; 3. Using the sales units, rather than the candidate s own figure for production units from part (i), to determine the materials usage. Part (iii): 1. Adjusting incorrectly for inventory; 2. Multiplying the purchase price per kg by the materials required for A1 and A2 rather than for B3 and B4. The Chartered Institute of Management Accountants 2014 Page 19

20 Section C 50 marks ANSWER BOTH QUESTIONS Question 3 Required: (a) (b) (c) Calculate the total gross profit for each product using the proposed activity based costing system. (13 marks) Discuss the differences between the gross profit figures calculated in Part (a) compared with those calculated under the current absorption costing system. (8 marks) Explain how the information obtained from the activity based costing system could be used for cost management purposes. (4 marks) (Total for Question Three = 25 marks) Rationale The question assesses learning outcome A1(c) discuss activity-based costing as compared with traditional marginal and absorption costing methods, including its relative advantages and disadvantages as a system of cost accounting. Part (a) examines candidates ability to calculate the cost of a product using activity based costing. Part (b) examines candidates ability to discuss the differences between the gross profit calculated under the activity based costing system and that calculated under the traditional absorption costing system. Part (c) examines candidates ability to explain how the information obtained using an activity based costing system could be used for cost management purposes. Suggested Approach In part (a) candidates should calculate a cost driver rate for each of the activities and then apply this cost driver rate to calculate the overhead cost for each activity per product. The gross profit for each product can then be calculated. In part (b) candidates should clearly explain the reasons for the differences between the gross profits calculated using activity based costing and that calculated using the current absorption costing system. In part (c) candidates should clearly explain how the information from an activity based costing system could be used for cost management purposes. The Chartered Institute of Management Accountants 2014 Page 20

21 Marking Guide Marks Part (a) Cost driver rates Application of cost driver rates Sales, direct materials and direct labour Gross profit per product 8 marks 2 ½ marks 1 ½ marks Part (b) Discussion of the differences between the gross profit figures per valid point Max 8 marks Part (c) Explanation of how the information could be used for cost management purposes per valid point Max 4 marks Maximum marks awarded 25 marks The Chartered Institute of Management Accountants 2014 Page 21

22 Examiner s comments Part (a) was very well answered with a large proportion of candidates gaining maximum marks. The activity that presented the biggest problem was manufacturing scheduling where a number of candidates incorrectly multiplied the production units by the number of units per order to determine the number of orders. Other mistakes were generally where candidates failed to scale up the data for each driver by the level of activity. For example, for parts handling the ratio 20:35:25 was used rather than (20 10,000):(35 12,000):(25 6,000). A number of candidates, having calculated a cost driver rate, could not then apply it correctly and consistently to apportion the total overhead cost for the activity. Part (b) was much less well answered with candidates invariably doing little more than noting (rather than discussing) the gross profit differences. The differences were nearly always stated in terms of total $ rather than expressed as gross profit margin % or per unit of product. Any comments about overhead costs for an activity were based upon the total overheads apportioned to each product rather than on costs per unit of product which candidates did not think to calculate. It should be realised that sales volume is a major influence on the total overhead costs by product. Key to an understanding of cost differences between the three products is the relative use of the different activities per unit of product in comparison with the selling price. Many candidates, in answer to part (b), described the current process of blanket overhead absorption based on sales revenue and compared it with the proposed process of activity-based costing using cost drivers. This was not required by the question. Some candidates also wasted time by copying, from the question, the budgeted sales, cost and gross profit figures for the current system. Candidates invariably failed to answer the question asked in part (c) which was specifically about cost management. Although there were some suggestions about trying to reduce the costs of the higher expenditure activities, many candidates primarily focused instead on sales pricing, product mix and/or marketing aspects rather than cost management. Common errors Part (a): 1. Errors in calculating the cost driver rates, especially for manufacturing scheduling; 2. Errors in applying their own calculated cost driver rates; 3. Not realising that the total production overhead and gross profit should be the same regardless of the method of overhead absorption. Part (b): 1. Limiting answers to a discussion of the differences in the absolute gross profit figures by product; 2. Describing the processes of absorption using each of the two methods. Part (c): 1. Not answering the question about cost management but instead focusing on sales pricing, product mix and/or marketing. The Chartered Institute of Management Accountants 2014 Page 22

23 Question 4 Required: (a) (b) Evaluate whether PT should go ahead with the investment project. You should use net present value as the basis of your evaluation. Your workings should be rounded to the nearest $000. (14 marks) Explain TWO other factors that the company should consider before making a final decision about the investment project. (c) Calculate the following for the investment project: (i) The internal rate of return (IRR); (4 marks) (5 marks) (ii) The increase or decrease in the cost of capital, expressed as a percentage of the original cost of capital, which would change the decision about whether to accept or reject the project. (2 marks) (Total for Question Four = 25 marks) Rationale Part (a) assesses learning outcomes C1(b) apply the principles of relevant cash flow analysis to long-run projects that continue for several years and C2(a) evaluate project proposals using the techniques of investment appraisal. It examines candidates ability to identify the relevant costs of a project and then apply discounted cash flow analysis to calculate the net present value of the project. Part (b) assesses learning outcome C1(g) prepare decision support information for management, integrating financial and non-financial considerations. It examines candidates ability to explain other factors that the company would need to consider before deciding whether to go ahead with the project. Part (c) also assesses learning outcome C2(a) evaluate project proposals using the techniques of investment appraisal. It examines candidates ability to calculate the internal rate of return (IRR) for the project and the sensitivity of the investment decision to a change in the cost of capital. Suggested Approach In part (a) candidates should firstly calculate the number of units sold and the contribution that would be earned from the product in each year. They should then deduct the fixed costs after adjusting for depreciation. The contribution and fixed costs should then be adjusted for inflation from year 2 of the project. The total cost of the investment and the residual value should then be added to the net cash flows. The working capital should be shown as a cash outflow in Year 0 and the additional amount required as a result of inflation, shown as a cash outflow each year. The total working capital throughout the period of the project should then be shown as a cash inflow in Year 5. The tax depreciation and tax payments should then be calculated. The net cash flows after tax should then be discounted at the discount rate of 12% to calculate the net present value (NPV) of the project. In part (b) candidates should clearly explain two other factors that the company should consider before making a decision about the investment project. In part (c)(i) candidates should discount the cash flows after tax at a lower discount factor than 12% and then, using interpolation, calculate the internal rate of return (IRR) for the project. In part (c)(ii) candidates should calculate the difference between 12% and the IRR and express this as a percentage of 12%. The Chartered Institute of Management Accountants 2014 Page 23

