Examination Paper
ACCT40415-WE01 : Financial Planning and Control
Take home exam
Duration: TWO HOURS
Word/Page Limit: 3,000 words
Instructions to Candidates: Answer ONE question from Sections A and B. All questions carry equal marks.
Section A (Answer ONE question from this section) 财务规划和控制考试助攻
1.
Rissa Ltd manufactures school trousers for children aged 4 to 6 years old. Sales are made directly to high street retailers. The Managing Director of the company has been complaining on the declining sales trend. According to her, profit for the year has been the lowest in 15 years. The forecast for next year indicates that the present deterioration in profits is likely to continue. The company requires a profit of £80,000 to remain in the business. The Managing Director has completed this review and passes the proposals on to you for evaluation and recommendation, together with the profit and loss account for the last year.
Rissa Ltd Profit and Loss Account
| (£) | (£) | (£) | |
| Sales revenue
(100,000 trousers at £10) |
1,000,000
|
||
| Factory cost of
goods sold: |
|||
| Direct materials | 100,000 | ||
| Direct labour | 350,000 | ||
| Variable factory
overheads |
60,000
|
||
| Fixed factory
overheads |
220,000 | 730,000 | |
| Administration
overhead |
140,000 | ||
| Selling and
distribution overhead: |
|||
| Sales commission
(2% of sales) |
20,000
|
||
| Delivery costs
(variable per unit sold) |
50,000
|
||
| Fixed costs | 40,000 | 110,000 | 980,000 |
| Profit | 20,000 |
There are three proposals for consideration:
i. To proceed based on analyses of market research studies that indicate the demand for the trousers would increase by 40 percent with 10 percent reduction in selling price. 财务规划和控制考试助攻
ii. To proceed with an enquiry made by the Marketing Director on a mail order company’s deal with the possibility of purchasing 50,000 units annually if the selling price is right. The mail order company would transport the trousers to its warehouse, and no sales commission would be paid on these sales by Rissa Ltd. However, if an acceptable price can be negotiated, Rissa Ltd would be expected to contribute £60,000 per annum towards the cost of producing the mail order catalogue. It would also be necessary for Rissa Ltd to provide special additional packaging at a cost of £0.50 per trouser. The Marketing Director considers that existing sales of the Rissa Ltd would remain unchanged at 100,000 units, based on a selling price of £10 if the mail order contract is undertaken.
iii. To proceed based on a view held by the Marketing Director that sales may increase to the maximum capacity of 160,000 trousers provided there is a 10 percent price reduction with additional national advertising campaign of £30,000.
Required: 财务规划和控制考试助攻
You are required to write a report to the Managing Director with recommendations of your analysis which should include all the relevant workings on the three proposals above, based on the following outlines:
a. The calculation of break-even sales value based on the last year’s account.
b. A financial evaluation of proposal (i) including its profit projection, and a calculation of the number of units Rissa Ltd would be required to sell at £9 each to earn the target profit of £80,000.
c. A calculation of the minimum prices that would have to be quoted to the mail order company in proposal (ii), first, to ensure that Rissa Ltd would at least break even on the mail order contract, secondly, to ensure that the same overall profit is earned as proposal (i) and, thirdly, to ensure that the overall company’s target profit is earned.
d. A financial evaluation of proposal (iii) to include its profit projection.
(50 marks)
2.
Due to the pandemic and the slowing down of business, the management of Swiss Ltd have decided to halt their production. The management team has specifically asked you to evaluate the impact of the halt in production on the company’s cash flow.
The following data has been made available:
| Month 1 | Month 2 | Month 3 | |
| Budgeted sales | 400 units | 500 units | 400 units |
| Budgeted production | 600 units | 400 units | Nil |
The halt will commence at the beginning of month 3 and it should be assumed that it will continue for at least four months. Sales will continue to be made during the period of the halt until inventory of finished goods are exhausted. Production will stop at the end of month 2. The current inventory level of finished goods is 600 units. Inventories of work in progress are not carried.
The selling price of the product is £60, and the budgeted manufacturing cost is made up as follows:
| (£) | |
| Direct materials | 15 |
| Direct wages | 7 |
| Variable overheads | 8 |
| Fixed overheads | 18 |
| Total | £48 |
Direct wages are regarded as a variable cost. The company operates a full absorption costing system, and the fixed overhead absorption rate is based upon a budgeted fixed overhead of £9,000 per month. Included in the total fixed overheads is £700 per month for depreciation of equipment. During the period of the halt, direct wages and variable overheads would not be incurred and the cash expended on fixed overheads would be reduced by £1,500 per month. 财务规划和控制考试助攻
The current inventory of raw materials is worth £7,500; it is intended that these stocks should increase to £11,000 by the end of month 1 and then remain at this level during the period of the halt. All direct materials are paid for one month after they have been received. Direct wages are paid one month in arrears. It should be assumed that all relevant overheads are paid as soon as the expense is incurred. All sales are on credit, 70 percent of the sales value is received in cash from the debtors at the end of the first month after the sales have been made and the balance at the end of the second month.
The current amount outstanding to material suppliers is £8,000 and direct wage accruals amount to £3,200. Both will be paid in month 1. The current balance owing from debtors is £31,200, of which £24,000 will be received during month 1 and the remainder during month 2. The current balance of cash at the bank and in hand is £1,000.
Required: 财务规划和控制考试助攻
You are required to write a report to the company’s management team on the evaluation of the impact of the halt in production on the company’s cash flow. Your analysis should include all the relevant workings based on the following outlines:
a. A cash budget for months one to six showing the balance of cash at the end of each month together with a suitable analysis of the receipts and payments during each month.
b. Discuss any matters arising from the cash budget which should be brought to the management’s attention.
c. Explain why the reported profit figure for a period does not normally represent the amount of cash regenerated in that period.
(50 marks)
Section B (Answer ONE question from this section) 财务规划和控制考试助攻
1.
Digi Ltd participates in a highly competitive industry. To meet this competition and achieve profit goals, the company has chosen a decentralised form of organisation. Each manager of a decentralised investment centre is measured based on profit contribution, market penetration, and return on investment. Failure to meet the objectives established by corporate management for these measures has not been acceptable and usually has resulted in demotion or dismissal of an investment centre manager.
An anonymous survey of managers in the company revealed that the managers feel the pressure to compromise their personal ethical standards to achieve the corporate objectives. For example, at certain plant locations there were pressures to reduce quality control to a level which could not assure that all unsafe products would be rejected. Also, sales personnel were encouraged to use questionable sales tactics to obtain orders, including gifts and other incentives to purchasing agents. 财务规划和控制考试助攻
The Chief Executive Officer is disturbed by the findings. In his opinion, such behaviour cannot be condoned by the company. He concludes that the company should do something about this problem.
Required:
As the management accountant of the company, you have been asked by the Chief Executive Officer to write a report to the company based on the following outlines:
a. Identify at least four stakeholders in this situation.
b. Discuss any potential ethical implications, conflicts, or dilemmas in the above situation.
c. Provide suggestions for the company to reduce the pressure placed on managers and any potential ethical conflicts.
(50 marks)
2.
In the Beyond Budgeting report produced by CIMA (2007), it is argued that traditional budgeting is in need for serious revision. Discuss five limitations of traditional budgeting practices and provide five improvements that can be made to facilitate better planning and control.
(50 marks)
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