CORK INSTITUTE OF TECHNOLOGY INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ. Semester 1 Examinations 20014/15

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1 CORK INSTITUTE OF TECHNOLOGY INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ Semester 1 Examinations 20014/15 Module Title: Business Finance. Module Code: ACCT 7007 School: Programme Title: Programme Code: School of Business Bachelor of Arts (Honours) in Human Resource Management. Bachelor of Science in Transport Management and Techonlogy. CR_BHRMN_8 TTMGT_7_Y3 CR_ECTWB_7 External Examiner(s): Internal Examiner(s): Mr Cathal Kearney Ms. N. Murphy, Ms. Carmel Buttimer & Mr Maurice OBrien. Instructions: Question 1 (one) is compulsory and answer 2 (two) other questions. Duration: 2 Hours. Sitting: Winter Requirements for this examination: Calculator. Note to Candidates: Please check the Programme Title and the Module Title to ensure that you have received the correct examination paper. If in doubt please contact an Invigilator.

2 Breakeven Analysis. Q. 1. John Murray is in business selling a specialist product. You are employed in the shop and have recently attended a course in breakeven analysis. You have explained to John Murray that it is possible to use breakeven analysis to set profit targets and to determine whether or not it is worthwhile selling a particular product. John Murray provided you with the following information: Selling price per unit 100 Variable cost per unit 60 Delivery cost per unit 2 Fixed costs per month: Salaries 8,000 Shop rent 1,600 Other expenses 2,400 Required: a. How many units must John sell each month to breakeven? 6 marks. b. If the shop currently sells 600 units per month calculate the margin of safety and the profit. 6 marks. c. Calculate the c/s ratio and the breakeven point in value. 6 marks. d. How many units must be sold to earn a profit of 6,000? 6 marks. e. The rent is due to increase to 2,000 per month and delivery costs will increase to 2.50 per unit. How many units are now needed to breakeven? 8 marks. f. Using critical thinking, list ways how breakeven is useful to John Murray. 8 marks. (Total 40 Marks)

3 Ratio Analysis. Q. 2. These are the financial Statement of Ash Limited Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December Sales Revenue 11,360 10,100 Cost of Sales 9,520 8,950 Gross Profit 1,840 1,150 Operating Expenses Profit before interest and taxation 1,700 1,030 Interest payable Profit before taxation 1, Taxation Profit after taxation Statement of Financial Position as at 31 December, Non- Current Assets 12,470 11,320 Current Assets Inventory 2,100 1,950 Trade Receivables 2,880 1,920 Bank ,638 4,400 Total Assets 18,108 15,720 Equity and Liabilities Ordinary 1 Shares 5,000 4,000 Retained Earnings 9,618 8,680 14,618 12,680 Non-Current Liabilities Long Term Loans 1,

4 Current Liabilities Trade Payables ,850 Taxation ,490 2,190 Total Equity and Liabilities 18,108 15,720 Required: A. Using the above information, calculate the following for both years: Gross Profit% Net Profit% Return of Capital Employed% Current Ratio Quick Ratio Receivables Days Payables Days Inventory Days Gearing Ratio Expenses at % of Sales 18 Marks B. Using the ratio's calculated in part (a) write a report to the Managing Director of Ash Ltd. identifying strengths and weaknesses in the financial performance of the company over the two years. 12Marks. (30 Marks)

5 Cash Budget. Q. 3. George Clooney has recently been made redundant. He intends to start up a business at the start of January 2015 using 30,000 that he received as a redundancy payment. George has asked you for advice and provided the following additional information: a. He has made arrangements to purchase fixed assets costing 10,000. These will be paid for at the end of January b. Purchases of materials will be as follows: December ,000 January ,000 February ,000 March ,000 April ,000 May ,500 June ,500 Suppliers are paid one month after purchase. c. Sales are as follows: January ,500 February ,500 March ,500 April ,000 May ,000 June ,750 Two months credit is allowed to customers. d. Overheads are estimated at 1,000 per month are paid at the end of each month. e. George Clooney intends to pay himself a salary of 2,000 per month which, is paid in the relevant month. f. Advertising will cost 600 for January and February will cost 300 per month thereafter. Advertising is paid for one month in arrears.

6 Required: 1. Prepare a cash budget for George Clooney for January June Marks. 2. List two advantages of cash budgeting. 2 Marks. (Total 30 Marks)

7 Absorption Costing. Q. 4. Widget Products Ltd. is a producer of photocopiers. The company uses a traditional costing system to allocate production overheads to products based on labour hours. The Managing Director has asked you to carry out some calculations. You have collected the following information on production overhead costs: Production Set Up Costs 110,000 Cost of Ordering Materials 84,000 Cost of Handling Materials 42,000 Utility Costs 184,000 Details of 3 products and actual cost information for the production period have been recorded at follows: Widget A Widget B Widget C Units produced 3,000 1, Number of Requisitions Number of Material Orders Number of Production Runs Machine hours per unit Direct labour hours per unit (20 per hour) Direct Materials per unit Requirement: (a) Prepare a schedule showing the total production cost and the unit production cost of each of the three products using Traditional Absorption Costing. 25 Marks (b) Comment on the relevance of this approach. 5 Marks (Total 30 Marks)