24 Marking Guide Marks (a) Contribution Years 1 5 Depreciation Fixed Costs excluding depreciation Tax depreciation Tax payments Initial investment/residual value Working capital Present value of cash flows Net present value of cash flows Investment decision 2 mark 2 marks 2 marks 2 marks (b) Explanation of two other factors that the company should consider before making a decision Up to 2 marks per factor Max 4 marks (c)(i) Use of correct cash flows Use of appropriate discount factor Net present value IRR by interpolation 2 marks (c)(ii) Calculation of increase or decrease in the cost of capital that would cause a change in the decision 2 mark Examiner s comments Part (a) was answered fairly well although there were the usual errors seen in capital investment appraisal questions (see the common errors listed below), especially to do with taxation. The same taxation issues have arisen, and been commented on by the examiner in the Post Exam Guidance, on every past paper. The vast majority of candidates also had difficulty with the working capital being increased over time by inflation. Candidates generally had noted the examiner s previous comments about providing a concluding statement about the project s viability. Part (b) was not generally answered well although a variety of sensible other factors were accepted. These included longer-term benefits, brand image, competition, government assistance and environmental factors. Many candidates, however, focused solely on the scenario provided in the question. Many suggested other financial measures (especially payback and IRR) or queried the reliability of the data (for example the inflation estimates), whether the funds were available or whether the cost of capital could be higher or lower (including what the opportunity cost of the funds may be). The Chartered Institute of Management Accountants 2014 Page 24

25 In part (c)(i), many candidates made a reasonable attempt at calculating the IRR of the project using their own figures from part (a). However, many candidates with a negative NPV at 12% then illogically chose a higher percentage for their second NPV calculation. Other basic errors and misunderstandings were also demonstrated with many candidates being unable to apply the interpolation/extrapolation formula or to judge the reasonableness of the result. It is disappointing that many candidates cannot recognise incorrect answers that are not logical. Others wasted time trying to find a second discount rate to produce a positive NPV, wrongly believing that both a positive and a negative NPV were needed in order to be able to carry out an IRR calculation. Relatively few candidates attempted part (c)(ii) and those who did rarely understood what was required. Where candidates made an attempt they frequently tried to use the $ NPVs, which is what has been required in several past questions on sensitivity analysis, rather than the discount rate percentages which were required to answer this question. Common errors Part (a): 1. Including tax depreciation figures as a cash outflow in the NPV evaluation instead of, or as well as, using them to reduce the tax payable; 2. Calculating tax depreciation on investment sums of $10.25m, $13m or $13.25m; 3. Not adjusting for the $1.5m sales value of the manufacturing facility in the calculation of the tax depreciation in Year 5; 4. Not extending the tax payments into Year 6; 5. Not calculating the tax relief on pre-tax losses despite the clear instruction in the question that sufficient taxable profits from other parts of the business would be available; 6. Including the sale value of the facility and/or the release of working capital in the taxable profit in Year 5; 7. Including in the evaluation the sunk cost relating to development expenditure ; 8. Adding inflation to the selling price and costs in Year 1; 9. Not being able to deal with the effect of inflation on the working capital requirement. Invariably excessive amounts for working capital were included in Years 1 to 4; 10. Making errors in the calculation of accounting depreciation to add back to the fixed costs or including the annual fixed costs at $2.5m; 11. Using the cumulative discount (annuity) factor for each year to discount the net cash flows. Part (b): 1. Failing to suggest other factors that may be useful in reaching a final decision; 2. Mentioning risk without being specific about what the risks may be or what to do about them in the decision making process. Part (c)(i): 1. Calculating a second NPV using the discounted (instead of the pre-discount) cash flows from part (a); 2. Candidates with a negative NPV at 12% from part (a) then choosing a second discount rate higher than 12%; 3. Candidates with a negative NPV at 12% then calculating an IRR that was greater than12%; 4. Candidates with a negative NPV both at 12% and also at a lower rate then calculating the IRR% as being between the two discount rates used. Part (c)(ii): 1. Calculating the percentage change in the cost of capital as (IRR% 12%) rather than [(12% - IRR%) 12%]; 2. Calculating the percentage change in the cost of capital using NPVs, for example (NPV Investment) or [(NPV1 NPV2) Investment]. The Chartered Institute of Management Accountants 2014 Page 25

Paper P1 Performance Operations Post Exam Guide September 2013 Exam. General Comments

