Financial information for managemetn paper 1 2 answers

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 implem

Answers

Part 1 Examination – Paper 1.2

Section A

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

Section B

1 (a)

(b) Regression line: y = a + bx

b = n ∑xy – ∑x ∑y

–––––––––––––––

n ∑x2– ( ∑x)2

a = ∑y b ∑x

––– – –––

n n

In this example the advertising expenditure is the independent variable (x) and the sales revenue the dependent variable (y)

b =(8 × 1,055·875) – (26·35 × 289·5) 818·675

–––––––––––––––––––––––––––––– = –––––––– = 7·07

(8 × 101·2625) – 26·352 115·7775

a =289·5––––– – 7·07× 26·35––––– = 12·9

regression line: y = 12·9 + 7·07x where x and y are in £000

Line drawn on above graph

60

50

40

30

20

10

£’000

£’000

1 2 3 4 5 6

x

x

x x

x x

x x

Sales

Revenue

£000

Advertising expenditure

£000

2

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

Good 0·8

Survey

(50,000)

Large Premises

Large Premises

Small

Premises

(550,000)

(550,000) A

D

C B

Lo 0·05

Bad 0·2

Hi 0·75

Hi 0·6

Lo 0·4

Hi

600,000

1,500,000

600,000

1,500,000

600,000

Abandon project

(300,000)

Lo 0·25

3 (a)

Cost of sales:

Production costs

––––––

2,640

(2,140) ––––––

Selling costs

––––––

–––––– Working

Overhead absorption rate = £300,000/100,000 = £3 per unit

(b)

Cost of sales:

Production costs

––––––

2,280

(2,100) ––––––

Fixed costs

––––––

––––––

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 decision-making, 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

Return on investment = 35,000/150,000% = 23·3%

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

Part 1 Examination – Part 1.2

Section A

Each question is worth 2 marks each total 50

Section B

—

10

—

—

—

(c) three examples of general performance measures

—

10

—

25