Module Contact: A Raffoni, NBS Copyright of the University of East Anglia Version 1

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1 UNIVERSITY OF EAST ANGLIA Norwich Business School PG Examination FINANCIAL AND MANAGEMENT ACCOUNTING NBSLM11D Time allowed: 2 hours Answer THREE questions in total: TWO questions from Section A (Total marks 70) ONE question from Section B (Total marks 30) Notes are not permitted in this examination. Do not turn over until you are told to do so by the Invigilator. NBSLM11D Module Contact: A Raffoni, NBS Copyright of the University of East Anglia Version 1

2 Page 2 SECTION A 1. Alpha reports the following financial statements: Income statement ( ) 2012 % 2011 % Revenues 23, % 25, % Cost of goods sold 15,000 65% 16,000 64% Gross margin 8,000 35% 9,000 36% Operating expenses 6,000 26% 5,500 22% EBIT 2,000 9% 3,500 14% Interest expenses 1,500 7% 1,150 5% Tax (30%) 150 1% 705 3% Net income 350 2% 1,645 7% Balance sheet ( ) 2012 % 2011 % Net assets 19, % 17, % Interest bearing liabilities 9,000 47% 7,500 44% Equity 10,000 53% 9,500 56% The following information is also reported: Other details Quick ratio Current ratio REQUIRED: Calculate the following ratios for 2012 and 2011: a) ROE, ROA and financial leverage (opportunity cost of capital: 16%, ROE of best performers in 2012: 20%, ROA of best performers in 2012: 12%) b) ROS and NATR (ROS of best performers in 2012: 10%) (12 marks) (6 marks) c) Provide a conclusive commentary on the company s financial performance (17 marks) (Total: 35 marks)

3 Page 3 2. Omega Ltd is a company producing pottery. In particular it produces trays (Product A) and pots (Product B). In 2012 Gamma incurred in the following direct costs: Direct costs ( ) A B Raw materials 150, ,000 Direct labour 300, ,000 External work done 60, ,000 The company is based on 3 main cost centres: Manufacturing, Sales and Distribution and Information Systems. The Manufacturing department is responsible for production and control of the two products. The Sales and Distribution department manages customer orders. Each order requires the same amount of time to be processed. The Information System department provides support to the other cost centres. In particular, it provides a help-desk service for hardware and software problems. In 2012 the three cost centres generated the following indirect costs: Indirect costs Wages (Manufacturing) 200,000 Wages (Information Systems) 70,000 Rent of the building 60,000 Wages (Sales and Distribution) 100,000 Depreciation of cars used by sales people 70,000 Materials used for the maintenance process 50,000 External consultancies on production 30,000 Total 580,000 The following information is provided about the three cost centres: Sales & Information Manufacturing Distribution System Square metres Number of PCs Cubic metres Number of employees TURN OVER

4 Page 4 The last table reports additional information about the two products: Product A B No. of units produced and sold 4,000 2,500 Machine hours per unit No. of customer orders Selling price ( ) REQUIRED: a) Calculate the full cost per unit of the two products by adopting a cost centres approach to allocate indirect costs. Clearly state any assumptions you make in doing the allocation process. Keep at least 5 decimals places for the overhead allocation rates and 2 decimals places for the final allocation. (19 marks) b) Calculate the operating profit and the return on sales (ROS) of the two products (4 marks) c) Product B has a negative profitability. The managing director suggests stopping its production starting from next year. Assuming that only half of the indirect manufacturing costs related to its production can be eliminated and that the direct labour force cannot be made redundant, do you think the company should abandon product B? Write a note to the managing director explaining your calculations. (12 marks) (Total: 35 marks)

5 Page 5 3. In 2012 Beta Ltd produced and sold 170,000 printers. The company incurred fixed costs of 6,570,000 and variable costs of 11,320,000. Printers were sold at 105 each. REQUIRED: a) Calculate the profit, the break-even point and the margin of safety of Beta Ltd in b) Comment on the results obtained (8 marks) (4 marks) c) What is the variable cost per unit the company should have incurred to get a return on sales (ROS) of 7% in 2012? Assume prices, fixed costs and quantities produced and sold remain the same. (10 marks) d) For 2013 the company forecasts a 6% increase in the quantities sold. The price of the printer will increase as well by 2%. Beta Ltd believes it is possible to cut fixed costs by 3%. Do you think the company will be able to break even in these new market conditions? Support your answer with appropriate calculations. (13 marks) (Total: 35 marks) TURN OVER

6 Page 6 SECTION B 4. NPV is the gold standard in investment appraisal. Discuss this statement by explaining the following questions: a) What are the definition and advantages of the NPV method? (13 marks) b) What are the main disadvantages of the payback period method compared with the NPV method? (8 marks) c) If there is capital rationing, would the NPV method still hold? Explain your answer. What would be the appropriate investment appraisal method then? (9 marks) (Total: 30 marks) 5. Accounting can be divided into two main disciplines: Management Accounting and Financial Accounting. a) Describe what is meant by the terms Management Accounting and Financial Accounting. By using examples of the types of outputs provided in each discipline, outline the purpose of Management Accounting and Financial Accounting to users of accounting and financial information. (16 marks) b) Contrast the different focus of Management Accounting and Financial Accounting, using the following headings: Users, Time focus, Level of detail, Range and quality of information and Regulation. (14 marks) (Total: 30 marks) END OF PAPER