Paper P1 Performance Operations Post Exam Guide September 2013 Exam. General Comments General Comments This sitting produced a slightly disappointing pass rate, towards the lower end compared to previous sittings. Whilst the overall performance of candidates was disappointing, it was encouraging

More information

Paper P1 Performance Operations Post Exam Guide March 2011 Exam. General Comments

Paper P1 Performance Operations Post Exam Guide March 2011 Exam. General Comments General Comments Performance overall in March 2011 was comparable to the September 2010 diet. While the pass rate was acceptable, it could have been significantly improved if candidates had worked through

More information

Paper P1 Performance Operations Post Exam Guide September 2011 Exam. General Comments

Paper P1 Performance Operations Post Exam Guide September 2011 Exam. General Comments General Comments Performance on this paper was better than in previous sittings mainly as a result of improved performance in Sections A and B. Candidates scored better on average in the multiple choice

More information

P1 Performance Operations May 2013 examination

P1 Performance Operations May 2013 examination Operational Level Paper P1 Performance Operations May 2013 examination Examiner s Answers Note: Some of the answers that follow are fuller and more comprehensive than would be expected from a well-prepared

More information

Paper P1 Performance Operations Post Exam Guide September 2010 Exam

Paper P1 Performance Operations Post Exam Guide September 2010 Exam General Comments This was the second sitting of the new P1 syllabus and candidate performance was generally better than that achieved in the May diet. There were however still core areas of the syllabus

More information

This sitting produced a good pass rate. High average marks were achieved on Questions 1, 2 and 3 in particular.

This sitting produced a good pass rate. High average marks were achieved on Questions 1, 2 and 3 in particular. General comments This sitting produced a good pass rate. High average marks were achieved on Questions 1, 2 and 3 in particular. It was clear that well prepared candidates did not have difficulty completing

More information

P1 Performance Operations September 2012 examination

P1 Performance Operations September 2012 examination Operational Level Paper P1 Performance Operations September 2012 examination Examiner s Answers Note: Some of the answers that follow are fuller and more comprehensive than would be expected from a well-prepared

More information

Candidates did not perform well on this paper. Many seemed to lack knowledge of even the basic concepts of costing and management accounting.

Candidates did not perform well on this paper. Many seemed to lack knowledge of even the basic concepts of costing and management accounting. General Comments Candidates did not perform well on this paper. Many seemed to lack knowledge of even the basic concepts of costing and management accounting. Poor and inexact expression also marred scripts.

More information

Performance Pillar. P1 Performance Operations. Wednesday 28 August 2013

Performance Pillar. P1 Performance Operations. Wednesday 28 August 2013 P1 Performance Operations DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO SO Performance Pillar P1 Performance Operations Wednesday 28 August 2013 Instructions to candidates You are allowed three

More information

ADVANCED INVESTMENT APPRAISAL

ADVANCED INVESTMENT APPRAISAL RELEVANT TO ACCA QUALIFICATION PAPER F9 Studying Paper F9? Performance objectives 15 and 16 are relevant to this exam Investment appraisal is one of the eight core topics within Paper F9, Financial Management

More information

P1 Performance Operations

P1 Performance Operations Operational Level Paper P1 Performance Operations Examiner s Answers SECTION A Answer to Question One 1.1 The correct answer is A. 1.2 (102 + 67-54) = 115 days The correct answer is B. 1.3 $19,615/$219,615

More information

Management Accounting 2 nd Year Examination

Management Accounting 2 nd Year Examination Management Accounting 2 nd Year Examination August 2012 Exam Paper, Solutions & Examiner s Report NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians

More information

COST AND MANAGEMENT ACCOUNTING

COST AND MANAGEMENT ACCOUNTING EXECUTIVE PROGRAMME COST AND MANAGEMENT ACCOUNTING SAMPLE TEST PAPER (This test paper is for practice and self study only and not to be sent to the institute) Time allowed: 3 hours Maximum marks : 100

More information

Examiner s report F9 Financial Management December 2012

Examiner s report F9 Financial Management December 2012 Examiner s report F9 Financial Management December 2012 General Comments Congratulations to all those candidates who were successful in passing Paper F9 in December 2012! The overall performance in December

More information

Paper F9. Financial Management. Fundamentals Pilot Paper Skills module. The Association of Chartered Certified Accountants

Paper F9. Financial Management. Fundamentals Pilot Paper Skills module. The Association of Chartered Certified Accountants Fundamentals Pilot Paper Skills module Financial Management Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FOUR questions are compulsory and MUST be attempted. Do NOT open this paper

More information

10.SHORT-TERM DECISIONS & CAPITAL INVESTMENT APPRAISAL

10.SHORT-TERM DECISIONS & CAPITAL INVESTMENT APPRAISAL INDUSTRIAL UNIVERSITY OF HO CHI MINH CITY AUDITING ACCOUNTING FACULTY 10.SHORT-TERM DECISIONS & CAPITAL INVESTMENT APPRAISAL 4 Topic List INDUSTRIAL UNIVERSITY OF HO CHI MINH CITY AUDITING ACCOUNTING FACULTY

More information

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT CHAPTER 9 WORKING CAPITAL MANAGEMENT Working capital is the long term fund required to run the day to day operations of the business. The company starts with cash. It buys raw materials, employs staff

More information

Fundamentals Level Skills Module, Paper F9. Section A. Monetary value of return = $3 10 x 1 197 = $3 71 Current share price = $3 71 $0 21 = $3 50

