BUSMGT 713
Final Test Q3 2022
Quarter 3, 2022
Final Test
BUSMGT 713
Financial Reporting & Control
(Time Allowed: 120 minutes, plus 15 minutes reading time, plus 30 minutes
technical time)
You have from NZ Time 18:15 to 21:00 on 1 September 2022 to complete this
test.
Marks
Minutes
Question 1:
Cash flow statements
7
20
Question 2:
Analysis of financial report
5
10
Question 3:
Cost-volume-profit and operating risk
11
30
Question 4:
Budget and variances
14
35
Question 5:
Overhead allocation and relevant costs
13
25
50
120
Total marks
The extra
time allowed
45
Total time
allowed for
the test
165
Instructions:
1.
This is an open-book timed test worth 40% of the final grade of this
course. You can refer to and cite any resource from BUSMGT 713.
2.
You have 2 hours and 45 minutes to complete the test. This includes 15
minutes reading time and 30 minutes additional time in case of technical
issues.
3.
This test consists of five questions; attempt all questions. The test is out
of 50 marks.
4.
You may use a calculator; please show all calculations.
BUSMGT 713
Final Test Q3 2022
5.
Please round all answers to the nearest dollar.
6.
Please complete your written questions in full sentences.
6.
If you need help during the test, please email Anthonia for technical issues
at anthonia.uzoigwe@auckland.ac.nz, and email Diandian Ma at
d.ma@auckland.ac.nz for other issues. Please do not ask them questions
about the content of the test.
7.
This test must be your own work. Please read the University Academic
Honesty Declaration:
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BUSMGT 713
Final Test Q3 2022
Question 1: Cash Flow Statements
Molly’s Sound Design Services Ltd has provided the following extracts from its
financial statements for the year ended 31 March 2022 and 31 March 2021.
Net profit after tax
Wages expense
COGS
Accounts receivable
Inventory
Motor vehicle
Depreciation expense
Accounts payable
Dividends payable
Wages payable
2022
52,057
36,000
50,000
19,400
10,000
18,200
1,400
5,160
3,200
2,085
2021
39,358
27,000
46,000
13,600
12,000
18,200
1,400
4,320
2,450
1,768
Required:
a) Using the information provided, prepare the “Reconciliation of net profit after
tax with cash flows from operating activities for the year ended 31 March
2022”.
[4 marks]
Reconciliation of net profit after tax with cash flow from
operating activities
for the Year Ended 31 March 2022
[0.5]
Net profit after tax
52,057
Non-cash items
[0.5]
Depreciation
1,400
53,457
Changes in working capital items:
[0.5]
(Increase) Decrease in Inventory
2,000
[0.5]
(Increase) Decrease in Accounts Receivable
(5,800)
[0.5]
Increase (Decrease) in Accounts Payable
840
[0.5]
Increase (Decrease) in Wages Payable
317
(3,873)
Net cash from operating activities
50,814
[0.5]
Excluding Dividends payable [0.5]
b) What is the cash paid to inventory suppliers in 2022? Assume all Accounts
Payables arise from transactions with inventory suppliers.
[3 marks]
BUSMGT 713
Final Test Q3 2022
COGS = Purchase +  Inventory
Purchase= Cash + AP
50,000 = Purchase +2,000
Purchase = 48,000 [1.5]
Cash =48,000 – 840 = 47,160 [1.5]
[Total marks for Question 1: 7]
BUSMGT 713
Final Test Q3 2022
Question 2: Analysis of financial reports
Detailed below is selected balance sheet and income statement information
prepared for Mairangi Limited and Murrays Limited companies for the last two
years:
Mairangi
Sales
EBIT
Interest
expense
NPBT
Income tax
expense
NPAT
Total
liabilities
Total
equity
Total
assets
2022
72,310
2021
Murrays
2022
50,565
9,125
5,400
3,250
800
5,875
4,600
1,312
1,039
4,563
3,561
18,750 18,000
8,750
2021
8,900
26,020 26,417
12,441 11,705
44,770 44,417
21,191 20,605
The company tax rate is 28%.
Required:
a) Calculate the NOPAT and after-tax return, ROA (NOPAT/ Average Total
assets), for both Mairangi Limited and for Murrays Limited.
[3 marks]
Mairangi: NOPAT=9,125- (3,250* 28%+1,312)=6,903[1]
NOPAT/Av TA = 6,903/((44,770+44,417)/2)= 15.48% [0.5]
Murrays: NOPAT = 5,400- (800*28% +1,039)=4,137[1]
NOPAT/Av TA =4,137/((21191+20605)/2)=19.80% [0.5]
b) Do you think capital providers will be satisfied with Mairangi Limited and
Murrays Limited companies’ after-tax ROAs? Explain in no more than 3
sentences.
