UNIVERSITY OF WESTMINSTER

WESTMINSTER BUSINESS SCHOOL

EXAMINATION PAPER
SEMESTER NINE

Re-Sit Exam
July 2019

MODULE CODE: 7ACCN018W

MODULE TITLE: Financial Analysis for Managers

DATE:

TIME:

This is a CLOSED book exam.

INSTRUCTIONS TO CANDIDATES:

SECTION A: Answer All FIVE questions in this section

SECTION B: Answer ANY TWO questions in this section

TIME ALLOWED: 3 Hours

The use of silent non-programmable calculators is permitted

PLEASE DO NOT TURN OVER THIS PAGE UNTIL

INSTRUCTED TO DO SO BY THE INVIGILATOR
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SECTION A

Answer ALL FIVE questions in this section. This section is worth 50

marks in total.

Question 1
Define the following accounting concepts and in each case give an example:

a) Money measurement concept

b) Materiality concept
c) Accruals / Matching concept
d) Consistency concept
(10 marks)

Question 2
Explain the main reasons why the profit figure in the income statement is
almost never the same as the cash figure in the balance sheet.
(10 marks)

Question 3
Briefly explain the main use of both ‘Financial accounting’ and ‘Management
accounting’, AND identify four of the main differences between ‘Financial
accounts’ and ‘Management accounts’
(10 marks)

Question 4
The standard cost per unit based on a budgeted production of 5,100 units in
the month of June 2019 for BH Ltd was as follows:

Standard cost card for the product £

Direct materials (2.5 kg at £11 per kg) 27.5
Direct labour (1.8 hours at £9 per hour) 16.2
Fixed overheads 113,400

In June the actual number of units produced was 4,950 with the following
costs:

Actual Cost £
Direct materials (12,870 kg) 135,135
Direct labour (9,405 hours) 84,645
Fixed overheads 110,900

Required:
a) Calculate material price variance and material usage variance.
(4 marks)

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 b) Calculate labour rate variance and labour efficiency variance.
(4 marks)
c) Calculate fixed overhead expenditure variance.
(2 marks)
(Total: 10 marks)

Question 5
a) Calculate the accounting rate of return (ARR) for the following project
using the average investment. The project has no residual value at the end of
its life.

Year 0 Initial investment (£920,000)

Year 1 Net cash flow £260,000
Year 2 Net cash flow £328,000
Year 3 Net cash flow £312,000
Year 4 Net cash flow £224,000
Year 5 Net cash flow £160,000

(4 marks)

b) Discuss the usefulness of the accounting rate of return for managerial

decision-making.
(6 marks)
(Total: 10 marks)

(Total for Section A: 50 marks)

[SECTION B STARTS ON THE NEXT PAGE]

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SECTION B

Answer ANY TWO of the following three questions in this section.

Each question is worth 25 marks.

Question 6
(a) Using the following budgeted information relating to a university book
shop, draw up a cash budget for the period September to December 2019

Annual cost of rent for the premises £37,800

Annual depreciation charge for fixtures and fittings £13,650
Staff salaries (per month) £6,750
Average cost of utilities per month £1,215
Average cost per book sold £34
Average selling price per book sold £49

Forecast monthly sales (in numbers of books) for the four-month period are as
follows:

Sept Oct Nov Dec Jan

680 970 420 260 170

Additional Information:

I. Rent is spread across the calendar year and is payable monthly in equal
instalments
II. Staff salary costs are paid on the last day of each month.
III. Utility bills are paid in the following month
IV. The bookshop buys the stock of books in such a way that in any given
month, the bookshop has enough books for that month and the following
month’s sales. The book suppliers are paid in the month following the
purchase.
V. Sales are all for cash
VI. The opening balance of cash on 1st September 2019 is expected to be
£7,000

(15 marks)

(b) Briefly discuss the main differences between incremental budgeting and
zero-based budgeting.

(10 Marks)
(Total: 25 marks)

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Question 6
Jaguar Ltd is a medium sized electronic chip manufacturing company. It
produces a new generation of chips for mobile phones which enable them to
recognise verbal instructions in several major languages.

Each chip will sell for £43. The company expects to make and sell 1,250,000
of these chips in the coming year. Each chip has a variable cost of £35. The
total fixed costs of operating the company for the year are estimated at
£9,310,000. The total production capacity of the company is 1,500,000 chips
per year.

a) Calculate the company’s expected profit for the year.

(4 marks)

b) Calculate the company’s break-even point in number of chips and in sales

value.
(4 marks)

c) Calculate the margin of safety as a percentage of expected level of sales

and briefly explain what this figure means.
(4 marks)

d) Calculate the number of chips that the company needs to sell per year to
make an annual profit of £2,000,000
(2 marks)

e) Would it be worth reducing the selling price of each chip by £1 each if this
strategy is expected to increase demand by 100,000 chips?
(You must show your supporting calculations).
(4 marks)

f) What should be the selling price of each chip at the level of current
demand for the company to make a profit of £2,000,000 for the year?
(3 marks)

g) Outline four of the main assumptions/limitations of the break-even

analysis.
(4 marks)
(Total: 25 marks)

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Question 8
John Smith is planning to set up a dating website for busy professionals. An
initial market survey has been carried out but not yet paid for, at a cost of
£60,000 which indicated that there are reasonable chances of this being a
successful venture.