Fundamentals Level Skills Module, Paper F9. Section A. Monetary value of return = $3 10 x 1 197 = $3 71 Current share price = $3 71 $0 21 = $3 50 Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2014 Answers Section A 1 A Monetary value of return = $3 10 x 1 197 = $3 71 Current share price = $3 71 $0 21 = $3 50 2

More information

Suggested Study Notes ACCA F2 Paper

Suggested Study Notes ACCA F2 Paper for F2 ACCA Examinations REVIEW OF SOME KEY FUNDALMENTALS 1 Know difference in type of accountant Management Accountant Planning Controlling Decision Making Internal Reporting Financial Accountant Accounts

More information

Management Accounting Financial Strategy

Management Accounting Financial Strategy PAPER P9 Management Accounting Financial Strategy The Examiner provides a short study guide, for all candidates revising for this paper, to some first principles of finance and financial management Based

More information

The Nature, Elements and Importance of Working Capital

The Nature, Elements and Importance of Working Capital C. WORKING CAPITAL MANAGEMENT 1. The nature, elements and importance of working capital 2. Management of inventories, accounts receivable, accounts payable and cash 3. Determining working capital needs

More information

JUNE 2012 EXAMINATION. D2. Business Finance. Answer ALL THREE questions. Question 1: 20 marks available. Question 2: 30 marks available

JUNE 2012 EXAMINATION. D2. Business Finance. Answer ALL THREE questions. Question 1: 20 marks available. Question 2: 30 marks available 1 JUNE 2012 EXAMINATION D2. Business Finance Instructions to candidates 1. Time allowed is 3 hours and 10 minutes, which includes 10 minutes reading time. 2. This is a closed book examination. 3. Use of

More information

tutor2u Cash Management How and Why Businesses Need to Manage their Cash AS & A2 Business Studies PowerPoint Presentations 2005

tutor2u Cash Management How and Why Businesses Need to Manage their Cash AS & A2 Business Studies PowerPoint Presentations 2005 Cash Management How and Why Businesses Need to Manage their Cash AS & A2 Business Studies PowerPoint Presentations 2005 Importance of Cash (1) A business can exist for a while without making profits but

More information

Multiple Choice Questions (45%)

Multiple Choice Questions (45%) Multiple Choice Questions (45%) Choose the Correct Answer 1. The following information was taken from XYZ Company s accounting records for the year ended December 31, 2014: Increase in raw materials inventory

More information

9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle

9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle 9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle 9.1 Current Assets and 9.1.1 Cash A firm should maintain as little cash as possible, because cash is a nonproductive asset. It earns no

More information

P2 Performance Management

P2 Performance Management Performance Pillar P2 Performance Management 26 May 2010 Wednesday Afternoon Session Instructions to candidates You are allowed three hours to answer this question paper. You are allowed 20 minutes reading

More information

Examiner s report F9 Financial Management June 2013

Examiner s report F9 Financial Management June 2013 Examiner s report F9 Financial Management June 2013 General Comments The examination consisted of four compulsory questions, each worth 25 marks. Most candidates attempted all four questions and there

More information

1 (a) Calculation of net present value (NPV) Year 1 2 3 4 5 6 $000 $000 $000 $000 $000 $000 Sales revenue 1,600 1,600 1,600 1,600 1,600

1 (a) Calculation of net present value (NPV) Year 1 2 3 4 5 6 $000 $000 $000 $000 $000 $000 Sales revenue 1,600 1,600 1,600 1,600 1,600 Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2011 Answers 1 (a) Calculation of net present value (NPV) Year 1 2 3 4 5 6 $000 $000 $000 $000 $000 $000 Sales revenue 1,600

More information

Examiner s report F9 Financial Management December 2014

Examiner s report F9 Financial Management December 2014 Examiner s report F9 Financial Management December 2014 General Comments The F9 examination paper consisted of two sections. Section A contained 20 multiple-choice questions worth two marks each. Section

More information

KB 2 Business Management Accounting Suggested Answers and Marking Guide

KB 2 Business Management Accounting Suggested Answers and Marking Guide KB 2 Business Management Accounting Suggested Answers and 1 SECTION 1 Question 01 Relevant learning outcome/s: 1.1.1 Assess the key features of the absorption costing method and the ABC method. 1.1.2 Demonstrate

More information

1 (a) NPV calculation Year 1 2 3 4 5 $000 $000 $000 $000 $000 Sales revenue 5,614 7,214 9,015 7,034. Contribution 2,583 3,283 3,880 2,860

1 (a) NPV calculation Year 1 2 3 4 5 $000 $000 $000 $000 $000 Sales revenue 5,614 7,214 9,015 7,034. Contribution 2,583 3,283 3,880 2,860 Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2012 Answers 1 (a) NPV calculation Year 1 2 3 4 5 $000 $000 $000 $000 $000 Sales revenue 5,614 7,214 9,015 7,034 Variable

More information

Short Term Finance and Planning. Sources and Uses of Cash

Short Term Finance and Planning. Sources and Uses of Cash Short Term Finance and Planning (Text reference: Chapter 27) Topics sources and uses of cash operating cycle and cash cycle short term financial policy cash budgeting short term financial planning AFM

More information

Part 7. Capital Budgeting

Part 7. Capital Budgeting Part 7. Capital Budgeting What is Capital Budgeting? Nancy Garcia and Digital Solutions Digital Solutions, a software development house, is considering a number of new projects, including a joint venture

More information

FINANCIAL MANAGEMENT For M.Com /B.Com Part A Question & Answers INTRODUCTION TO FINANCIAL MANAGEMENT 1. What is financial management?