Page 1 of 17
BUSMGT 713
Final Test Q3 2022
It depends on what is the required rate of return, WACC, investors expect
from Mairangi and Murrays Limited companies. [1] WACC is the
weighted average cost of debts and cost of equity.
If the after-tax ROA exceeds WACC, then the firm has provided a return
that exceeds the expectation of capital providers.
If the after-tax ROA is less than WACC, then the firm has not provided a
return that capital providers expect on their investment. [1]
[2 marks]
[Total marks for Question 2: 5]
Page 2 of 17
BUSMGT 713
Final Test Q3 2022
Question 3: Cost-volume-profit and operating risk
Golf Coaching Services (GCS) wish to hire Finley, a top-ranked Australian golf
player, to provide private coaching sessions for three months. If Finley is hired,
GCS will need to book a training area, which will cost GCS in total $14,000 rent
for the three months.
GCS is considering offering Finley two alternative payment options:
Option 1: Pay Finley 30% of the coaching fee the GCS charges, or
Option 2: Pay Finley a fixed fee of $30,000 for the three months.
Irrespective of how Finley will be paid, GCS has estimated that the cost of golf
balls used for coaching will be $100 per session.
Finley will be able to provide a maximum of 180 coaching sessions in the threemonth period. The coaching sessions are charged for $900 each.
Required:
a) What is the operating profit for GCS under Option 1 for the contract with
Finley if Finley provides 120 coaching sessions?
(1 mark)
Option 1: (900-900*30%-100)*120-14,000=49,600 [1]
b) Calculate the breakeven sessions for Option 2.
(1 mark)
FC=14,000+30,000= 44,000 SP=900 VC=100
BE=FC/CM=44,000/800=55 coaching sessions [1]
The point indifference would be:
R - 30,000 = R - 0.3 R
Page 1 of 17
BUSMGT 713
Final Test Q3 2022
0.3 R = 30,000
R = 100,000
1) if Revenue is below 100,000, (111 sessions)
Option 1 :
99,900 - (FC) - (111*VC) - (0.3 *99,900)
99,900 - 14,000 - 11,100 - 29,700
=45,100
Option 2
99,900 - (FC) - (111*VC) - 30,000
99,900 - 14,000 - 11,100 - 29,700
=44,800
Chose option 1
2) if Revenue is above 100,000, (111 sessions)
Option 1 :
108,000 - (FC) - (112*VC) - (0.3 *100,800)
108,000 - 14,000 - 11,200 - 32,400
= $49,600
c) Which option is more profitable for GCS?
Support your answer by
calculating the point of indifference (that is the number of sessions sold at
which the two options would produce the same profit), and discuss scenarios
when sales are 1) below and 2) above the point of indifference.
(2 marks)
(900-900*30%-100)*x-14,000 = (900-100)*x -30,000-14,000
Page 2 of 17
BUSMGT 713
Final Test Q3 2022
x=111 [1]
When booking is below 111 sessions, it is better for GCS to select the first
option.
When booking goes above 111 sessions, it is better for GCS to select the
second option. [1]
d) Calculate the operating leverages of the contract GCS with Finley using the
payment Options 1 and 2, respectively, if 60 coaching sessions are booked.
(2 marks)
Option 1: OL=TCM/operating profit
TCM= ((900-900*30%-100)*60) = $31,800
Operating profit =(900-900*30%-100)*60-14,000 =$17,800
OL = 31,800/17,800 = 1.787 [1]
Option 2: TCM = (900-100)*60 =48,000
Operating profit = (900-100)*60-30,000-14,000 = 4,000
OL = 48,000/4,000=12 [1]
e) GCS wants to extend the contract with Finley as the demand for private
training is predicted to increase significantly in three months. Following d),
explain which option would be more sensitive to increase in booking (in a
maximum of 3 sentences).
(2 marks)
Option 2. Option 2 has higher fixed costs [1] which means it has lower variable
costs and higher unit contribution margin. This cost structure makes its profit
more sensitive (change more significantly) to changes in the sales activity level.
[1]
f) What other factors should GCS consider before offering option 2 to Finley?
Give three reasons (in a maximum of 5 sentences).
(3 marks)
Page 3 of 17
BUSMGT 713
Final Test Q3 2022
1) Can Finley’s session sell? Market demand? Whether Finley’s timetable
suits customer requirement.
