accounting for decision makers (mba401) - model paper

Master of Business Administration (MBA)

International College of Business and Technology

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1

st Semester

Accounting For Decision Makers (MBA 7001)

Instructions to candidates

You are allowed two hours to answer this question paper.

You are allowed 10 minutes reading time before the examination begins during which you should read the question paper and, if you wish, highlight and/or make notes on the question paper. However, you will not be allowed, under any circumstances, to open the answer book and start writing or use your calculator during the reading time.

You are strongly advised to carefully read ALL the question requirements before attempting the question concerned (that is all parts and/or sub-questions).

ALL answers must be written in the answer book. Answers or notes written on the question paper will not be submitted for marking.

You have to answer 2 QUESTIONS only.

Write your candidate number, the paper number and examination subject title in the spaces provided on the front of the answer book.

Please indicate the questions you have attempted on the front Right hand Corner of the Answer book

Only scientific calculators are permitted.



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Model Paper

01. (a) State the components of the financial statements.

(b)State five stake holders of a business organization.

(c) Briefly explain the following accounting concepts/assumptions.

- Business entity concept.

-Money measurement concept.

-Historical cost concept.

(d) Hiru PLC has been in the business of manufacturing and sale of biscuits. The following

information was extracted from the financial statements of the company for the financial year

2010/2011

Current assets (31st March 2011) -Rs.250mn

Inventories (31st March 2011) -Rs.120mn

Inventories (1st April 2010) -Rs.150mn

Current Liabilities (31st March 2011) -Rs.190mn

Net profit before interest and tax -Rs.96mn

Capital employed as at 01/04/2010 -Rs350mn

Capital employed as at 31/03/2011 -Rs420mn

Cost of goods sold -Rs.530mn

Interest Expenditure -Rs.18mn

Income Tax -Rs.12mn.

Number of shares in issue as at 31/03,2011 - 12,250,000 shares.

Market price per share as at 31/03/2011 - Rs.80

Dividend paid during 2010/2011 final year -Rs.2 Per share

You are required to compute,

1)Earnings per share

2) Current Ratio

3) Return on capital employed (ROCE)

4) Average inventories holding period

5) Interest cover ratio

6) Dividend payout ratio

7) Price Earnings Ratio



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(e).You are working as a Management Trainee in XYZ Plc.XYZ Plc has been in the business

of manufacturing and sale of Ice Cream. The following information is made available to you

from XYZ Plc.

2010/2011 2009/2010 2008/2009 Industry

Average.

Gross profit ratio 35% 35% 32% 38%.

Net profit ratio 27% 22% (10%) 26%.

Return on capital employed 17% 11% (08%) 22%

Current ratio 1:4 1:3.2 1:2.8 1:2

Acid test ratio 1:0.7 1:0.8 1:0.4 1:1

Inventory holding period (days) 120 101 60 60

Debt collection period(days) 120 90 120 60

Creditors payment period(days) 20 20 40 60

Interest cover (times) 4.5 3 0.5 4

EPS (Rs.) 12.20 9.50 (2.2) 6.2

Gearing ratio 38% 45% 59% 48%

Your Managing Director requests you to analyze the above information and write a detailed

report to him detailing the following aspects of the business.

-Profitability.

-Liquidity

-Gearing.

-Efficiency of working capital management.

Total – 50 Marks.



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2.

(a) What do you understand by an option contract?

b) Briefly explain the difference between option contracts and forward contracts ?

(c) Mr.Roy is a call writer/seller. Mr.Raj entered into a call contract with Mr. Roy to buy

5000 shares of Maturate plc at the strike price of Rs.20/= per share. This call contract expires

on 31st July 2011.Mr.Raj paid Rs.10,000/= to Mr.Roy as the option premium. If the price of

a share of maturate PLC drop to Rs.15/= as of 31st July 2011, state the positions of Mr. Roy

and Mr. Raj

(c) Mr.John (put buyer) purchase a put contract to sell 10000 shares of Udarata PLC to

Mr.Travis (put writer)for Rs.50 per share. Mr. John paid a premium of Rs. 10 per share being

the option price to Mr.Travis. The put contract will expire on 31st July 2011.

Evaluate the position of Mr.John and Mr.Travis”s if the share price drops to Rs.30 as of 31st

July 2011

(d). State the reason why NPV method is considered as better method of investment appraisal

technique when compared with the payback period method.

(e) NM PLC is considering manufacturing a new product. The cost of machinery required for

this purpose is Rs.1, 000,000/= , and useful life of the machinery is six years. Scrap value of

machinery is Rs.200, 000/=..Cost of the capital of the company is 12%.All sales and expenses

are expected to be in cash. Sales per year is Rs.600, 000/= , and expenses per year is

Rs.420,000/= including depreciation. Assume sales and expenses are constant over the first

six years. Ignore inflation and taxation.

i) Using the NPV technique, advice whether the company should accept this

project?

ii) Compute the IRR of the project?

(Total – 50 marks)



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3.

(a) Briefly explain what you understand by,

1. Relevant cost

2. Sunk cost

3. Fixed cost.

4. Variable cost.

(b). the following information is available to you from Good luck PLC.

Present Production and sales -500,000 units

Selling price per unit -Rs 40

Variable cost per unit

-Direct Material -Rs.12

-Direct Labour -Rs.8

-Variable overhead -Rs.5

Fixed cost -Rs.600, 000

You are required to compute

1. Breakeven point (in unit)

2. Margin of safety (in unit)

3. Number of units to be sold to earn a net profit of Rs.1, 000,000 for the year.

(c)Largest PLC makes two products by using the same Raw material. However Raw material

supply is limited to 1200 Kgs per month. Details pertaining to individual products are given

below.

Product Big Product Medium Product

small.

Contribution per unit (Rs) 50 70 40

Raw materials required to produce 1 unit 5kg 14kg 8kg

Maximum demand per month (units) 80 120 70

Advice the company as to the quantity of each product to be produced in order to maximize

profits?



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d) TOYO PLC is currently negotiating with an outside supplier regarding outsourcing the

device “big” that it manufactures. The company currently manufactures 20,000 units of

device “big” per annum. The cost incurred to produce 20,000 units is as follows.

TOTAL COST IN Rs.

(20,000 UNITS)

Direct material 500,000

Direct labour 375,000

Variable manufacturing Overhead 50,000

Fixed manufacturing overhead 150,000

Share of non manufacturing fixed overhead 120,000

----------

1,195,000

=====

The above costs are expected to remain unchanged in the foreseeable future period if Auto

PLC continues to manufacture the device “big’

The outside supplier has offered to supply 20,000 units of device “big” at a price of Rs.50/=

per unit.

If Auto plc outsources the supply of device “big”, the direct labour force currently employed

in producing the device will be redundant. However, no redundancy cost needs to be incurred

as they can be deployed in other division of the company. Direct material and variable

overhead costs are avoidable if the supply of device “big” is outsourced. However fixed

overhead costs will remain unchanged.

You are required to, advice management, whether Auto PLC should produce device “big” in

house or outsource the supply to the outside supplier.

accounting for decision makers (mba401) - model paper

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