FINANCIAL MANAGEMENT For M.Com /B.Com Part A Question & Answers INTRODUCTION TO FINANCIAL MANAGEMENT 1. What is financial management? FINANCIAL MANAGEMENT For M.Com /B.Com Part A Question & Answers INTRODUCTION TO FINANCIAL MANAGEMENT 1. What is financial management? It is the application of planning and control functions of the finance

More information

P2 Performance Management

P2 Performance Management DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO DO SO. Performance Pillar P2 Performance Management Instructions to candidates Thursday 28 August 2014 You are allowed three hours to answer this question

More information

Further comments are provided under Examiner s Comments for individual questions.

Further comments are provided under Examiner s Comments for individual questions. F3 FINANCIAL STRATEGY Examiner s general comments This was the first diet under the 2010 syllabus for F3, which replaces P9 under the old syllabus. The syllabus content is largely unchanged but a revised

More information

Paper 7 Management Accounting

Paper 7 Management Accounting Technician Level Paper 7 Management Accounting Extended Syllabus INTRODUCTION Extended Syllabuses are part of a comprehensive package of support materials offered by SIAT. This package includes past question

More information

Management Accounting 2 nd Year Examination

Management Accounting 2 nd Year Examination Management Accounting 2 nd Year Examination August 2010 Paper, Solutions & Examiner s Report NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians

More information

PRODUCTIVITY & GROWTH

PRODUCTIVITY & GROWTH Productivity Financial Tools There are a number of financial tools that can be used to measure the financial performance and potential contribution of improvement projects to the productivity of a business.

More information

Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions

Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Chapter 6 Working Capital Management Concept Check 6.1 1. What is the meaning of the terms working

More information

Fundamentals Level Skills Module, Paper F9

Fundamentals Level Skills Module, Paper F9 Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2008 Answers 1 (a) Rights issue price = 2 5 x 0 8 = $2 00 per share Theoretical ex rights price = ((2 50 x 4) + (1 x 2 00)/5=$2

More information

MANAGEMENT ACCOUNTING

MANAGEMENT ACCOUNTING MANAGEMENT ACCOUNTING FORMATION 2 EXAMINATION - AUGUST 2007 NOTES Answer Questions 1 and 2 and three out of Questions 3, 4, 5 and 6. TIME ALLOWED: 3 hours, plus 10 minutes to read the paper. INSTRUCTIONS:

More information

P2 Performance Management September 2014 examination

P2 Performance Management September 2014 examination Management Level Paper P2 Performance Management September 2014 examination Examiner s Answers Note: Some of the answers that follow are fuller and more comprehensive than would be expected from a well-prepared

More information

Will the future benefits of this project be large enough to justify the investment given the risk involved?

Will the future benefits of this project be large enough to justify the investment given the risk involved? Chapter 1 The Overall Process Capital Expenditures Whenever we make an expenditure that generates a cash flow benefit for more than one year, this is a capital expenditure. Examples include the purchase

More information

Fundamentals Level Skills Module, Paper F9

Fundamentals Level Skills Module, Paper F9 Answers Fundamentals Level Skills Module, Paper F9 Financial Management June 2008 Answers 1 (a) Calculation of weighted average cost of capital (WACC) Cost of equity Cost of equity using capital asset

More information

P2 Performance Management

P2 Performance Management Pillar P P2 Performance Management Instructions to candidates Specimen Examination Paper You are allowed three hours to answer this question paper. You are allowed 20 minutes reading time before the examination

More information

Management Accounting 2 nd Year Examination

Management Accounting 2 nd Year Examination Management Accounting 2 nd Year Examination August 2013 Exam Paper, Solutions & Examiner s Report NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians

More information

MANAGEMENT ACCOUNTING

MANAGEMENT ACCOUNTING CIPFA PROFESSIONAL QUALIFICATION CIPFA CERTIFICATE IN INTERNATIONAL PUBLIC FINANCIAL MANAGEMENT MANAGEMENT ACCOUNTING Instructions to candidates There are two sections in the examination. Section A contains

More information

The senior assessor s report aims to provide the following information: An indication of how to approach the examination question

The senior assessor s report aims to provide the following information: An indication of how to approach the examination question INFORMATION FOR CANDIDATES The senior assessor s report is written in order to provide candidates with feedback relating to the examination. It is designed as a tool for candidates for both those who have

More information

ACCA Certified Accounting Technician Examination Paper T10. Section A

ACCA Certified Accounting Technician Examination Paper T10. Section A Answers ACCA Certified Accounting Technician Examination Paper T10 Managing Finances December 10 Answers Section A 1 B $ Non-current assets as at 1 December X6 250,000 Add back depreciation 0,000 Non-current

More information

CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA

CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Basic 1. To calculate the payback period, we need to find the time that the project has recovered its initial investment. After two years, the

More information

6. Debt Valuation and the Cost of Capital

6. Debt Valuation and the Cost of Capital 6. Debt Valuation and the Cost of Capital Introduction Firms rarely finance capital projects by equity alone. They utilise long and short term funds from a variety of sources at a variety of costs. No

More information

Question 1. Marking scheme. F9 ACCA June 2013 Exam: BPP Answers

Question 1. Marking scheme. F9 ACCA June 2013 Exam: BPP Answers Question 1 Text references. NPV is covered in Chapter 8 and real or nominal terms in Chapter 9. Financial objectives are covered in Chapter 1. Top tips. Part (b) requires you to explain the different approaches.

