Analysing financial performance

Transcription

1 Osborne Books Tutor Zone Analysing financial performance Practice assessment 1 Osborne Books Limited, 2013

2 2 a n a l y s i n g f i n a n c i a l p e r f o r m a n c e t u t o r z o n e Task 1 The following information has been calculated for the production of 1 unit of Wye: Each unit will require 0.8 kilograms of material at a total cost of 4.00 Each unit will require 15 minutes of labour at a cost of per hour Fixed overheads total 48,000 and the estimated output will be 15,000 units of Wye Fixed overheads are absorbed on a labour hour basis Complete the standard cost card below. 1 unit of Wye Quantity Cost per unit Total cost Material Labour Fixed costs Total A manufacturer uses 60,000 kg of material to make 1,200,000 units. The standard quantity of material for each unit is kg

3 p r a c t i c e a s s e s s m e n t 1 3 Task 2 A company purchases 17,500 kilograms of material at a cost of 3.59 per kg. The standard cost for 17,500 kg is 63,875. The material price variance is: (c) (d) 0.06 Favourable 1,050 Favourable 1,050 Adverse 0.06 Adverse A company used 9,000 kilograms of material at a cost of 7,380. The production was 1,000 units, for which the standard usage is 8,800 kilograms of material at a total standard cost of 7,040. The material usage variance is: (c) (d) (e) 200 kg Adverse 164 Adverse 160 Adverse 340 Adverse 1,408 Adverse (c) A company expects to produce 15,000 units of Z using 5,000 labour hours. The standard cost of labour is 15 per hour. If the actual output is 18,000 units, what is the standard labour cost for this output? 90, ,000 (c) 62,500 (d) 75,000 (d) A company used 9,000 kilograms of material at a cost of 7,380. The production was 1,000 units, for which the standard usage is 8,800 kilograms of material at a total standard cost of 7,040. The material price variance is: (c) (d) (e) 180 Adverse 160 Adverse 176 Adverse 164 Adverse 340 Adverse

4 4 a n a l y s i n g f i n a n c i a l p e r f o r m a n c e t u t o r z o n e Task 3 You have been given the following information: Budgeted overheads are 800,000 Budgeted output is 40,000 units Actual output is 41,500 units Actual overheads are 798,000 The fixed overhead volume variance is adverse / favourable. The fixed overhead expenditure variance is adverse / favourable. You have been given the following information: Budgeted overheads are 120,000 Budgeted output is 25,000 units and 10,000 labour hours Actual output is 24,700 units and 9,950 actual labour hours Actual overheads are 123,000 The fixed overhead efficiency variance is adverse / favourable. The fixed overhead capacity variance is adverse / favourable.

5 p r a c t i c e a s s e s s m e n t 1 5 Task 4 A company packs shoe polish in tins. The following budgetary control report has been provided: Budget Actual Production (jars) 250, ,000 Shoe polish 25,000 kg 125,000 25,990 kg 130,100 Tins 250,000 units 5, ,050 units 5,210 Direct labour 200 hours 3, hours 3,850 Fixed overheads 20,000 20,450 Total cost 153, ,610 The following variances have been accurately calculated, although for some it is not known whether they are adverse or favourable: Fixed overhead expenditure 450 Direct materials (shoe polish) price 150 Direct materials (tins) price 9 A Direct materials (shoe polish) usage 50 F Direct materials (tins) usage 1 Direct labour rate 110 F Direct labour efficiency 216 Fixed overhead volume 800 Complete the following operating statement, including the budgeted cost for the 260,000 units of production and the variances. Make sure that the total agrees with the actual cost of production.

6 6 a n a l y s i n g f i n a n c i a l p e r f o r m a n c e t u t o r z o n e Budgeted cost for actual production Variances: Favourable Adverse Direct materials (shoe polish) price Direct materials (shoe polish) usage Direct materials (tins) price Direct materials (tins) usage Direct labour rate Direct labour efficiency Fixed overhead expenditure Fixed overhead volume Total variances Actual cost of actual production

7 p r a c t i c e a s s e s s m e n t 1 7 Task 5 The table below contains information about the last three months cost per kilogram for product Gamma. There is an increase in the trend of 0.40 per month. Complete the final row to show the Actual costs. August September October Trend was Seasonal variation was Seasonal variation was Seasonal variation was A company has provided the following information: January February March Total cost 110, , ,500 Total quantity purchased 5,000 kg 5,500 kg 7,000 kg The cost index for March based upon January being the base period of 100 is: (c) 102 (d) 140 (c) The cost per unit of a product has decreased from 450 in January to 444 in April. The cost per unit was 200 when the index was rebased to 100. The cost index in April was 225 and in January 222 The cost index in April was 222 and in January 225 (c) The cost index in April was 444 and in January 450 (d) The cost index in April was 45 and in January 44

8 8 a n a l y s i n g f i n a n c i a l p e r f o r m a n c e t u t o r z o n e Task 6 Redray Limited manufactures copies of DVDs under licence from the original production companies. Each DVD is electronically copied by a computer system onto a blank disc. The process is fully automated and computer controlled, and uses standard costing to monitor costs. Fixed overhead costs are absorbed on the basis of machine (computer) hours. The budgeted output for the month of October was 2 million units, based on absorbing budgeted fixed overheads of 250,000. The standard machine time to produce one DVD is 3 minutes. The following fixed overhead variances have been calculated for the month of October. Fixed Overhead Variance Favourable Adverse Capacity Variance 12,500 Efficiency Variance 50,000 Volume Variance 37,500 Expenditure Variance 25,000 Total Fixed Overhead Variance 62,500 You have determined the following facts about the October operations. The actual output was 1.7 million DVDs. A batch of blank DVDs were found to be faulty and carried a computer virus that infected the main system; this meant that the computer system initially ran slowly and then had to be closed down for a number of hours. The computer system had to be reinstated by a team of specialist consultants at a cost of 30,000; this cost was charged to fixed overheads. The company ran the equipment outside their normal hours in an attempt to make up for the lost machine time. Using this information, together with information that you can calculate, write a report for the Production Director. The report should explain each of the overhead variances (starting with the volume variance) and their likely causes, and describe the impact on the Statement of Profit or Loss for October.

