The University of the South Pacific

Serving the Cook Islands, Fiji, Kiribati, Marshall Islands, Nauru, Niue, Samoa, Solomon Islands, Tokelau, Tonga, Tuvalu, and Vanuatu.

SCHOOL OF ACCOUNTING
AND FINANCE

DISTANCE AND FLEXIBLE LEARNING MODE

AF 100: INTRODUCTION TO ACCOUNTING

AND FINANCIAL MANAGEMENT FOR THE
NON-SPECIALIST

FINAL EXAMINATION
SEMESTER 1, 2010

Time Allowed 3 hours plus 10 minutes reading

100 marks (50% of final grade)

INSTRUCTIONS

1. This exam has three sections:

a. Section A: 30 marks
b. Section B: 50 marks
c. Section C: 20 marks
2. Answer all questions in sections A, B and C. There are no choices.
3. Write your answers in the answer booklet provided.
4. For questions in section C, begin answering each question on a fresh
page.
5. You can use calculators.
6. This exam is worth 50% of your overall mark. The minimum exam
mark is 20/50.

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Section A 15 multiple choice questions (30 marks)

Circle the letter of the correct choice on the multiple choice answer sheets provided.

1. Among other things, a budget is simply

A. an expression of past trading positions.

B. an expression of future trading positions.
C. the quantitative expression of an entity’s plan.
D. none of the above

2. Relevant costs and revenues are those costs that usually

A. are considered as opportunity cost.

B. are considered as overhead costs only.
C. differ among alternative uses.
D. appear in the next accounting period.

3. Before a make or buy decision is made it is important to identify

A. avoidable costs.
B. unavoidable costs.
C. cost benefits of the decision.
D. all of the above.

4. Opportunity cost refers to

A. the linked activities undertaken by an entity.

B. the linked activities undertaken at the inception stage of the product or service.
C. the linked costs undertaken at the delivery stage to customers.
D. the cost of what is given up if an alternative is chosen

5. The ARR is calculated by dividing which of these?

A. Gross profit by ordinary share returns

B. Net profit by preference share returns
C. Average profit by average investment
D. Net profit by average investment

6. What is the disadvantage of the ARR method?

A. It is difficult to understand.
B. It ignores the importance of cash as the ultimate resource, without which
businesses cannot survive.
C. It is relatively unknown.
D. None of the above.

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7. The decision rule with Internal Rate of Return (IRR) is to accept projects

A. for which the IRR exceeds the entity’s Required Rate of Return (RRR).
B. that have a positive time value for money.
C. that ignore inflation.
D. for which the Pay back Period is greater than the IRR.

8. The equation used to find the IRR is the same as

A. the NPV if we set it to zero.

B. the ARR for all non-cash investments.
C. the ARR if we set it to zero and make the RRR 15 percent.
D. none of the above.

9. How can net working capital be defined?

A. Funds invested in the entity

B. Current assets less current liabilities
C. Debts to be repaid within the next 12 months
D. Current assets less inventory

10. A master budget

A. consists mainly of the financial statements.

B. is a set of interrelated budgets for a future period.
C. is a set of interrelated budgets for the current period.
D. is a summary of the cash budget.

11. By comparing the planned level of activity with the break-even point, managers
are in a better position to

A. evaluate the risk involved in the activity.

B. change the fixed cost structure of the entity.
C. make a profit for this particular activity.
D. evaluate how employees have preformed.

12. A basic underlying assumption for CVP analysis is that

A. unit selling price remains constant over the time period.

B. unit cost remains constant over the time period.
C. fixed costs remain fixed over the time period.
D. all of the above.

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13. The payback period relates to the period in which

A. the loan is paid fully paid.

B. the interest is fully paid.
C. the initial amount invested in a project is fully recovered.
D. None of the above.

14. On a per-unit basis, if selling price for a product is $20, variable cost is $8, and
fixed cost is $3, what is the contribution margin?

A. $12
B. $17
C. $9
D. $20

15. Using the same financial information from question 14, what would the profit
for the manufacturing entity (per unit produced) be?

A. $12
B. $17
C. $9
D. None of the above

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Section B Discussion questions (50 marks)

Question 16 (10 marks)

Your friend has just come out of a business school and is very keen about starting a
business of his own. Discuss four ways in which your friend can raise finance for his
business.

Question 17 (10 marks)

‘Budgeting is seen as a crucial activity in all successful organizations.’

Discuss four advantages of preparing budgets in organizations.

Question 18 (10 marks)

A manufacturer found that it was cheaper to make a part instead of buying it. Discuss
four qualitative factors which the manufacturer must consider before deciding to make
the part.

Question 19 (10 marks)

Identify and describe four sources of debt finance.

Question 20 (10 marks)

Net Present Value (NPV) is superior to all investment appraisal techniques.

a. Explain what Net Present Value is and the decision rule for using it.

(5 marks)
b. Discuss advantages and disadvantages of NPV technique.

(5 marks)

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Section C (20 marks)

Question 21 Working Capital Management (10 marks)

The following information is available for Johnson Ltd:

Year 2007 2008 2009

Current Ratio 2.6:1 1.9:1 1.3:1
Debtors turnover period 37 days 43 days 47 days
Creditors turnover period 8 days 9 days 31 days
(Credit terms, there is 2%
discount for payment
within 10 days)
Inventory turnover period 48 days 54 days 65 days

a. Comment on the efficiency of working capital management in Jones Ltd.

(5 marks)

b. What changes in the working capital management policies do you suggest in regarding
debtors?
(5marks)

Question 22 (10 marks)

The cost details for manufacturing 2000 units of a product are given below:

Direct Materials $2.50 per unit

Direct Labor $1.50 per unit

Factory Overhead:
Variable costs $2.50 per unit
Fixed costs $12 000

a. Find the unit cost of manufacturing if 2000 units are produced.

(3 marks)
b. Find the total cost of manufacturing 3000 units.
(5 marks)
c. Explain giving two reasons why unit cost information is important to management.

(2 marks).

The End

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 THE UNIVERSITY OF THE SOUTH PACIFIC

AF100 INTRODUCTION TO ACCOUNTING AND FINANCIAL MANAGEMENT FOR THE

NON-SPECIALIST S1, 2010

SECTION A: MULTIPLE CHOICE QUESTIONS ANSWER SHEET

Surname___________________________OtherNames__________________________

Student Number______________________________________

PLEASE CIRCLE THE CORRECT RESPONSE AND

HAND THIS SHEET IN WITH YOUR ANSWER BOOKLET

1 A B C D

2 A B C D

3 A B C D

4 A B C D

5 A B C D

6 A B C D

7 A B C D

8 A B C D

9 A B C D

10 A B C D

11 A B C D

12 A B C D

13 A B C D

14 A B C D

15 A B C D