The expected costs and revenues relating to the project are as follows.

Annual revenues Probability

£160,000 0.3
£290,000 0.5
£340,000 0.2

Costs:
i. Initial purchase of a server for cash £286,000.
ii. Initial set-up costs (web authoring, Advertising etc.) £115,000.
iii. There will be an injection of working capital of £28,000 at the start of
the project. This will be recovered at the end of year 6.
iv. Annual running costs (wages/electricity) are expected to be £73,000 in
year 1 and expected to increase by 5% per year due to inflation.
v. Other fixed overheads (rent/insurance etc.) will be £93,000 per year.
Fixed overheads are expected to increase by 3% per year.
vi. In addition to the revenue, John also expects to have some advertising
income from the website. This is expected to be £15,000 in the first
year, rising by 15% every year thereafter.
vii. A major upgrade to the server will need to be made in year 3 at a cost
of £85,000.
viii. The cost of capital to the company is 10%.
ix. The project is expected to last for 6 years.
x. Ignore taxation

Required
a) In general terms, outline three reasons why businesses make
investments in capital assets.
(3 marks)

b) Evaluate the viability of the project based on Net Present Value analysis,
and state whether Bart should undertake this project.
(17 marks)

c) Briefly discuss what other factors would need to be considered before

embarking on such a project.
(5 marks)
(Total: 25 marks)
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 [END OF EXAMINATION PAPER]

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Present Value of £1

Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
(after
n
years)
1 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091
2 0.9803 0.9612 0.9426 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264
3 0.9706 0.9423 0.9151 0.8890 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513
4 0.9610 0.9238 0.8885 0.8548 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830
5 0.9515 0.9057 0.8626 0.8219 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209
6 0.9420 0.8880 0.8375 0.7903 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645
7 0.9327 0.8706 0.8131 0.7599 0.7107 0.6651 0.6227 0.5835 0.5470 0.5132
8 0.9235 0.8535 0.7894 0.7307 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665
9 0.9143 0.8368 0.7664 0.7026 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241
10 0.9053 0.8203 0.7441 0.6756 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855
11 0.8963 0.8043 0.7224 0.6496 0.5847 0.5268 0.4751 0.4289 0.3875 0.3505
12 0.8874 0.7885 0.7014 0.6246 0.5568 0.4970 0.4440 0.3971 0.3555 0.3186
13 0.8787 0.7730 0.6810 0.6006 0.5303 0.4688 0.4150 0.3677 0.3262 0.2897
14 0.8700 0.7579 0.6611 0.5775 0.5051 0.4423 0.3878 0.3405 0.2992 0.2633
15 0.8613 0.7430 0.6419 0.5553 0.4810 0.4173 0.3624 0.3152 0.2745 0.2394
16 0.8528 0.7284 0.6232 0.5339 0.4581 0.3936 0.3387 0.2919 0.2519 0.2176
17 0.8444 0.7142 0.6050 0.5134 0.4363 0.3714 0.3166 0.2703 0.2311 0.1978
18 0.8360 0.7002 0.5874 0.4936 0.4155 0.3503 0.2959 0.2502 0.2120 0.1799
19 0.8277 0.6864 0.5703 0.4746 0.3957 0.3305 0.2765 0.2317 0.1945 0.1635
20 0.8195 0.6730 0.5537 0.4564 0.3769 0.3118 0.2584 0.2145 0.1784 0.1486
21 0.8114 0.6598 0.5375 0.4388 0.3589 0.2942 0.2415 0.1987 0.1637 0.1351
                     
                     

Present Value of an Annuity of £1 for n Periods

No. of
Years 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091
2 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355
3 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869
4 3.9020 3.8077 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699
5 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908
6 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553
7 6.7282 6.4720 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684
8 7.6517 7.3255 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349
9 8.5660 8.1622 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590
10 9.4713 8.9826 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446
11 10.3676 9.7868 9.2526 8.7605 8.3064 7.8869 7.4987 7.1390 6.8052 6.4951
12 11.2551 10.5753 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 7.1607 6.8137
13 12.1337 11.3484 10.6350 9.9856 9.3936 8.8527 8.3577 7.9038 7.4869 7.1034
14 13.0037 12.1062 11.2961 10.5631 9.8986 9.2950 8.7455 8.2442 7.7862 7.3667
15 13.8651 12.8493 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 8.0607 7.6061
16 14.7179 13.5777 12.5611 11.6523 10.8378 10.1059 9.4466 8.8514 8.3126 7.8237
17 15.5623 14.2919 13.1661 12.1657 11.2741 10.4773 9.7632 9.1216 8.5436 8.0216
18 16.3983 14.9920 13.7535 12.6593 11.6896 10.8276 10.0591 9.3719 8.7556 8.2014
19 17.2260 15.6785 14.3238 13.1339 12.0853 11.1581 10.3356 9.6036 8.9501 8.3649
20 18.0456 16.3514 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 9.1285 8.5136
21 18.8570 17.0112 15.4150 14.0292 12.8212 11.7641 10.8355 10.0168 9.2922 8.6487
22 19.6604 17.6580 15.9369 14.4511 13.1630 12.0416 11.0612 10.2007 9.4424 8.7715

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