SCM040
MSc/PGDip/PGCert in Supply Chain Management and Global
Logistics
Accounting for Decision Makers
Wednesday 9 March 2022: 12.00 – 15.30 GMT
Candidates have three hours to complete the examination and an
additional 30 minutes to upload their answers.
This examination paper comprises TWO Sections: A and B. You are required to
answer ALL questions in the exam paper.
You are advised to apportion the time available for this examination paper to individual
questions on the basis of the marks available for each question.
© University of London 2022
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SECTION A
In this section there are THREE compulsory questions carrying a total of 50
marks.
Question 1
Summary financial statements of Omega Ltd are given below for the two years ended
30 June 2010 and 2009.
Summary Balance Sheets
as at 30th June
2010
(£000)
2009
(£000)
Non-current Assets
687
702
Current Assets
396
253
1,083
955
Equity
795
756
Non-current Liabilities
50
-
Current Liabilities
238
199
1,083
955
TOTAL ASSETS
TOTAL EQUITY & LIABILITIES
Summary Income Statements
for the year ending 30th June
2010
£000
2009
£000
Sales Revenue
1,200
1,180
(-) Cost of Sales
(750)
(680)
= Gross Profit
450
500
(283)
(266)
= OPERATING PROFIT
167
234
(-) Finance costs and Tax
(56)
(80)
= PROFIT FOR THE YEAR (Net)
111
154
(-) Operating Costs
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Required:
Without computing any formal ratios, comment on the key trends which you observe
on the balance sheet and income statement in relation to this business. What story do
these financial statements tell you about this business? Your analysis should focus on
(i) key trends that you observe in the 2010 financial statements and (ii) key changes
in relation to 2009 (comparative analysis).
What does your analysis reveal as to the type of business (manufacturing, service or
retail business?) and its business environment in 2010, comparatively to 2009? Are
there any important commercial developments to highlight?
(18 marks)
Question 2
Spire Healthcare plc is the largest listed healthcare group by revenue in the UK. The
group operates approximately 40 private hospitals units.
Below is the summary of Spire’s Statement of Cash Flows during the period 2015 –
2018.
Required:
Comment on the trends that you observe across the three types of activities. What do
these trends tell you about Spire’s strategy? Are there any encouraging or worrying
signs that warrant closer attention? What type of additional information might you want
to review from the other financial statements to corroborate your findings?
(12 marks)
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Question 3
Below you will find selected raw financial statement data belonging to a global mobile
satellite communication company which provides internet connectivity.
2017 ($mil)
2016 ($mil)
2015 ($mil)
Sales Revenue
1,391.7
1329
1274.1
Operating Profit
185
243.4
282
Total Debt
3755.1
3603
2996.2
Total Equity
1248.1
1240.3
1249.9
Required:
(a) Use the information above to calculate the pyramid of ratios (also known as the
Dupont model) for this company for each of the three years above. You can use
excel, if you wish to.
(12 marks)
(b) Discuss your Dupont findings and explain what trends you observe. Explain
which drivers in your results contribute positively to the ROE and which are not
and explain why.
(8 marks)
Total 20 marks
Total for Section A: 50 marks
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SECTION B
In this Section there are THREE compulsory questions carrying a total of 50
marks.
Question 4
Astra Controls Ltd is an electronic engineering business that specialises in the
production of electronic surveillance equipment for security forces throughout the
world. Recently it has received a request to produce 10 ‘Peeping Tom’ surveillance
units for a foreign government. The Peeping Tom was developed some time ago by
the business at a total research and development cost of £220,000. So far there has
been no interest shown in the equipment and no units have been produced. The
present order seems likely to represent the total sales for the Peeping Tom.
The product specification for each unit is set out below:
Materials
Component A:
3 per unit
Component B:
1 per unit
Component C:
2 per unit
Component A is normally held in inventories as it is widely used throughout the
business’s product range. There are 15 components currently held. These had cost
£1,800 each. The sole supplier of this component has announced an immediate price
rise of 5% for further purchases.
Component B is no longer used for any other of the business’s products. At present
there are six components in inventories costing £2,000 each. It is possible to buy
additional components at a cost of £2,200 each; however, the supplier insists on a
minimum order quantity of six components. Any components that are not used on this
contract will be disposed of at a total cost to the business of £250, irrespective of the
quantity to be disposed of.
Component C is used by the business throughout its product range. At present there
is none in inventories. However, an order for 20 components for use in another
contract is about to be placed. The supplier normally charges £1,600 per component
but for orders above 30 components a discount of 10% is available on the total order
price.
Additional materials costing £2,800 in total will have to be bought if the contract is
undertaken.