More information

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance 63 COSTS AND COSTING 6 PROFIT AND LOSS AND BALANCE SHEETS Simple Financial Calculations Analysing Performance - The Balance Sheet Analysing Performance Analysing Financial Performance Profit And Loss Forecast

More information

Course 3: Capital Budgeting Analysis

Course 3: Capital Budgeting Analysis Excellence in Financial Management Course 3: Capital Budgeting Analysis Prepared by: Matt H. Evans, CPA, CMA, CFM This course provides a concise overview of capital budgeting analysis. This course is recommended

More information

ACCA Certified Accounting Technician Examination Paper T7 Planning, Control and Performance Management

ACCA Certified Accounting Technician Examination Paper T7 Planning, Control and Performance Management Answers ACCA Certified Accounting Technician Examination Paper T7 Planning, Control and Performance Management June 09 Answers Section A 1 A ($2,000 x 1 160) = $1,500 = A 2 B (5,000 + 23 x 4,000 1,500)

More information

This was the first sitting of F3 on PC. It was a pilot sitting and only open to UK re-sit candidates. The overall pass rate was 51%.

This was the first sitting of F3 on PC. It was a pilot sitting and only open to UK re-sit candidates. The overall pass rate was 51%. F3 FINANCIAL STRATEGY Examiner s general comments This was the first sitting of F3 on PC. It was a pilot sitting and only open to UK re-sit candidates. The overall pass rate was 51%. Question One involved

More information

Managing Working Capital. Managing Working Capital

Managing Working Capital. Managing Working Capital Managing Working Capital Working Capital is the name given to funds invested in the short-term assets of the business. While all assets should work to produce a return on investment, it is often easier

More information

A guide to business cash flow management

A guide to business cash flow management A guide to business cash flow management Contents 01. Cash flow management 01 02. Practical steps to managing cash flow 04 03. Improving everyday cash flow 06 04. How to manage cash flow surpluses and

More information

WJEC Applied Business A level. ABUS 1 and ABUS 5

WJEC Applied Business A level. ABUS 1 and ABUS 5 1 WJEC Applied Business A level ABUS 1 and ABUS 5 Additional information: formulae, layout and terminology ABUS 1 and ABUS 5 Accounting terminology A number of the terms used in Accounting are changing,

More information

Management Accounting 2 nd Year Examination

Management Accounting 2 nd Year Examination Management Accounting 2 nd Year Examination May 2011 Paper, Suggested Solutions & Examiner s Report NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians

More information

Net revenue 785 25 1,721 05 5,038 54 3,340 65 Tax payable (235 58) (516 32) (1,511 56) (1,002 20)

Net revenue 785 25 1,721 05 5,038 54 3,340 65 Tax payable (235 58) (516 32) (1,511 56) (1,002 20) Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2013 Answers 1 (a) Calculating the net present value of the investment project using a nominal terms approach requires the

More information

Quantitative models for the planning and control of inventories

Quantitative models for the planning and control of inventories Quantitative models for the planning and control of inventories A company is planning to purchase 90 800 units of a particular item in the year ahead. The item is purchased in boxes, each containing 10

More information

A target cost is arrived at by identifying the market price of a product and then subtracting a desired profit margin from it.

A target cost is arrived at by identifying the market price of a product and then subtracting a desired profit margin from it. Answers Fundamentals Level Skills Module, Paper F5 Performance Management June 2015 Answers Section A 1 C Divisional profit before depreciation = $2 7m x 15% = $405,000 per annum. Less depreciation = $2

More information

CASH BUDGETS AND RELATED TOPICS

CASH BUDGETS AND RELATED TOPICS CASH BUDGETS AND RELATED TOPICS Article relevant to Formation 2 Management Accounting Author: Neil Hayden, current Examiner. In projected cash flow statements the information can be presented in a variety

More information

University of Waterloo Final Examination

University of Waterloo Final Examination University of Waterloo Final Examination Term: Winter Year: 2006 Student Name UW Student ID Number Place an X by the section in which you are registered: 1 (MWF 8:30 am to 9:20 am) 2 (MWF 9:30 am to 10:20

More information

Content Specification Outlines Certified Management Accountant (CMA) Examinations

Content Specification Outlines Certified Management Accountant (CMA) Examinations Effective January 1, 2015 Content Specification Outlines Certified Management Accountant (CMA) Examinations The content specification outlines presented below represent the body of knowledge that will

More information

There was no evidence of time pressure in this exam and the majority of candidates were able to attempt all questions within the time limit.

There was no evidence of time pressure in this exam and the majority of candidates were able to attempt all questions within the time limit. Examiner s General Comments Performance on F3 in May was a distinct improvement over some previous diets. This improvement was evident in both home and overseas centres although there were significant

More information

Examiner s report F9 Financial Management June 2011

Examiner s report F9 Financial Management June 2011 Examiner s report F9 Financial Management June 2011 General Comments Congratulations to candidates who passed Paper F9 in June 2011! The examination paper looked at many areas of the syllabus and a consideration

More information

Contribution 787 1,368 1,813 983. Taxable cash flow 682 1,253 1,688 858 Tax liabilities (205) (376) (506) (257)

Contribution 787 1,368 1,813 983. Taxable cash flow 682 1,253 1,688 858 Tax liabilities (205) (376) (506) (257) Answers Fundamentals Level Skills Module, Paper F9 Financial Management June 2012 Answers 1 (a) Calculation of net present value (NPV) As nominal after-tax cash flows are to be discounted, the nominal

More information

Foundations in Financial Management (FFM) September 2016 to June 2017

Foundations in Financial Management (FFM) September 2016 to June 2017 Foundations in Financial Management (FFM) September 2016 to June 2017 This syllabus and study guide is designed to help with teaching and learning and is intended to provide detailed information on what

More information

Cost Benefits analysis

Cost Benefits analysis Cost Benefits analysis One of the key items in any business case is an analysis of the costs of a project that includes some consideration of both the cost and the payback (be it in monetary or other terms).

