Professional Documents
Culture Documents
Section A
1 D
365 / 23
100
2 A 100 – 1 – 1 = 17·3 %
365 / 23
1
1 + 99 – 1 = 17·3 %
Candidates should answer it as above, therefore getting answer A. Otherwise, they will just try and guess it, in which case any
of the answers is feasible!
3 B Maximum inventory level = reorder level + reorder quantity – (min. usage x min. lead time)
Reorder level = max. usage x max. lead time = 1,000 x 10 = 10,000 kg.
Max. inventory level = 10,000 + 1,000 – (300 x 5) = 11,000 – 1,500 = 9,500.
Distractor A = 10 x 1,000
Distractor C = 5 x 300
Distractor D = A – C.
4 C
5 A $
Admin fee: $5,000,000 x 1% 50,000
Cost of financing receivables
$5,000,000 x 30/365 x 8% 32,877
––––––––
Total cost with factor 82,877
Less cost before factor 65,753
––––––––
Net cost of factor –17,124
––––––––
––––––––
Distractor B: Candidate gets it wrong way round.
Distractors C & D: Candidate only compares admin fee to cost without factor.
7 D
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10 C a
IRR = A + × (B – A)
a– b
Where A is the lower rate and B is the higher rate; a is the NPV at the lower rate and b is the NPV at the higher rate.
24,800
5% + –––––––– x (5%)
37,200
= approx. 8%
Other distracters: feasible IRRs for candidates who haven’t learnt the formula!
Section B
1 (a) Cash budget for the six months ended 31 December 2010.
Jul Aug Sep Oct Nov Dec
$ $ $ $ $ $
Cash inflows (w.s1–3)
Course fees – new customers – 19,200 19,200 28,800 19,200 28,800
– returning customers – 7,200 7,200 10,800 7,200 10,800
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Total cash inflows – 26,400 26,400 39,600 26,400 39,600
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Cash outflows
Tutor costs (w.4) – 6,000 12,000 9,000 12,000 12,000
Staff costs (w.5) 1,000 4,000 4,200 4,200 4,200 4,200
Property costs (w.6) 6,000 6,300
Food costs (w.7) 1,100 – 1,200 1,224 1,872 3,216
General overheads (w.8) 2,585 1,185 1,185 1,185 1,185 1,185
Capital expenditure (w.9) 2,430 2,430
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Total cash outflows 4,685 13,615 24,585 18,039 19,257 26,901
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Net cash flow (4,685) 12,785 1,815 21,561 7,143 12,699
Cash b/f – (4,685) 8,100 9,915 31,476 38,619
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Cash c/f (4,685) 8,100 9,915 31,476 38,619 51,318
–––––––
––––––– –––––––
––––––– –––––––
––––––– –––––––
––––––– –––––––
––––––– –––––––
–––––––
14
Working 3: budgeted fees from returning customers
Jul Aug Sep Oct Nov Dec
Fees with 25% reduction $ – 900 900 900 900 900
No. of attendees for month
paying reduced fee (1/3) – 8 8 12 8 12
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Total reduced price fees $ – 7,200 7,200 10,800 7,200 10,800
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Working 4: Tutor Costs
Jul Aug Sep Oct Nov Dec
No. of courses – 2 4 3 4 4
Cost per course $ – 3,000 3,000 3,000 3,000 3,000
Cost of assistant (irrelevant
– paid by Oliver James) $ – 0 0 0 0 0
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Total cost per month $ – 6,000 12,000 9,000 12,000 12,000
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Working 5: staff costs $
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
(Increase of 5% from September) 1,000 4,000 4,200 4,200 4,200 4,200
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Working 6: Rental payments
Current quarterly payments = $24,000/4 = $6,000 per annum.
From December, annual rent = $24,000 x 1·05 = $25,200.
Therefore, quarterly rent = $6,300 in December.
Working 7: food costs
Jul Aug Sep Oct Nov Dec
Budgeted attendees (w.1) – 24 24 36 24 36
Food cost per head $ – 50 51 52 53 54
Total food cost per month $ – 1,200 1,224 1,872 1,272 1,944
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Payable one month later $ 1,100 – 1,200 1,224 1,872 3,216
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Working 8: General overheads
Business rates = $8,350/10 = $835 for each of the six months.
