At 30 September 2002 the business s final accounts were drawn up as follows: Trading and Profit and Loss Account for the year ended 30 September 2002

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1 PERFORMANCE MANAGEMENT MAY DIET 2016 MOCK EXAM QUESTION 1 On 1 October 2001Saint Mike and his wife formed a limited company, SAINT MIKE Ltd, to run a beautician s business, and each paid in N37500 as share capital. The bank loaned the company a further N80000 at 9% interest per annum. At 30 September 2002 the business s final accounts were drawn up as follows: Trading and Profit and Loss Account for the year ended 30 September 2002 Sales and fees N less Cost of Sales Stock bought 1 October 2001 Purchases N31500 N N Stock at 30 September 2002 N66500 N Gross Profit N less Expenses Rent and Rates Advertising Wages Heat and Light Interest due N3950 N1750 N29000 N5250 N7200 Depreciation N12000 N59150 Net Profit N45850 Statement of Financial Position as at 30 September 2002 Fixed Assets Cost Depreciation NBV Premises N N Fixtures and fittings N48000 N12000 N36000 N N12000 N Current assets Page 1

2 Stock Debtors N66500 N21500 N88000 Amounts to be settled within one year Creditors Interest due N21000 N7200 Bank N18950 N47,150 N40,850 Amounts to be settled after more than one year N Long term loan N80000 N Share Capital and Reserves ordinary shares of N1 N75000 Retained profit N45850 N Industry average ratios and other relevant data concerning businesses similar to SAINT MIKE Ltd were as follows: (i) Gross Profit percentage 30.00% (ii) Net Profit percentage 18.07% (iii) Current ratio 2.21:1 (iv) Liquid (Quick) ratio 1.02:1 (v) Stock Turnover ratio 8 times (vi) Fixed Assets to Sales 50.18% (vii) Return on Total Assets 25.37% (viii) Return on Net Assets 34.93% (ix) Debtors Payment period 25 days (x) Creditors payment period 30 days Page 2

3 (a) Calculate each of the above ratios, to 2 decimal places, for SAINT MIKE Ltd (b) Comment on the business s performance in the light of the data for the industry. NOTE: It is not sufficient to say that a ratio is higher or lower than the industry average it must be made clear whether you think it is better or worse than the industry average and you must give reasons for your comments. QUESTION 2 Find the linear relationship between price (P) and the quantity demanded (Q), i.e. find the straight-line demand equation, in relation to the following sales and demand data: Selling price of N200 = sales of 1,000 units per month. Selling price of N220 = sales of 950 units per month. (a) Use this equation to predict the quantity demanded per month if the selling price is N300. (b) Using the price equation in (a) and assuming the variable cost per unit is N100, calculate the optimum price and output. (c) Calculate the maximum contribution. Page 3

4 QUESTION3 The total fixed costs per annum for a company that makes one product are N100,000, and a variable cost of N64 is incurred for each additional unit produced and sold over a very large range of outputs. The current selling price for the product is N160. At this price, 2,000 units are demanded per annum. It is estimated that for each successive increase in price of N5 annual demand will be reduced by 50 units. Alternatively, for each N5 reduction in price, demand will increase by N50 units. (a) Calculate the optimum output and price, assuming that if prices are set within each N5 range there will be a proportionate change in demand. (b) Calculate the maximum profit. Page 4

5 QUESTION 4 Cabal makes and sells two products, Plus and Doubleplus. The direct costs of production are N12 for one unit of Plus and N24 per unit of Doubleplus. Information relating to annual production and sales is as follows: Plus Doubleplus Annual production and sales 24,000 units 24,000 units Direct labour hours per unit Number of orders Number of batches Number of setups per batch 1 3 Special parts per unit 1 4 Information relating to production overhead costs is as follows: Cost driver Annual cost N Setup costs Number of setups 73,200 Special parts handling Number of special parts 60,000 Other materials handling Number of batches 63,000 Order handling Number of orders 19,800 Other overheads 216, ,000 Other overhead costs do not have an identifiable cost driver, and in an ABC system, these overheads would be recovered on a direct labour hours basis. (a) Calculate the production cost per unit of Plus and of Doubleplus if the company uses traditional absorption costing and the overheads are recovered on a direct labour hours basis. (b) Calculate the production cost per unit of Plus and of Doubleplus if the company uses ABC. (c) Comment on the reasons for the differences in the production cost per unit between the two methods. (d) What are the implications for management of using an ABC system instead of an absorption costing system? Page 5

6 QUESTION 5 A. A company manufactures Product RS. The following data are available: Selling price: N100 per unit Variable cost: N60 per unit. Fixed costs are N250,000. The company budgets to produce 12,000 units in the next period. (a) Scenario I Calculate: (i) The breakeven point (expressed in units and N of revenue). (ii) The level of activity required to generate a profit of N90,000 (expressed in units). (iii) The margin of safety as a percentage. B. R Company provides a single service to its customers. An analysis of its budget for the year ending 31 December 20X5 shows that, in Period 3, when the budgeted activity was 6,570 service units with a sales value of N72 each, the margin of safety was %. The budgeted contribution to sales ratio of the service is 35%. Calculate the budgeted fixed costs in period 3. C. BJS Ltd produces and sells the following three products: Product X Y Z Selling price per unit N16 N20 N10 Variable cost per unit N5 N15 N7 Contribution per unit N11 N5 N3 Budgeted sales volume 50,000 units 10,000 units 100,000 units The company expects the fixed costs to be N450,000 for the coming year. Assume that sales arise throughout the year in a constant mix. Page 6

7 (a) Calculate the weighted average C/S ratio for the products. (b) Calculate the breakeven sales revenue required. Page 7