Answer to Question 1 2 Answer to Question 3 8 Answer to Question 4 10 Answer to Question 5 11 References 13 FINANCIAL AND MANAGEMENT ACCOUNTING Financial and Management Accounting Name of the Universi

The module is 'Financial Management and Decision Making' past exam paper. I want all the question answered properly as appropriate with all the necessary workings and details shown in an understanding and simple format with all necessary explanations or illustrations according to each question.

Running head: FINANCIAL AND MANAGEMENT ACCOUNTING
Financial and Management Accounting
Name of the Student
Name of the University
Author Note

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FINANCIAL AND MANAGEMENT ACCOUNTING
Table of Contents
Answer to Question 1...................................................................................................................2
Answer to Question 2...................................................................................................................5
Answer to Question 3...................................................................................................................8
Answer to Question 4.................................................................................................................10
Answer to Question 5.................................................................................................................11
References..................................................................................................................................13

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FINANCIAL AND MANAGEMENT ACCOUNTING
Answer to Question 1
a)
Project X
Particulars Year 0 Year 1 Year
2
Year
3
Year
4
Year 5
Initial Investment -25000
Cash Inflows 5000 5000 5000
Net Cash Flows -25000 5000 5000 5000
Cost of Capital 10%
NPV ($11,423.40
)
Payback Period (in years) 5
In the above case the NPV of the Project X is calculated using the following formula:
NPV = ∑CF/(1+i)^n – Initial Investment.
Where, CF = Annual cash flows, i.e. 5000, I = 0.1 and n = 3.
As the Cash flows are even, the payback period is calculated by dividing the Cash
Outflow with the cash flows. This is calculated to be 5 years.

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FINANCIAL AND MANAGEMENT ACCOUNTING
Project
Y
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Initial Investment -25000
Cash Inflows 6000 4000 6000 4600
Net Cash Inflows -25000 6000 4000 6000 4600
Cumulative Cash Flows -25000 -19000 -15000 -9000 -4400
NPV ($7,809.02)
Payback period Greater than 5
years
The NPV of Project Y is calculated in a similar manner. However, as the cash inflows are
uneven, the payback period is calculated with the help of cumulative cash flows. As the
investment is not being recovered in the lifetime of the project, its payback period is more than 5
years.
Project
Z
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Initial Investment -25000
Cash Inflows 5000 5000 4000 5000 2400

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FINANCIAL AND MANAGEMENT ACCOUNTING
Net Cash Inflow -25000 5000 5000 4000 5000 2400
Cumulative Cash
Inflow
-25000 -20000 -15000 -11000 -6000 -3600
NPV ($7,647.07)
Payback Period Greater than 5
years
The situation with Project Z is also similar. Hence, the payback period of the project
cannot be calculated in a reliable manner. The NPV of all the three projects are negative.
b) On the basis of NPV, the project with the highest NPV should be selected by the entity. As
the NPV of Project Z is highest, the entity should undertake it. However, when the viability of
the projects is calculated on the basis of the payback period, Project X is the best as it is the
lowest at 5 years. This means the investment of the company will be recovered in a period of 5
years.
c) The project that I would recommend is Project X. This is because the NPV of all the 3 projects
is negative. Hence, the company would not make any profits by undertaking the three projects.
However, the investment of the project will be recovered with the help of Project X. Hence, the
company should undertake the same.
d) The main merits of the payback period is that it is relatively simple to calculate. When there
are a lot of projects to choose from, the company can select the project with the shortest payback