Fuel = $4,200/12 = $350 per month. In July, = $350 + (4 x $350)
= $1,750.
Total = $2,585 for July. $1,185 for each month August to December inclusive.
Working 9: Capital expenditure
Total cost = 3 x (1,800 x 90%) = $4,860.
Half = $2,430 – payable in August and October.
15
2 (a) Working capital requirements:
Current assets: $ $
Raw materials (8/52 x $13m) 2,000,000
Finished goods:
– raw material element (6/52 x $13m) 1,500,000
– labour element (6/52 x $16·25m) 1,875,000
– variable overhead element (6/52 x $9·75m) 1,125,000
––––––––––
4,500,000
WIP:
– raw material element (2/52 x $13m x 75%) 375,000
– labour element (2/52 x $16·25m x 50%) 312,500
– variable overhead element (2/52 x $9·75m x 50%) 187,500
––––––––––
875,000
Accounts receivable (9/52 x $65m) 11,250,000
–––––––––––
Total current assets 18,625,000
Less current liabilities:
Accounts payables:
Direct materials (6/52 x $13m) (1,500,000)
Direct labour (1/52 x $16·25m) (312,500)
Variable overheads (8/52 x $9·75m) (1,500,000)
Fixed overheads (5/52 x $11·7m) (1,125,000)
Selling and distribution (4/52 x $3·25) (250,000)
––––––––––
(4,687,500)
–––––––––––
Working capital requirement 13,937,500
–––––––––––
–––––––––––
Working 1: Annual costs
$
Turnover: $65,000,000
Direct materials $65m x 20% 13,000,000
Direct labour $65m x 25% 16,250,000
Variable overheads $65m x 15% 9,750,000
Fixed overheads $65m x 18% 11,700,000
Selling and distribution costs $65m x 5% 3,250,000
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Purpose of the borrowing
The purpose of the borrowing affects not only the interest rate but also the bank’s decision as to whether or not to lend in
the first place. It will normally lend in order to finance working capital, provided that the company’s liquidity position is still
manageable. The bank will carry out some financial analysis, looking at Bulb Co’s key ratios, in order to assess this.
Amount of the borrowing
Firstly, the bank will need to make sure that Bulb Co is not asking for more money than it needs for the purpose specified. If it
is, this casts doubt over its ability to repay.
Secondly, the bank needs to be sure that Bulb Co is asking for enough money. If it is not, the bank may well end up having to
lend more in order to safeguard the original loan.
Repayment terms
Banks will pay close attention to the repayment terms when considering granting a loan. Obviously, being sure that a borrower
will repay is critical and a bank should not lend money just because the borrower has security for the loan. Taking ownership
of and selling any of the borrower’s assets would be a cumbersome process and is really a last resort.
Payment terms need to be clearly agreed, documented and realistic, given the borrower’s financial position.
Insurance
The bank will need to be satisfied that Bulb Co’s business is adequately insured. An underinsured business can be disastrous.
In addition, Bulb Co may wish to obtain payment protection insurance just to make sure that it can meet all of its loan
repayments. Having said that, the bank must be satisfied that this is the case, without relying on any payment protection plan
taken out by the company.
NOTE: Only four factors were required.
(b) Calculations
ARR
$’000
Increased revenues (5 x $5m) 25,000
Less increased costs (5 x [1,500 + 1,000]) –12,500
––––––––
Profit before depreciation 12,500
Less depreciation ($8m – 0·5m) –7,500
––––––––
Profit after depreciation 5,000
Average annual profits ($5m/5) 1,000
Average investment = (initial investment + residual value)/2
= ($8,000,000 + $500,000)/2
= $4,250,000
Therefore, ARR = 1,000,000/4,250,000
= 23·53%
17
(b) Payback period
Cash flow Cumulative cash flow
$’000 $’000
Initial outlay –8,000 –8,000
Year 1 2,500 –5,500
Year 2 2,500 –3,000
Year 3 2,500 –500
Year 4 2,500 2,000
Year 5 2,500 4,500
Payback occurs 500/2,500 through year 4 i.e. After 3·2 years.