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Labour
Assembly time is estimated at 10 hours for each Peeping Tom unit. The workforce
required to assemble the product is paid £7.00 an hour and is in great demand. If the
order is accepted the necessary labour will have to be transferred from existing work
and, as a result, other orders will be lost. It is estimated that for each hour that labour
is transferred to this product £50.00 of sales revenue will be lost but that savings of
£15.00 an hour in materials relating to lost sales will be made.
Inspection time is estimated at five hours for each Peeping Tom unit. Inspection labour
can be provided by paying existing employees overtime which is paid at a 33.33%
premium over the standard rate of £6.00 an hour.
Overheads
The business normally includes a mark-up of 30% to cover overheads. This contract
is not expected to give rise to any increases in overheads.
Required:
Prepare an estimate of the absolute minimum price that Astra Controls Ltd could
undertake the contract so as to leave the business no worse or better off as a result.
Your answer should clearly explain your treatment of all of the information given in the
question and your rationale.
(20 marks)
Question 5
Crystal Clear Ltd produces bottled water. Sales of bottled water for the three months
ending June 2022 are expected to be as follows:
April 2022
May 2022
June 2022
100,000 bottles
120,000 bottles
160,000 bottles
The sales price for each bottle is £0.90.
Below you will find the budgeted income statement for the 3 months to June 2022,
based on the following estimated figures:
•
Variable operating expenses are expected to be 30% of sales revenue each month
•
Advertising costs are expected to be £1,000 in April and £2,000 in both May and
June
•
Depreciation is expected to be £5,000 per month
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•
Rent is expected to be £2,000 per month
•
Other fixed operating expenses (including salaries) are expected to be £36,000 per
month
Note: depreciation is charged on a straight line basis.
Budgeted Income Statement for April – June 2022
April (£)
May (£)
June (£)
Total (£)
90,000
108,000
144,000
342,000
Variable Operating Expenses
(27,000)
(32,400)
(43,200)
(102,600)
Fixed Operating Expenses
(36,000)
(36,000)
(36,000)
(108,000)
Advertising
(1,000)
(2,000)
(2,000)
(5,000)
Depreciation
(5,000)
(5,000)
(5,000)
(15,000)
Rent
(2,000)
(2,000)
(2,000)
(6,000)
Profit
19,000
30,600
55,800
105,400
Revenue
Required:
(a) Actual demand for Crystal Clear’s products over the 3 month period was as
follows:
April 2022
May 2022
June 2022
90,000 bottles
125,000 bottles
140,000 bottles
Prepare a flexed (flexible) budgeted income statement for the 3 months to June
2022 based on this information. You should include a column for each month and
a total column for the 3-month period.
(6 marks)
(b) Actual costs for the 3 months to June 2022 were as follows:
•
Variable operating expenses were 32% of revenue each month
•
Fixed operating expenses (including salaries) were £38,000 per month
•
Advertising costs were £500 in April, and £1,700 in both May and June
•
Depreciation was £5,000 per month
•
Rent was £2,100 per month
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Prepare a statement comparing the flexed budgeted income statement for the
3-month period in total to the actual income statement for the 3 month period
in total. Your statement should show the variances between the flexed
budgeted income statement and the actual budgeted income statement
clearly. For each variance, state whether it is favourable or adverse.
(6 marks)
(c) Discuss whether or not you think all variances from budget within a business
should be investigated. In light of your discussion, imagine you are the
managing director of Crystal Clear Ltd; which variances would you want to
investigate? In each case, explain why you would like to investigate that
variance.
(8 marks)
Total 20 marks
Question 6
Answer the following two short questions:
(a)
Company Y has two production cost centres – assembly and testing. The budgeted
costs for each cost centre for the next month are as follows:
Total overheads allocated to cost centre
Total direct labour hours
Assembly
Testing
£230,000
£125,000
4,500
2,800
The company uses direct labour hours as a basis for absorbing overheads and rounds
the absorption rate to two decimal places.
If product X spends three hours in the assembly department and two hours in the
testing department, what is the budgeted fixed overhead cost for one unit of product
X? Show your workings and your final answer.
(5 marks)
(b)
John’s 8-year-old Chevrolet Trail Blazer requires repairs estimated at £6,000 to make
it roadworthy again. His wife, Sherry, suggested that he should buy a 5-year-old used
Jeep Grand Cherokee instead for £6,000 cash. Sherry estimated the following costs
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for the two cars:
Acquisition cost
Repairs
Trail Blazer
Grand Cherokee
£25,000
£6,000
£6,000
Annual operating costs
(Gas, maintenance, insurance)
£2,280
£2,100
What should John choose and what will his savings be in the first year by making the
optimal choice? Explain your rationale and provide workings.
(5 marks)
Total 10 marks
Total for Section B: 50 marks
END OF PAPER
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