More information

THE INSTITUTE OF CHARTERED ACCOUNTANTS, GHANA NOVEMBER 2015 PROFESSIONAL EXAMINATIONS MANAGEMENT ACCOUNTING (2.2) EXAMINERS GENERAL COMMENTS

THE INSTITUTE OF CHARTERED ACCOUNTANTS, GHANA NOVEMBER 2015 PROFESSIONAL EXAMINATIONS MANAGEMENT ACCOUNTING (2.2) EXAMINERS GENERAL COMMENTS THE INSTITUTE OF CHARTERED ACCOUNTANTS, GHANA NOVEMBER 2015 PROFESSIONAL EXAMINATIONS MANAGEMENT ACCOUNTING (2.2) EXAMINERS GENERAL COMMENTS GENERAL PERFORMANCE In general, the performance of students

More information

MARK SCHEME for the October/November 2008 question paper 9706 ACCOUNTING

MARK SCHEME for the October/November 2008 question paper 9706 ACCOUNTING www.xtremepapers.com UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS GCE Advanced Subsidiary Level and GCE Advanced Level MARK SCHEME for the October/November 2008 question paper 9706 ACCOUNTING 9706/04

More information

Annual Qualification Review

Annual Qualification Review LCCI International Qualifications Level 3 Certificate in Cost Accounting Annual Qualification Review 2008 For further information contact us: Tel. +44 (0) 8707 202909 Email. enquiries@ediplc.com www.lcci.org.uk

More information

Understanding A Firm s Financial Statements

Understanding A Firm s Financial Statements CHAPTER OUTLINE Spotlight: J&S Construction Company (http://www.jsconstruction.com) 1 The Lemonade Kids Financial statement (accounting statements) reports of a firm s financial performance and resources,

More information

Managing Cash Flow. A guide to help you broaden your understanding of how to manage cash flow in a small business

Managing Cash Flow. A guide to help you broaden your understanding of how to manage cash flow in a small business Managing Cash Flow A guide to help you broaden your understanding of how to manage cash flow in a small business This guide looks at the key elements of cash flow and working capital and how its management

More information

Institute of Chartered Accountants Ghana (ICAG) Paper 2.2 Management Accounting

Institute of Chartered Accountants Ghana (ICAG) Paper 2.2 Management Accounting Institute of Chartered Accountants Ghana (ICAG) Paper. Management Accounting Final Mock Exam Marking scheme and suggested solutions DO NOT TURN THIS PAGE UNTIL YOU HAVE COMPLETED THE MOCK EXAM ii Management

More information

Management Accounting 2 nd Year Examination

Management Accounting 2 nd Year Examination Management Accounting 2 nd Year Examination May 2012 Exam Paper, Solutions & Examiner s Report NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians

More information

LEBANESE ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS MANAGERIAL ACCOUNTING

LEBANESE ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS MANAGERIAL ACCOUNTING LEBANESE ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS MANAGERIAL ACCOUNTING JULY 2015 MULTIPLE CHOICE QUESTIONS (37.5%) Choose the correct answer 1. All of the following statements concerning standard costs

More information

VASSETI (UK) PLC CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2013

VASSETI (UK) PLC CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2013 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2013 INTERIM MANAGEMENT REPORT (UNAUDITED) FOR THE 6 MONTHS ENDED 30 JUNE 2013 1. Key Risks and uncertainties Risks and uncertainties

More information

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA) THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA) NOVEMBER 2011 EXAMINATIONS (PROFESSIONAL) PART 3 COST AND MANAGEMENT ACCOUNTING (Paper 3.3) Attempt ALL Questions TIME ALLOWED: Reading & Planning - 15 Minutes

More information

Paper F9. Financial Management. Specimen Exam applicable from December 2014. Fundamentals Level Skills Module

Paper F9. Financial Management. Specimen Exam applicable from December 2014. Fundamentals Level Skills Module Fundamentals Level Skills Module Financial Management Specimen Exam applicable from December 2014 Time allowed Reading and planning: 15 minutes Writing: 3 hours This paper is divided into two sections:

More information

Chapter. Working capital

Chapter. Working capital Chapter 10 Working capital 1 10.1 Working capital Working capital is the capital available for conducting the day-to-day operations of the business and consists of current assets and current liabilities.

More information

December 2013 exam. (4CW) SME cash and working capital. Instructions to students. reading time.