Since the hospital has a minimum ARR of 20% and a minimum PP of 4 years and this project has an ARR of 23·53% and a
PP of 3·2 years, using these methods of appraisal, the investment should proceed.
(c) Disadvantages
Disadvantages of ARR
– Ignores time value of money
– Uses subjective ‘profits’ rather than cash flows
– Does not aim to maximise shareholder wealth
– Ignores how profits distributed over the period
NOTE: Only TWO disadvantages were required.
Disadvantages of payback period
– Ignores the time value of money.
– Ignores cash flows after the payback date.
– Does not take into account how cash flows are distributed during the payback period.
NOTE: Only TWO disadvantages were required.
(d) NPV
(i) The net present value of an investment is the sum of the present values of all future cash flows less the initial amount
invested. The method therefore takes into account the timing of cash flows by taking future cash flows and discounting
them to reflect the fact that, for example, $1 received in five years’ time is not worth the same as $1 received today. The
discount rate used is the company’s cost of capital i.e. the rate it pays on keeping money tied up in the business.
(ii) Calculations
Time Cash flow D.F/A.F Present value
$’000 $’000
0 (8,000) 1 (8,000)
1–5 2,500 3·791 9,478
5 500 0·621 311
––––––––
1,789
––––––––
The net present value of the project is $1·789 million. Since this is positive, the project should be undertaken.
18
(b) New break-even sales revenue
Direct materials $
– Paper 0·04
– Ink (0·3 x 90%) 0·027
––––––
0·067
Direct labour 0·01
Variable overheads (0·02 x 70%) 0·014
––––––
Variable cost per unit 0·091
Selling price per unit 0·15
––––––
Contribution per unit 0·059
––––––
––––––
Fixed overheads would increase by $60,000 (12 x $5,000)
Therefore, the new break-even sales revenue is:
Fixed costs
––––––––––––––––– x selling price
Contribution per unit
$420,000 + $60,000
= –––––––––––––––––––– x $0·15 = $1,220,339.
$0·059
19
ACCA Certified Accounting Technician Examination, Paper T10
Managing Finances June 2010 Marking Scheme
Section A
Marks
Answers 1 to 10
2 marks per question 2
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Total 20
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Answer 1
1 (a) Cash budget
Budgeted attendees 2
Budgeted fees – new 2
Budgeted fees – returning 2
Tutor costs (incl. ignore Mark) 1
Staff costs 2
Property costs 1
Food costs 2
General overheads 2
Capital expenditure 1·5
Net cash flow 0·5
Cash b/f 0·5
Cash c/f 0·5
–––
17
–––
21
Marks
2 (a) Working capital requirements
Calculation of costs (Wg 1):
Direct materials 0·5
Direct labour 0·5
Variable overheads 0·5
Fixed overheads 0·5
Selling and distribution costs 0·5
–––
2·5
–––
Calculation of current assets:
Raw materials 0·5
WIP 3
Finished goods 1·5
Receivables 1
–––
6
–––
Calculation of current liabilities
Accounts payable:
Direct materials 0·5
Direct labour 0·5
Variable overheads 0·5
Fixed overheads 0·5
S & D 0·5
–––
2·5
–––
Working capital required 1
–––
Total marks for (a) 12
–––
(b) Factors
Each factor well described 2
–––
8
–––
Overall total 20
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22
Marks
3 (a) ARR and PP
Each definition 1
–––
2
–––
(b) Calculations
Calculation of average profits 2
Calculation of average investment 1
ARR 1
Calculations of cash flows 2
PP 1
Recommendation 1
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8
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(c) Disadvantages
Per valid disadvantage 1
–––
Maximum marks 4
–––
(d) NPV
–––
(i) Explanation 2
–––
(ii) NPV calculation
Investment 1
Revenues 1
Residual value 1
NPV and recommendation 1
–––
4
–––
Overall total 20
–––
–––
(c) Indifference
Explanation 2
Calculation 4
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6
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