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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:2009
1
UNIVERSITY EXAMINATIONS: 2008/2009
THIRD YEAR STAGE 1 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 201: FINANCIAL PLANNING AND CONTROL (EVENING)
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
(a) With relevant illustration make a distinction between divisionalized companies and functional
organization (10 Marks)
(b) Standard costing is useful production planning and policy formulation. In the light of various
objectives of this system, enumerate its usefulness. (8 Marks)
(c) XYZ Limited intends to acquire a new machine and finds the following alternatives:
Machine A Machine B
Cost 1,000,000 100,000
Estimated residual value - -
Estimated life 4 years 4 years
Estimated future profits
(Before depreciation)
Year 1 50,000 20,000
2 50,000 30,000
3 30,000 50,000
4 10,000 50,000
Required:
Based on, accounting rate of return method which of the two machines should be acquired?
(8 Marks)
2
(d) An organization needs a total of Ksh. 200 million which will be sourced from equity. The cost
of floatation is 8%. Calculate the amount that should be raised by the organization in terms of
equity. (4 Marks)
QUESTION TWO
(a) Obtaining debt finance, involves incurring an assortment of costs. Briefly describe such costs.
(6 Marks)
(b) In measuring performance how does the following relate to each other?
i) Return on investment (2 Marks)
ii) Residual income (2 Marks)
(c) (i) Define cost of capital (2 Marks)
ii) Cost of capital is a crucial aspect in investment appraisal. How can a firm utilize the
concept of cost of finance? (8 Marks)
QUESTION THREE
(a) Explain the reasons behind the popularity of NPV in assessing the viability of a venture.
(7 Marks)
(b) Establishing objectives is an essential pre-requisite of planning process. Distinguish the
Johnson and Scholes hierarchy of objectives. ( 3 Marks)
(c) A company XY Ltd, can invest in one of the following two projects, A and B which require an
initial cash outlay of shs. 1,000,000 .These projects will generate the following cash inflows:-
Year Project A Project B
Shs
1 500,000 600,000
2 40,000 160,000
3 100,000 40,000
4 600,000 500,000
5 160,000 100,000
Required:
Using IRR method, advice the management which of the two projects they should invest in.
(10 Marks)
3
QUESTION FOUR
(a) Jambo company limited is currently involved in the manufacture of 3 products x, y, z. The
following information relates to the month of March, 2008:
Sales: Product Quantity Price
X 1000 100
Y 2000 120
Z 1500 140
The materials used to manufacture the company’s products are:
Material M1 M2 M3
Unit cost (Kshs) 4 6 9
Quantity used in
products
X 4 2 -
Y 3 3 2
Z 2 1 1
The finished stock data is as follows:
Product X Y Z
Quantity on 1st March 1000 1500 500
31st March 1100 1650 550
Information relating to material stock:
1st March (shs) 26,000 20,000 12,000
31st March (shs) 31,200 24,000 14,400
Required:
(b) Prepare the following budgets for the month of March:
i) Sales in quantity and value, including the total value. ( 3 Marks)
ii) Production in quantity ( 3 Marks)
iii) Material usage in quantity ( 3 Marks)
iv) Material purchases in quantity and value including the total value. (3 Marks)
(c) Common shares represents the ownership position of a company. The holders of common
stock shares are the legal owners of the company and they are entitled to dividends from the
company. They also bear the risks of ownership. Analyze the above statement in the light of
who a shareholder is. (8 Marks)
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