Get premium membership and access revision papers, questions with answers as well as video lessons.
Financial Modelling And Forecasting Question Paper
Financial Modelling And Forecasting
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
UNIVERSITY EXAMINATIONS: 2010/2011
SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFM 202: F FINANCIAL MODELLING AND FORECASTING
(EVENING)
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
Question One
(a) State five limitations of budgetary control. (5 marks)
(b) Define modeling and state the purpose of modeling. (4 marks)
(c) Identify and briefly explain the four components of time series. (8 marks)
(d) Differentiate between the following terms as used in financial modeling.
(i) Standard error of estimate and standard error of coefficient. (4 marks)
(ii)Economic plausibility and standard error of intercept. (4 marks)
(e) Discuss the advantages and disadvantages of spreadsheet as tool for modeling. (5 marks)
QUESTION TWO
Akon Ltd. produces a wide range of electronic components. The company is preparing budgets for the financial year 2011. The management accountant has obtained the following data on component X, a
key element in the master budget:
Year 2007 2008 2009 2010
Sales (units) 150,000 180,000 200,000 230,000
Sales revenue (Shs) 294,820 346,706 363,000 448,800
Variable costs (Shs) 132,820 162,706 179,000 200,800
Sales for the year 2011 have been estimated at 260,000 units.
Required:
(i) Using linear regression, project the trend and estimate the contribution for the year 2011.
(10 marks)
(ii) Calculate the 95% confidence interval of the contribution forecast for year 2011 in (i) above,given that the standard error of the forecast is Shs.14,500 and the t-value is 4.303. Interpret your answer. (6 marks)
(iii)Comment briefly on the appropriateness of using linear regression in forecasting.
(4 marks)
(Total: 20 marks)
QUESTION THREE
Ujamaa Enterprises Ltd. prepares its cash budget half yearly.
The following information relating to the company is made available to you:
1. Sales forecast for the ten-month period ending 31 October 2009 is as follows:
Month Sales forecast (Shs) Month Sales forecast (Shs)
January 240,000 June 180,000
February 200,000 July 210,000
March 260,000 August 200,000
April 140,000 September 200,000
May 160,000 October 160,000
2. Cash sales represent 20% of total sales.
3. Of the credit sales, 60% are collected in 30 days, 30% in 60 days and the balance in 90 days.
4. Gross profit margin is maintained at 20% of the selling price.
5. Anticipated sales of each month are purchased and paid for in cash in the preceding month.
6. Administration, selling and distribution expenses are budgeted for as follows for the period from April to September 2009:
Month Budgeted expense (Shs) Month Budgeted expense (shs)
April 11,000 July 14,500
May 12,000 August 14,500
June 13,500 September 15,000
7. Payment for installation of a machine costing Shs.80,000 was due on 1 May 2009.
8. Interest on a short term loan of Shs.200,000 at 12% per annum is payable quarterly in April and July.
9. Advance tax of Shs.24,000 is payable on 15 June 2009.
10. Interest on investment amounting to Shs.10,000 per quarter is receivable in June and
September.
11. A balance of 25% of the value of an asset sold by the company for Shs.100,000 is due in
August 2009.
12. The company had a cash balance of Shs.57,500 on 31 March 2009.
Required:
Cash budget of Ujamaa Enterprises Ltd. for the six months ending 30 September 2009.
(20 marks)
(Total: 20 marks)
QUESTION FOUR
The Western is a local government organisation responsible for waste collection from domestic households. The new management accountant of The Western has decided to introduce some new forecasting techniques to improve the accuracy of the budgeting. The next budget to be produced is for the year ended 31 December 2010.
Waste is collected by the tonne (T). The number of tonnes collected each year has been rising and by using time series analysis the new management accountant has produced the following relationship between the tonnes collected (T) and the time period in question Q (where Q is a quarter number. So Q
= 1 represents quarter 1 in 2009 and Q = 2 represents quarter 2 in 2009 and so on).
T = 2,000 + 25Q
Each quarter is subject to some seasonal variation with more waste being collected in the middle
quarters of each year. The adjustments required to the underlying trend prediction are:
Quarter Tonnes
1 –200
2 +250
4
3 +150
4 –100
Once T is predicted the new management accountant hopes to use the values to predict the variable
operating costs and fixed operating costs that The Western will be subjected to in 2010. To this end he
has provided the following operating cost data for 2009.
Volume of waste Total operating cost in 2009
(fixed + variable)
Tonnes $’000s
2,100 950
2,500 1,010
2,400 1,010
2,300 990
Inflation on the operating cost is expected to be 5% between 2009 and 2010.
Required:
(a) Calculate the tonnes of waste to be expected in the calendar year 2010. (10 marks)
(b) Calculate the variable operating cost and fixed operating cost to be expected in 2010 using
regression analysis on the 2009 data and allowing for inflation as appropriate. (10 marks)
(Total: 20 marks)
More Question Papers
Popular Exams
Return to Question Papers