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Cfm 201 Financial Planning And Control Question Paper
Cfm 201 Financial Planning And Control
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
1
UNIVERSITY EXAMINATIONS: 2011/2012
YEAR 2 EXAMINATION FOR THE BACHELOR OF COMMERCE
CFM 201 FINANCIAL PLANNING AND CONTROL- (SUNDAY)
DATE: APRIL 2012 TIME: 2 HOURS
INSTRUCTIONS: Answer Question One and Any other Two Questions
QUESTION 1
Embakasi Ltd. is an engineering firm that produces two products, Dot and Tot. the budget for the
forthcoming year to 31st march,2011 is to be prepared. Expectations for forthcoming year include the
following.
NON-CURRENT ASSETS Ksh Ksh
Land and buildings 45000
Plant and equipment at cost 187000
Less provision for depreciation 75000 112000
CURRENT ASSETS
Raw materials 7650
Finished goods 23600
Accounts receivable 19500
Cash 4300
55050
CURRENT LIABILITIES
Accounts payable 6800
Working capital 48250
205250
Financed by:
2
Share capital 150000
Retained earnings 55250
205250
Finished products
The sales director has estimated the following.
Dot Tot
Demand for the company’s products 4500 units 4000 units
Selling price per unit sh32 sh44
Closing inventory of finished goods 400 units 1200 units
Opening inventory of opening goods 900 units 200 units
Units cost of this opening inventory sh20 sh28
Amount of plant capacity required for
each unit of product:
Machining 15 min 24min
Assembly 12 min 18 min
Raw material content per unit of
each product
Material A 1.5 kg 0.5 kg
Material B 2.0kg 4.0kg
Direct labour hours required per unit
of each product 6 hours 9 hours
Finished goods are valued on a FIFO basis at full production cost.
Raw materials
Material A Material B
i) Closing stock requirement in Kilos 600 1000
ii) Opening stock as at 1st April,2010 1100 6000
iii) Budgeted cost of raw material per kilo sh.1.50 sh.1.00
Actual cost per kilo of opening stocks are as budgeted cost for the coming year
Direct labour
The standard wage rate of direct labour is Ksh.1.6 per hour.
3
Required
i) Sales budget
ii) Production budget (in units)
iii) Plant utilization budget
iv) Direct material usage budget
v) Direct labour budget
vi) Direct material purchases budget (24 Marks)
b) What are the possible advantages for the control function of an organization of having a
standard costing system? (6 Marks)
QUESTION 2
Donyo sabuk is company that manufactures two products and has furnished you with the following
data for a year:
Product annual output Total Total number of Total number
(units) machine hours purchases orders of set -ups
ZED 10,000 40,000 320 40
TEE 120,000 240, 000 768 88
The annual overheads are as under:
Rs.
Volume related activity costs 1,100,000
Set –up related costs 1,640,000
Purchase related costs 1,236,000
You are required to calculate the cost per unit of each product Zed and Tee based on:
a. Traditional method of charging overheads (6 Marks)
b. Activity based costing method. (9 Marks)
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c. Interpret your results in (a) and (b) above and advise Ol’ Moran’s management on the pricing
of products Zed and Tee. (5 Marks)
QUESTION 3
El wak co. Ltd wishes to expand its business. On 31st December 2009, the company had the following
existing and proposed capital structures to support its expansion program
Existing
i) 10% debt capital whose book value is sh. 1,000,000 with a market value of sh. 800,000.
ii) 15% preference stock capital, 200,000 shares @10 with a market value of sh.3, 000,000.
iii) 400,000 ordinary shares with a current market price of sh.15 per share. The firm’s
expected earnings per share (EPS) stand at sh.5.00; its growth rate is 8% and has a
dividend payout of 55%.
New additional finance
i) A sh.4, 500,000 loans at an interest rate of 12% is to raised at a cost of sh.300, 000
floatation costs.
ii) To issue 500,000 ordinary shares at a market price of sh 15 per share and a floatation
cost of sh.250, 000.
Required
The firm’s
a) Weighted Average Cost Capital after the expansion program. (10 Marks)
b) Mobitel is a firm in telecommunication sector. Over the last five years it has posted the highest
returns in telephony in the sector .The bulk of which is the-invested back. A shareholder of the
company wishes to sell his shares but cannot understand why their selling price is very low at the
stock exchange.
Explain to him reasons why the company’s share has a low market price despite its high profit.
(4 Marks)
c) Explain FOUR benefits a limited liability company’s creditors would get by lending fixed return
capital as opposed to holders of variable return capital holders (6 Marks)
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QUESTION 4
Tulkwel Plc wishes to select the best of three possible plants, each of which is expected to satisfy the
firm’s ongoing need for additional nickel capacity. The three plants Q, R & S are equally risky. The
firm plans to use 14 % cost of Capital to evaluate each of them. The initials investment and annual
cash inflow over a life of each plant are shown in the following table.
Plant Q Plant R Plant S
Initial investment (CF)
sh 850,000 Shs 600,000 sh800,000
Years (t) Cash flows (cft)
1 200,000 250,000 275,000
2 200,000 220,000 275,000
3 200,000 180,000 275,000
4 180,000 170,000 275,000
5 180,000 ---- 275,000
6 180,000 ---- ------
Required
a) Use the annualized net present value (ANPV) approach to evaluate and rank the machines in
descending order on the basis of ANPV.
b) Calculate the IRR of each plant and compare and contrast your findings in part (a) above. Which
plant would you recommend that the firm acquire? Why?
(14 Marks)
c) Why would the management of a firm find transfer pricing useful in its production processes?
(6 Marks)
QUESTION FIVE
The standard cost card for product ‘Comsim’ reveals:
Standard materials: sh.
2 kgs of ‘A’ sh. 2 per kg 4.00
1 kg of ‘B ‘ sh. 6 per kg 6.00
Direct labour (3 hours @ sh.6 per hour) 18.00
Variable Overhead (3 hours @ sh.4 per direct labour hour) 12.00
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Total standard cost per unit 40.00
It is proposed to produce 10,000 units of ‘Comsim’ in the month of March and budgeted cost based on
the information contained in the standards cost card are as follows:
Direct materials: sh.
A. 20,000 kg. @ sh.2 per kg 40,000
B. 10,000 kg. @ sh. 6 per kg 60,000
Direct labour (30,000 hours @ sh.6 per hour) 180,000
Variable Overhead (30,000 hours @ sh.4 per direct labour hour) 120,000
Sh. 400,000
The actual results are:
Direct Materials:
A. 19,000 kg. @ sh 2.20 per kg 41,800
B. 10,100 kg. @ sh. 5.60 per kg 56,560
Direct labour (28,500 hours @ sh.6.40 per hour) 182,400
Variable Overhead 104,000
sh. 384,760
Actual production were 9,000 units
From the above information calculate the following variances:
a) Material:
i) Price variance (3 Marks)
ii) Usage variance (3 Marks)
b) Labour:
i) Wages rate variance (3 Marks)
ii) labour efficiency variance (3 Marks)
c) Total variable overhead variance. (3 Marks)
d) Overhead expenditure variance. (3 Marks)
Make recommendations to the firm’s management in the light of your calculated variances above.
(2 Marks)
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