9 p r a c t i c e a s s e s s m e n t 1 9 to: Production Director from: Accounting technician date: xx/xx/xxxx subject: Report on Fixed Overhead Variance for October Volume Variance Capacity Variance Efficiency Variance Expenditure Variance Impact on Statement of Profit or Loss

10 1 0 a n a l y s i n g f i n a n c i a l p e r f o r m a n c e t u t o r z o n e Task 7 Gee Limited is comparing its results with its major competitor Eff plc. You have been given the following information about Gee and Eff for the year just ended. Statement of Profit or Loss Gee Eff Turnover 50, ,000 Cost of production Direct (raw) materials 8,800 10,500 Direct labour 10,500 16,000 Fixed production overheads 8,000 20,000 Total cost of sales 27,300 46,500 Gross profit 22,700 53,500 Selling and distribution costs 12,200 22,500 Administration costs 1,550 1,800 Advertising costs 6,500 20,500 Net profit 2,450 8,700 Other information Gee Eff Number of units sold Units 8,000,000 10,000,000 Net assets ( 000) 60, ,000 Calculate the performance indicators to complete the table on the next page for Gee and Eff: Give answers to two decimal places.

11 p r a c t i c e a s s e s s m e n t Gee Eff Selling price per unit Material cost per unit Labour cost per unit Fixed production overheads per unit Gross profit margin Net profit margin Advertising cost as % of turnover Return on net assets

12 1 2 a n a l y s i n g f i n a n c i a l p e r f o r m a n c e t u t o r z o n e Task 8 Kay Limited manufactures a tomato puree that is currently sold in jars and is considering launching a more concentrated version to replace the current product. It will be sold in small tubes. Current sales volume is 5.0 million units per annum and this is not expected to change. Current fixed production costs are 1.3 million. Current labour cost per unit is 0.30 which is completely variable. Current material cost per unit is 0.75 and is completely variable. Assume inventory levels are kept at zero. Variable material cost of the new product will be 0.12 less per unit than the current food product. Selling price will remain unchanged at 2.00 per unit. Fixed selling and distribution costs will reduce from 370,000 to 320,000. Additional investment in assets will be 2 million which will be depreciated at 200,000 per annum. All other costs will remain the same. Calculate the total annual increase in profit by completing the table below. Units Price/cost Total Savings on materials Reduction in selling and distribution costs Additional depreciation Additional annual profit Based on the new product, calculate the performance measures shown in the following table to help understand any additional risk. Return on additional investment (%) Total fixed costs Contribution per unit Break even sales volume in units Margin of safety (%)

13 p r a c t i c e a s s e s s m e n t Task 9 Elle Limited will be replacing some company cars in the next year and needs to decide whether to purchase or lease the vehicles. The discount factors you will need are shown below. Year Discount factor Year Discount factor Calculate the discounted lifecycle cost of purchasing each car based upon the following: Purchase price of 21,000 Maintenance costs of 500 for each of the next four years, paid annually in arrears A residual value of 4,500 at the end of the four years Year Cash flow Discount factor Present value Net present cost Calculate the discounted lifecycle cost of leasing each car for four years based upon the total annual costs of 5,950 paid annually in advance. This figure includes maintenance. There is no residual value if leased. Year Lease costs Discount factor Present value Net present cost (c) Based on the calculations it is best to purchase / lease each car, which saves a net present amount of

14 1 4 a n a l y s i n g f i n a n c i a l p e r f o r m a n c e t u t o r z o n e Task 10 Exe Limited is developing a new product and a colleague has prepared forecast information based upon two scenarios. The forecast Statement of Profit or Loss for both scenarios is shown below. Scenario 1 is to set the price at 25 per unit with sales of 60,000 units each year. Scenario 2 is to set the price at 22 per unit with sales of 80,000 units each year. Forecast Statement of Profit or Loss Scenario 1 Scenario 2 Turnover 1,500,000 1,760,000 Cost of Production Direct (Raw) Materials 300, ,000 Direct Labour 150, ,000 Fixed Production overheads 500, ,000 Total cost of sales 950,000 1,100,000 Gross profit 550, ,000 Selling and distribution costs 120, ,000 Administration costs 190, ,000 Operating profit 240, ,000 Scenario 1 Scenario 2 Gross Profit margin 36.67% 37.50% Operating Profit margin 16.00% 17.61% Direct Materials as a percentage of turnover 20.00% 22.73% Direct Materials cost per unit Direct Labour cost per unit Selling and Distribution cost per unit Fixed production cost per unit Administration costs per unit Draft a report for the Finance Director covering the following: An explanation of why the operating profit amounts are different, referring to the following: The way that the various costs behave The volumes and contributions for each scenario Any further implications of following scenario 2.

15 p r a c t i c e a s s e s s m e n t To: Finance Director Subject: Scenarios 1 & 2 From: Accounting technician Date: Why are the operating profit amounts different? Cost behaviour Volumes and contributions Further implications of following scenario 2