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Financial Planning And Control (Sunday) Question Paper
Financial Planning And Control (Sunday)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
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UNIVERSITY EXAMINATIONS: 2010/2011
SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
CFM COMMERCE
201: FINANCIAL PLANNING AND CONTROL (SUNDAY)
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
Question One
a) Engen oil co. is a multinational oil venture firm which successively drilled oil in El-Wak, NFD.
Each of its three divisions of production, transportation and refining operate a profit center.
Production division manages the extraction of crude oil in a field near El-Wak. Transportation
division manages the operation of a pipeline that transports crude oil from El-Wak to port
Mtwapa along the Indian Ocean.
Refining division manages a refinery at Port Mtwapa which processes crude oil into petrol.
The production department can sell crude oil to other clients in the El-Wak county at sh 2400 per
barrel. The transportation division “buys” crude oil from the production division and transports it
to Port Mtwapa and then” sells” it to the Refining division. The refining division has been
operating at full capacity using oil from Engen’s production division and oil bought from other
producers at sh. 3600 per barrel. Two barrels of crude oil after processing yields one barrel of
refined petrol.
The operating data of Engen oil co. is as follows:
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PRODUCTION DIVISION
Variable cost per barrel of crude oil sh. 400
Fixed cost per barrel of crude oil 1200
Absorption costs 1600
TRANWPORTATION DIVISION
Variable cost per barrel of crude oil 200
Fixed cost 600
Absorption cost 800
REFINING DIVISION
Variable cost per barrel of petrol 1600
Fixed costs 1200
Absorption costs 2800
The external selling price per barrel of petrol to third parties is sh.10800
The transfer pricing methods involving 500 barrels of crude oil produced by Engen oil co. are:
Method- A
200% of variable costs, where variable costs are the costs transferred- in-product plus the
division’s own variable costs.
Method –B
150% of the absorption costs, where
Absorption cost s is the costs transferred –in- product plus the division’s own variable and fixed
costs.
Method- C
Market price
Required:
i) Division operating income statements for Engen’s oil company for 500 barrels of
crude oil under alternative transfer-pricing methods. (15 Marks)
ii) Calculate the total net operating income under the three alternative methods and
give your comments. (5 Marks)
b)Seaboat is a company that deals in fast moving merchandise and is currently paying a dividend
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of sh.5.00 per share. The dividend is expected to grow at a12% p.a for 4 years, then at 9% for the
next 3 years, after which it is expected to grow at 5% for ever.
What is the present value of the share if the capitalization rate is 10%? (5 Marks)
c) State the salient features of budget cycle (5 Marks)
Question Two
Mumbi groceries is busy enterprise operating in Gikomba county and has provided you with the
following information regarding their projected revenue items for July to December, 2010.
a)Month June July Aug Sept Oct Nov Dec
Ksh ‘000’ ‘000’ ‘000’ ‘000’ ‘000’ ‘000’ ‘000’
Sales 3500 2500 4000 5000 3500 6000 6500
Purchases 1400 1600 1700 2000 2000 2500 2800
Wages and salaries 1200 1400 1400 1800 1800 2000 2200
Sundry expenses 500 600 600 600 700 700 700
Interest received 200 - - 200 - - 200
Sale of shares - - 2000 - - - -
b)20% of the sales are in cash and the balance on credit
c) 1% of the credit sales are returned by customers. 2% of the total account receivable constitutes
bad debt losses. 50% of the account receivable are collected in the month of the sales, and the
rest in the next month.
d)The time lag in the payment of sundry expenses and purchases is one month.
Wages and salaries are paid fortnightly with a time lag of 15 days.
e)The company keeps minimum cash balance of sh.500,000; however any cash in excess of
sh.700,000 is invested in treasury bonds in the multiple of sh.100,000. Shortfalls in the minimum
cash balances are made good by borrowing from banks.
i) You are required to prepare a cash budget for the months of July – December, 2010.
(16 Marks)
ii) State two benefits which accrue to a finance manager in evaluating unequal lived
projects using annualized NPV rather than NPV. (4 Marks)
Question Three
a) State five benefits each which a management accountant would get by analyzing material usage
variance and labour efficiency variance. (10 Marks)
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b)Brookside creamery has designed a new conveyor system. Management must choose among
three alternative courses of action.
i) The firm can sell the design outright to another corporation with payment over two
years.
ii) It can license the design to another manufacturer for a period of 5 years, its likely
product life.
iii) It can manufacture and market the system itself.
The company has a cost of capital of 12%. Cash flows associated with each of the alternative are
as follows.
Alternative Initial investment (ksh)
Sell License Manufacture
2,000,000 2,000,000 4,500,000
Year: Cash flows (cf)
1 2000000 2500000 2000000
2 2500000 1000000 2500000
3 - 800000 2000000
4 - 600000 2000000
5 - 400000 2000000
6 - - 2000000
Calculate the IRR and the ANPV of each of the alternatives and advise management on the best course
of action. (10 Marks)
Question Four
The standard cost card for product ‘Bidco’ reveals:
Standard materials Rs.
2 kg of A Rs. 2 per kg. 4.00
1 kg of B Rs. 6 per kg. 6.00
Direct labour (3 hours @ Rs.6 per hour) 18.00
Variable Overhead (3 hours @ Rs.4 per direct labour hour) 12.00
Total standard cost per unit 40.00
It is proposed to produce 10,000 units of ‘Simco’ in the month of March and budgeted coast based on
the information contained in the standards cost card are as follows:
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Direct materials Rs.
A. 20,000 kg. @ Rs 2 per kg 40,000
B. 10,000 kg. @ Rs. 6 per kg 60,000
Direct labour (30,000 hours @ Rs.6 per hour) 1, 80,000
Variable Overhead (30,000 hours @ Rs.4 per direct labour hour) 1, 20,000
Sh. 4,00,000
The actual results are:
Direct Materials
A. 19,000 kg. @ Rs 2.20 per kg 40,000
B. 10,100 kg. @ Rs. 5.60 per kg 56,560
Direct labour (28,500 hours @ Rs.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:
Material: (a) Price and usage
Labour: (b) Wages rate and labour efficiency
Variable overheads (a) Total variable overhead variance.
(a)Overhead expenditure variance.
Question Five
A Company manufacturing two products furnishes the following data for a year:
Product annual output Total Total number of Total number
(units) machine hours purchases orders of set -ups
Toss 5,000 20,000 160 20
Omo 60,000 120,000 384 44
The annual overheads are as under:
Rs.
Volume related activity costs 550,000
Set –up related costs 820,000
Purchase related costs 618,000
You are required to calculate the cost per unit of each product Toss and Omo based on:
a) Traditional method charging overheads (8 Marks)
b) Activity based costing method. (12 Marks)
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