December 2013 exam. (4CW) SME cash and working capital. Instructions to students. reading time. 1 December 2013 exam (4CW) SME cash and working capital Instructions to students 1. Time allowed is 3 hours and 10 minutes, which includes 10 minutes reading time. 2. This is a closed book exam. 3. Use

More information

Paper FFM. Foundations in Financial Management FOUNDATIONS IN ACCOUNTANCY. Pilot Paper. The Association of Chartered Certified Accountants

Paper FFM. Foundations in Financial Management FOUNDATIONS IN ACCOUNTANCY. Pilot Paper. The Association of Chartered Certified Accountants FOUNDATIONS IN ACCOUNTANCY Foundations in Financial Management Pilot Paper Time allowed: 2 hours This paper is divided into two sections: Section A ALL TEN questions are compulsory and MUST be attempted

More information

THE TRAINING PLACE OF EXCELLENCE Financial Performance Practice Assessment: Questions

THE TRAINING PLACE OF EXCELLENCE Financial Performance Practice Assessment: Questions THE TRAINING PLACE OF EXCELLENCE Financial Performance Practice Assessment: Questions 1. The budgeted and actual results for the month of June 20X1 are as follows: Production (units of Melo) 15,000 16,500

More information

Fundamentals Level Skills Module, Paper F9

Fundamentals Level Skills Module, Paper F9 Answers Fundamentals Level Skills Module, Paper F9 Financial Management June 2009 Answers 1 (a) Weighted average cost of capital (WACC) calculation Cost of equity of KFP Co = 4 0 + (1 2 x (10 5 4 0)) =

More information

THE TRAINING PLACE OF EXCELLENCE Cost and Revenues Practice Assessment: Questions

THE TRAINING PLACE OF EXCELLENCE Cost and Revenues Practice Assessment: Questions THE TRAINING PLACE OF EXCELLENCE Cost and Revenues Practice Assessment: Questions Task 1: Inventory control The following information is available for product ZYQ: Annual demand 1,250,000 kilograms Annual

More information

UNIVERSITY OF BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATION 2015/2016 MANAGEMENT ACCOUNTING AND DECISION MAKING MODULE NO: ACC5002

UNIVERSITY OF BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATION 2015/2016 MANAGEMENT ACCOUNTING AND DECISION MAKING MODULE NO: ACC5002 BBS009 UNIVERSITY OF BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATION 2015/2016 MANAGEMENT ACCOUNTING AND DECISION MAKING MODULE NO: ACC5002 Date: Tuesday 12 th January 2016 Time: 2:00pm to 5:00pm

More information

Paper P2 Management Accounting Decision Management

Paper P2 Management Accounting Decision Management May 2007 Examinations Managerial Level Paper P2 Management Accounting Decision Management Question Paper 2 Examiner s Brief Guide to the Paper 20 Examiner s Answers 21 The answers published here have been

More information

MODULE 2. Capital Budgeting

MODULE 2. Capital Budgeting MODULE 2 Capital Budgeting Capital Budgeting is a project selection exercise performed by the business enterprise. Capital budgeting uses the concept of present value to select the projects. Capital budgeting

More information

Lecture 13 Working Capital Management and Credit Issues

Lecture 13 Working Capital Management and Credit Issues Lecture 13 - Working Capital Management Gross working capital: Net working capital: BASIC DEFINITIONS Total current assets. Net operating working capital (NOWC): Operating CA Operating CL = Current assets

More information

AAT LEVEL 3 LESSON 7. Association of Accounting Technicians (AAT) Example Course Materials

AAT LEVEL 3 LESSON 7. Association of Accounting Technicians (AAT) Example Course Materials LESSON 7 Account for the Valuation of Inventory On completing this lesson you should be able to: Identify categories of inventory as referred to within the accounting standard IAS 2 (Inventories) Explain

More information

Financing a New Venture

Financing a New Venture Financing a New Venture A Canadian Innovation Centre How-To Guide 1 Financing a new venture New ventures require financing to fund growth Forms of financing include equity (personal, family & friends,

More information

P2 Performance Management March 2014 examination

P2 Performance Management March 2014 examination Management Level Paper P2 Performance Management March 2014 examination Examiner s Answers Note: Some of the answers that follow are fuller and more comprehensive than would be expected from a well-prepared

More information

Unit Title: Managerial Accounting Unit Reference Number: D/502/4812 Guided Learning Hours: 160 Level: Level 5 Number of Credits: 18

Unit Title: Managerial Accounting Unit Reference Number: D/502/4812 Guided Learning Hours: 160 Level: Level 5 Number of Credits: 18 Unit Title: Managerial Accounting Unit Reference Number: D/502/4812 Guided Learning Hours: 160 Level: Level 5 Number of Credits: 18 Unit objective and aim(s): This unit aims to give learners a comprehensive

More information

Financial Pillar. F2 Financial Management. 24 November 2011 Thursday Afternoon Session

Financial Pillar. F2 Financial Management. 24 November 2011 Thursday Afternoon Session Financial Pillar F2 Financial Management 24 November 2011 Thursday Afternoon Session Instructions to candidates You are allowed three hours to answer this question paper. You are allowed 20 minutes reading

More information

Write your answers in blue or black ink/ballpoint. Pencil may be used only for graphs, charts, diagrams, etc.

Write your answers in blue or black ink/ballpoint. Pencil may be used only for graphs, charts, diagrams, etc. Sample Paper 2008 COST ACCOUNTING Level 3 Subject Code: 3017 Time allowed: 3 hours INSTRUCTIONS FOR CANDIDATES Answer all 5 questions. All questions carry equal marks. Write your answers in blue or black

More information

Content Specification Outlines Certified Management Accountant (CMA) Examinations

Content Specification Outlines Certified Management Accountant (CMA) Examinations Effective May 1, 2010 Content Specification Outlines Certified Management Accountant (CMA) Examinations The content specification outlines presented below represent the body of knowledge that will be covered

More information