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MBA AM D/L Aug 2009

Subject Style and year of examination Title of Paper Time Allowed

MASTER OF BUSINESS ADMINISTRATION AUGUST 2009 MODULE 3: ACCOUNTING FOR MANAGERS TWO HOURS

_________________________________________________________________________________________________________ Instructions to candidates

There are two sections to the paper. Candidates should attempt ONE question from Section A and ONE question from Section B. Non-programmable calculators may be used.
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SECTION A 1. Analyse the financial position and performance of a manufacturing company, Wroxham plc, for 2007 and 2008, based on the following information, supporting your comments and conclusions with appropriate financial ratios. (50%)
Profit and Loss Account for the year ended 31 December 2007 m Turrnover Cost of Sales Gross Profit Operating Expenses (note 1) Operating Profit Interest Profit before taxation Corporation tax Profit after taxation Dividends Retained Profit for year 93.4 68.4 25.0 12.6 12.4 4.5 7.9 2.1 5.8 4.0 1.8 2008 m 126.0 94.0 32.0 18.8 13.2 6.0 7.2 1.8 5.4 5.0 0.4

Note 1. The operating expenses shown above include annual depreciation charges as follows: 2007 2008 m m Freehold premises 1.0 1.0 Machinery and equipment 2.2 2.6 Motor vehicles 2.4 2.6

Balance Sheet as at 31 December 2007 Fixed Assets Freehold premises (note 2) Machinery and equipment (note 2) Motor vehicles (note 2) Current Assets Stock Debtors Less: Creditors due within 1 year Creditors Corporation Tax Dividends Bank Overdraft 18.4 2.1 4.0 3.6 28.1 33.7 67.3 Less: Creditors due beyond 1 year Loan Net Assets Share Capital & Reserves 1 Ordinary Shares (note 3) Retained Profit 20.0 17.3 37.3 Note 2. The costs of the fixed assets were as follows: 2007 m 20.0 35.0 10.2 31 December 2007 3.80 2008 m 26.0 37.0 10.2 31 December 2008 2.20 30.0 17.7 47.7 30.0 37.3 35.0 47.7 25.3 1.8 5.0 12.5 44.6 47.3 82.7 30.8 31.0 61.8 43.9 48.0 91.9 m 15.0 12.8 5.8 33.6 2008 m 20.0 12.2 3.2 35.4

Freehold premises Machinery and equipment Motor vehicles Note 3. The market price of an ordinary share was:

2.

a) To what extent do published financial statements provide investors with the information they need? (30%) b) 'Depreciation does not necessarily retain enough money in the business for a fixed asset to be replaced, nor does it show the value of fixed assets on the balance sheet'. Discuss. Explain what depreciation accounting does and does not achieve within an historical cost-based system. (20%) (Total 50%)

SECTION B 3. In March 2009, LV Ltd was making four different products, as follows: W X Y Sale price per unit 100 70 60 Variable cost per unit (70) (40) (40) Fixed cost per unit (10) (15) (8) Profit per unit 20 15 12 Monthly demand (units) Machine hours per unit 250 6 100 5 200 2

Z 40 (25) (5) 10 150 2

1650 hours of machine time are available during March. The firm allocates its total fixed costs for the month to the products it expects to produce in that month. a) Produce a production plan that identifies the number of units of each product that it should produce in March, in order to maximize its profits. (15%) b) Calculate the profit that will result from this plan. (10%)

c) Compare the information provided by (i) a marginal costing system and (ii) a full costing system as a basis for a wide range of short-term decisions. Give examples to illustrate your arguments. (25%) (Total 50%)

4.

The following are the budgeted and actual profit and loss accounts for Cairo Ltd for the month of November: Budget Actual Output 1,000 units 1,200 units (production and sales) 200,000 (40,000) (45,000) (30,000) (15,000) (20,000) 50,000 228,000 (57,500) (44,800) (39,900) (17,600) (21,400) 46,800

Sales revenue Raw material A Raw material B Labour X Labour Y Fixed overheads Operating profit

(40,000 kilos) (30,000 kilos) (3,000 hours) (2,000 hours)

(50,000 kilos) (32,000 kilos) (3,800 hours) (2,200 hours)

a) From the above data, prepare a statement of variances that reconciles the budgeted to the actual profit. (35%) b) Using the variances, provide a full explanation of why the firm has been less successful than planned. (15%) (Total 50%)

END OF PAPER AA/KLB 170609