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FINANCIAL AND MANAGEMENT ACCOUNTING
period. The limitations of the method are that it ignores the time value of money, neglects the
profitability of a project and does not consider the returns generated by a project.
The main benefits of the NPV are that it considers the time value of money. Hence, the
profitability of the project can be calculated in a reliable manner. It is of great help in the process
of decision making. Some of the disadvantages of this aspect is that it cannot be used to compare
different projects of varying sizes. It also does not take the hidden costs of a project into
consideration (Banerjee 2015).
Answer to Question 2
a) Calculation of Ratios
Details Formula 2018 2019
i Gross Profit 192 238
Revenue 540 630
Gross Profit Margin Gross Profit/Revenue*100 35.56
%
37.78
%
ii Operating Profit 72 50
Revenue 540 630
Operating Profit
Margin
Operating Profit/Revenue *100 13.33
%
7.94%
iii Total Expenses 120 188
Total Sales 540 630

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FINANCIAL AND MANAGEMENT ACCOUNTING
Expenses to Sales Total Expenses/Total Sales 0.2222
2
0.2984
1
iv Total Profits After Tax 50 35
Total Capital Employed 350 313
Return on Capital
Employed
Profits After Tax/Total Capital
Employed*100
14.29
%
11.18
%
v Revenue 540 630
Total Assets Non-Current Assets+Current Assets 632 555
Asset Turnover Ratio Revenue/Total Assets 0.8544
3
1.1351
4
vi Non-Current Assets 505 461
Revenue 540 630
Non-Current Asset
Turnover
Revnue/Total Non-current Assets 1.0693
1
1.3665
9
vii Current Assets 127 94
Current Liabilities 82 42
Current Ratio Current Assets / Current Liabilities 1.5487
8
2.2381
viii Current Assets 127 94
Current Liabilities 82 42

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FINANCIAL AND MANAGEMENT ACCOUNTING
Inventory 55 38
Quick Ratio (Current Assets-Inventory)/Current
Liabilities
0.8780
5
1.3333
3
ix Inventory 55 38
COGS 348 392
Inventory Days Inventory/COGS*365 58 35
x Accounts Receivable 65 46
Total Sales 540 630
Receivables Days Accounts Receivable/Total Sales*365 44 27
xi Trade Payables 82 42
Cost of Sales 348 392
Payables Days Trade Payables/Cost of Sales*365 86 39
xii Interest Expense 72 50
EBIT 12 10
Interest Coverage Ratio EBIT/Interest Expense 6 5
b) On the basis of the above calculation, it can be suggested that the company has improved in
terms of allocating its resources available to the cost of the goods available with it. However, it
has declined in terms of its operations as the operating margin of the entity has come down
significantly. This indicates that the company needs to improve in terms of managing its
administration expenditure. This shows an impact on the overall profits of the entity. There has

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FINANCIAL AND MANAGEMENT ACCOUNTING
been a significant decline in the net profits of the entity. However, there has been an
improvement in the overall efficiency of the business as the return on assets generated by the
entity has increased. This is especially relevant in the case of the non-current assets put to use by
the business. The liquidity of the business has also improved with an increase in its current ratio
and the quick ratio of the business. This reduces the risk of bankruptcy faced by the business
(Robinson 2020). The inventory and accounts receivable turnover of the business have also come
down. These are also an indicator of better efficiency on the part of the business. On an overall
basis, it can be said that the business has become more efficient in managing its operations.
There needs to be a better management of the additional costs not part of conducting the
operations of the entity (Minnis and Sutherland 2017).
Answer to Question 3
Particulars Formula Amount Amount
Material Cost Variance:
Budgeted Quantity (BQ) 5100
Budgeted Price (BP) 2
Budgeted Cost Budgeted Quantity * Budgeted Price 10200
Actual Quantity (AQ) 2300
Actual Price (AP) 4.26087
Actual Cost Actual Quantity * Actual Price 9800
Material Cost Variance (BQ*BP)-(SQ*SP) 400
Labour Variance:

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FINANCIAL AND MANAGEMENT ACCOUNTING
Budgeted Rate 16
Budgeted Production 5100
Budgeted Wages BR*BP 81600
Actual Rate 14
Actual Production 4850
Actual Wages AR*AP 67800
Labour Variance (BR*BP) – (AR*AP) 13800
Variable Overhead Variance:
Standard Variable cost per unit 0.6
Standard Units 5100
Standard Variable Costs 3060
Actual Overhead Costs 2600
Variable Overhead Variance Standard Variable Overheads - Actual
Variable Overheads
460
Operating Statement for the month ended June 2018
Particulars Units Amount
Sales 4850 150350
Less: Material Costs 9800
Less: Labour Costs 67800
Variable Overheads 2600

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FINANCIAL AND MANAGEMENT ACCOUNTING
Contribution 70150
Answer to Question 4
a)
Particulars Formula Product
Y
Product
Z
Selling Price 14 18
Less: Variable Costs 9.9 12.2
Contribution Selling Price - Variable Costs 4.1 5.8
Fixed Costs 140000 140000
Breakeven Point (In
units)
Fixed Costs/Contribution 34146 24138
b)
Margin of Safety Current Sales Level - Breakeven
Point
14146 17471
Current Sales Level 20000 6667
It is being said that the current revenue from sales is 40000. And the ratio of sales of both the
products is 3:1. Hence, for 1 unit of Product Z sold, 3 units of Product Y are sold. As the selling
price of both the products are 14 and 18 respectively, the current sales level is calculated using

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FINANCIAL AND MANAGEMENT ACCOUNTING
the formula 14*3x+18*x = 400000. This is then equated to calculate the current level of sales of
both the products.
c) The break-even analysis of is extremely relevant in the modern day business as it helps
the managers with a wide variety of issues arising in the modern day manufacturing
environment. Some of these include determining the size of the units to be manufactured
with the resources available with the entity. It is also useful in other aspects like
budgeting for a given time period and in setting the targets of the entity. It also helps in
managing the margin of safety that should be maintained by the business and in
controlling the costs incurred by the entity. Other uses include the design of the pricing
strategy of the entity on the basis of its production over a period of time. Hence,
considering all these aspects, it can be said that breakeven analysis is not only a costing
technique but also a strategic tool useful in the process of decision making of an entity
(Kaplan and Atkinson 2015).
Answer to Question 5
In a large scale public sector organisation, there are a huge number of activities which are
undertaken at a given point of time. Hence, the steps which should be taken by the people setting
a financial budget are extremely complex. They also need to be thorough to ensure there are no
faults in the budget created by the individual. The first step involved in the process of preparing a
budget is allocating the responsibility centres (Weetman 2019). These include the revenue
centres, expense centres, profit centres and investment centres of a business. The responsibilities
of these centres needs to be divided amongst the people in charge of maintaining the centres.
Other step is to establish a proper communication channel which allows people in the
organisation to sufficiently communicate with each other. Any interactions occurring between

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FINANCIAL AND MANAGEMENT ACCOUNTING
different departments should be taken care of with the help of these departments. Similarly,
variances should be calculated on a monthly basis to ensure that people are aware of their
performance levels and the areas in which they can improve. Feedback of the employees should
be taken in a timely manner to ensure that the budgets are improved according to the
requirements of the organisation (Van Helden and Hodges 2015).

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FINANCIAL AND MANAGEMENT ACCOUNTING
References
Banerjee, S., 2015. Contravention Between NPV & IRR Due to Timing of Cash Flows: A Case
of Capital Budgeting Decision of an Oil Refinery Company. American Journal of Theoretical
and Applied Business, 1(2), pp.48-52.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Minnis, M. and Sutherland, A., 2017. Financial statements as monitoring mechanisms: Evidence
from small commercial loans. Journal of Accounting Research, 55(1), pp.197-233.
Robinson, T.R., 2020. International financial statement analysis. John Wiley & Sons.
Van Helden, G.J. and Hodges, R., 2015. Public sector accounting and budgeting for non-
specialists. Macmillan International Higher Education.
Weetman, P., 2019. Financial and management accounting. Pearson UK.