2) Whether Finley has the motivation to teach well, since the sales of the
session is irrelevant to his income.
3) If Finley cannot finish the contracted 3-month period, can GCS get refund
from renting the area, and how to deal with his customers?
4) Whether the sale of Finley’s classes eats up the existing revenue.
5) Whether the high payment to Finley demotivates other coaches at GCS.
Any three above or any other factors that make sense.
Each reason accounts for [1] mark.
[Total marks for Question 3: 11]
Page 4 of 17
BUSMGT 713
Final Test Q3 2022
Question 4: Budget and variances
Rianiana Chocolate Factory produces and offers high-quality boxed chocolates.
The company is checking its financial performance over the last financial year
against its original budget. The CFO wishes to carry out a variance analysis and
has asked you to complete variance analysis report for the year:
Budget
Sales (boxes)
Sales
Flexed
Budget
Flexed
Actual
8,400
10,500
$588,000
$819,000
134,400
178,500
151,200
210,000
58,800
73,500
58,800
98,280
68,000
74,000
55,000
55,000
$61,800
$129,720
Variable costs ($)
Direct
materials
Direct labour
Other variable
costs
Sales
commission
Fixed costs ($)
Fixed
overhead
General
administration
Profit
Page 1 of 17
A/F
Variance
BUSMGT 713
Final Test Q3 2022
The direct materials, direct labour and other variable costs change in accordance
with the changes in the number of boxes produced, and sales commissions are
paid to the sales team at 10% of sales dollars.
Required:
a. Explain 1) the relationship between overall budget variance, sales volume
variance and flexed budget variance, and 2) why it is necessary to prepare
a flexed budget before analysing whether the costs were satisfactorily
controlled (in a maximum of 3 sentences)
(2 marks)
Overall budget variance can be split into two parts: the sales volume
variance – measuring the change in profit due to the change in sales
volume and the flexible budget variance – measuring the change in profit
due to price and quantity factors. [1]The flexed budget shows what sales
and costs should have been, given the actual sales volume achieved.
[1]For cost control, the flexible budget variance is needed and worth
management’s attention.
b. Prepare the flexed budget for the year by completing the provided table
and calculate the individual flexed budget variances, indicating whether
the individual flexed budget variance is favourable (F) or adverse (A) or
Zero (-):
(4 marks)
Per line 0.5 marks, if A/F wrong, the line counts wrong
Budget
Sales (Units)
Flexed
Flexed
Actual
Variance
A/F
8,400
10,500
10,500
$588,000
$735,000
$819,000
$84,000
F
Direct materials
134,400
168,000
178,500
10,500
A
Direct labour
151,200
189,000
210,000
21,000
A
Other variable
costs
58,800
73,500
73,500
0
–
58,800
73,500
98,280
24,780
A
Sales
Variable costs
Sales commission
Fixed costs
Page 2 of 17
BUSMGT 713
Final Test Q3 2022
Fixed overhead
General
administration
(fixed)
Profit
68,000
68,000
74,000
6,000
A
55,000
55,000
55,000
0
–
$61,800
$108,000
$129,720
$21,720
F
c. A new manufacturing machine which requires raw materials of higher
quality was implemented during the year, which resulted in some staff
being paid extra overtime, as they were learning how to use it. Use the
additional information and the flexed budget variances calculated in
question 4(b), interpret and explain in your analysis of where the variances
below have come from, your answer should take in to account the
interrelations between the variances.
1)
2)
3)
4)
5)
Flexed variance for Sales($) (2 marks);
Flexed variance for materials (2 marks);
Flexed variance for direct labour (2 marks); and
Flexed variance for sales commission (1 mark).
Given the effects of the variances above on the profit, explain
whether the Rianiana Chocolate Factory should continue using the
new machine and the materials of higher quality. (1 marks)
(In a maximum of 200 words)
(8 marks)
Allow carried-forward mistakes from the variance calculations
1) The favourable flexed variance in Sales($) are caused by selling at a
higher price ($78) than budget price ($70), which is likely due to the
higher quality of material used for the product [1],and the higher
commission (12%) paid to the sales team, who are more motivated to
sell [1].
2) The adverse flexed variance in direct materials is due to using higher
quality materials, which cost higher than the materials used before
[1]. Higher quality also explains the favourable flexed variance in
Sales[1].
3) The adverse flexed variance in direct labour is due to the
implementation of the new manufacturing machine, which resulted in
some staff being paid extra over time. [1]Jointly consider using
higher-quality materials, the goal of improving the overall quality of
the product perhaps leads to longer working hours [1]
Page 3 of 17
BUSMGT 713
Final Test Q3 2022
4) Salespeople are paid higher (12% of the sales). As the products are
selling at higher price, which is perhaps more challenging to sell. And
increase the commission gave the sales team more motivation. [1]
5) Although there are multiple adverse variances, the flexed profit is
favourable, hence Rianiana Chocolate Factory should continue using
the new machine and the materials of higher quality. [1]
[Total marks for Question 4: 14]
Page 4 of 17
BUSMGT 713
Final Test Q3 2022
Question 5: Overhead allocation and relevant costs
Toylight Limited produces and exports three kinds of popular interactive
educational toys: Baby Bear, Fluffy Bunny and Quack Duckling. The company’s
full capacity is to produce and sell 50,000 Baby Bear, 45,000 Fluffy Bunny and
25,000 Quack Duckling toy items, and the management are considering dropping
the Fluffy Bunny production line. They have provided you the following
information about the sales and costs of the three products of the last financial
year. Costs have been divided into variable and fixed components. Fixed costs
have been divided into direct fixed costs and allocated costs.
Bear
$750,000
Bunny
$456,000
Duckling
$378,000
50,000
22,800
23,625
$400,000
$228,000
$259,875
Direct labours
$75,000
$27,360
$37,800
Contribution
Margin
$275,000
$200,640
$80,325
Direct
Allocated
$95,000
$87,500
$108,000
$144,000
$36,000
$27,000
Operating Profit
$92,500
-$51,360
$17,325
Sales
sales volume
(items)
Direct
Variable costs
Direct materials
Fixed Costs:
Other information:
Price
material costs per item
Bear
Bunny
Ducking
$15
$20
$16
$8
$10
$11
Page 5 of 17
BUSMGT 713
Final Test Q3 2022
labour costs per item
$1.5
$1.2
$1.6
Required:
a) As Fluffy Bunny product line reports a loss, should Toylight discontinue
the production of Fluffy Bunny? Explain by using relevant cost
calculations (In a maximum of 2 sentences)
(3 marks)
200,640-108,000= $92640 [2]
No, dropping the Fluffy Bunny product line will lead to a loss of 92,640 profit. [1]
If students get the correct answer by using total cost calculations instead of using relevant cost
calculations, they get 1 mark.
b) Suppose that Toylight consider discontinuing the product line Fluffy
Bunny and replacing with producing 45,000 Quack Duckling items. All
direct costs associated with producing the 45,000 Quack Duckling items
will incur.
1) Should Toylight drop line Fluffy Bunny under this scenario based on
relevant cost calculations?
2) Describe two qualitative factors Toylight should consider when
evaluating a decision to replace Fluffy Bunny with Quack Duckling. (In a
maximum of 2 sentences.)
(4 marks)
1) Dropping Fluffy bunny will lead to a loss of $92,640 profit
Replacing with Quack Duckling will produce a profit of
45,000*(16-11-1.6) – 36,000 = $117,000[1]
$117,000 is larger than $92,640, hence worth replacing. [1]
2) 1. Whether so many Quack Duckling produced can be sold to market?
[1]
2. Does dropping Fluffy Bunny make Toylight lose customers who also
buy the Bear and Duck toys[1]
Page 6 of 17
BUSMGT 713
Final Test Q3 2022
c) Ignore questions a) and b). Under the current scenario, the 23,625 Quack
Ducklings toy items are sold to regular customers/wholesalers and are reoccurring sales every year. A new buyer offers to buy 3,000 Quack Ducklings at a
price of $14 each this financial year.
1) Explain whether Toylight should accept this special offer by using relevant cost
calculations, and
2) Describe two qualitative factors Toylight should take into account when
evaluating a decision to accept the offer from the new buyer (In a maximum of 2
sentences.)
(6 marks)
[Total marks for Question 5: 13]
End of test
The CM of the offer would be 14-11-1.6=2.4
2.4*3,000=7,200[1]
In order to make the $7,200. Toylight will need to give the current sale of
(23,625+3,000-25,000)=1,625, as the full capacity is to produce 25,000 items.
Giving up the 1625 means giving up 1,625*(16-11-1.6) =5,525[1]
Toylight will make an extra of 7,200 -5,525 = $1,675[1]
From financial perspective, Toylight should take the offer. [1] However accepting
this offer means Toylight will likely to upset the existing customer for not be able
to meet their needs, [1] and by charging them higher than the new customer. [1]
(anything reasonable)
Page 7 of 17