Financial Management Exam for BSC (Hons) Business Management Semester 1, Examination 2021/22

This exam covers Financial Management and Decision Making for BSC (Hons) Business Management Semester 1, Examination 2021/22. It includes calculations of payback period and net present value, ratios, variances, breakeven points, and steps in setting a financial/cost controlling budget in a large organization.

BSC (Hons) BUSINESS MANAGEMENT
SEMESTER 1, EXAMINATION 2021/22
FINANCIAL MANAGEMENT AND DECISION
MAKING
MODULE NO: BMP5006
------------------------------------------------------------------------------------------------------------
ANSWER BOOKLET
All the pages of the answer booklet should be submitted including blank ones.
Please type your answers in the spaces provided.
Insert additional pages where required.
Student Name
ID Number
Answer to the Question no. 1 (a)
Calculation of Payback Period for each project:
CUMULATIVE CASH FLOWS
Project A Project B Project C
£ £ £
Year 1 4000 5000 4000
Year 2 6000 5000 5000

Year 3 5000 4000 3000
Year 4 3600 5000
Year 5 1400
Payback Period (years and
months) 2.83 3.9 4.28
Calculation of Net Present Value for each project:
Discount
Factors
Project A Project B Project C
CF DCF CF DCF CF DCF
8% £ £ £ £ £ £
Year 1 0.95 4000 3703.6 5000 4629.5 4000 3703
Year 2 0.85 6000 5143.8 5000 4286.5 5000 4286
Year 3 0.79 5000 3969 4000 3175.2 3000 2381
Year 4 0.74 3600 2646 5000 3675
Year 5 0.68 1400 952.84
2000 2000 2000
Total DCF
Initial
investment 15000 15000 15000
Net present
value -183.6 1737.2 1999.34
Answer to the Question no. 1 (b)
Payback period - According to the pay period method project A is the earliest among the three to
break even the investment amount. Project C is the slowest of all three options.
But if the project's NPV is analysed project A delivers negative that is why it is not good option to
invest.
Project B is giving return of about 1737 in year 4 which is a competent investment option
While Project c's NPV is the highest among the all three
Answer to the Question no. 1 (c)
2 of 12

From all the analysis done above, it be said that project C is the best investment option among
three to be chosen. As mainly, in the investment appraising methods NPV techniques is
considered as the best by companies. So as per the methods of NPV, Project C is should be chosen
by the company as it gives the best optimum result for the expansion of the business entity.
Answer to the Question no. 1 (d)
Pay back period
Uses - it is used by investors to calculate returns the period required to received the return on a
product
Benefit- It is easiest way to calculate the soundness of a investment.
Demerit- like in the about case study pay back period do not consider time value factor of money.
Therefore fails to deliver accurate results
NPV
Uses- Useful for determining future value return on investment.
Benefit- This method delivers better decision making information as it contains the future value
of money.
Demerit- The whole method is based on discounting rate calculation, while the basis for
determining the rate is not given.
Answer to the Question no. 2 (a)
Calculation of ratios:
(i) Gross profit ratio= Gross profit/ revenue
Year 2019,
= 192 /4 40
= 0.433
Year 2020,
= 138 / 330
= 0.41818
(ii) Operating profit ratio = Operating profit / Net sales
Year 2019,
= 70 / 440
= 0.15
Year 2020,
3 of 12

= 50 / 330
= 0.1515
(iii) Expenses to sales = Expenses / sales
Year 2019
=122 / 440
= 0.277
Year 2020,
= 88 / 330
= 0.266
(iv) Return on capital employed = Operating profit/ Total asset – Total Current liabilities
Year 2019
= (70 / 450) – 72
= .185
Year 2020,
= (50 / 413) – 32
= 0.131
(v) Asset turnover= Net Sales/ Average Total assets
Year 2019
=440 / 450
=0.977
Year 2020,
=330 / (450+413)
=0.76
(vi) Non-current asset turnover = Revenue / Non-current assets
Year 2019,
440 / 405 = 1.086
Year 2020,
330 / 361 = 0.914
(vii) Current Ratio = Current Assets / Current Liability
Year 2019,
117 / 72 = 1.625
Year 2020,
84 / 32 = 2.625
(viii) Quick Ratio = (Current Assets - Inventory)/ Current Liability
Year 2019,
(117 – 45) / 72 = 1
Year 2020,
(84 – 28) / 32 = 56 / 32 = 1.75
(ix) Inventory days = (Average Inventory / Cost of Sales) * 365
Year 2019,
(48 / 248) * 365 = 70.65
Year 2020,
(59/ 192) * 365 = 112.16
4 of 12

(x) Receivables days = (Total debtors / Revenue) * 365
Year 2019,
= (65 / 440) * 365
= 53.92
Year 2020,
= (46 / 330) * 365 = 50.87
(xi) Payable days = (Payables / Cost of Sales) * 365
Year 2019,
(72 / 248) * 365 = 105.97
Year 2020,
(32 / 192) * 365 = 60.83
(xii) Interest cover = Profit before interest and Tax / Interest Expense
Year 2019,
70 / 10 = 7
Year 2020,
50 / 10 = 5
Answer to the Question no. 2 (b)
Comment on company performance:
5 of 12

Marsha company's financial reports depicts that organisation was in a better position in the year
2019 as compared to year 2020. Company ratio related to profit are stronger in the 2019 as profit
is going down in year 2020. Company has increased its current ratio in year 2020 and reached to
level of ideal current ratio. This shows that company can fulfill its short term liabilities easily.
Payment to the supplier and creditors are made earlier as year 2019. Also payment by debtors are
being made early. Overall it can be said that company's performance is satisfactory but not too
good. Marsha have to be more effective.
Answer to the Question no. 3
Calculation of variances:
Sales variances £
Favourable
(F)/Adverse
(A)
Sales price variance:
Budgeted sales price for unit 32
Actual sales price for unit 31
(Actual price- Budgeted price)* Actual unit -4850 Adverse
Sales volume variance:
Budgeted sales 5100
Actual sales 4850
(Actual sales- Budgeted sales)* budgeted price -80000 Adverse
6 of 12

Total sales variance -12850
Direct material variances £
Favourable
(F)/Adverse
(A)
Material price variance:
Standard Material price 4
Actual material price = 4.26
(Standard price – Actual price)* Actual quantity -598 Adverse
Material usage variance:
Standard quantity 2425
Actual quantity 2300
(standard quantity – Actual quantity)*standard price 500 Favourable
Total direct material variance -98
Direct labour variances £
Favourable
(F)/ Adverse
(A)
Labour rate variance:
Actual rate 7.98
Standard rate 8
Actual time *( Standard rate- Actual rate) 170 Favourable
Labour efficiency variance:
Actual time 8500
Standard time 9700
Standard rate*(Standard time – Actual time) 9600 Favourable
Total direct labour variance 9770
Variable overhead variances £
Favourable
(F)/ Adverse
(A)
Variable overhead rate variance:
Actual Rate 0.33
standard rate 0.60
7 of 12

(standard rate – Actual rate)*Actual quantity
2160
Variable overhead efficiency variance:
Standard quantity 9700
Actual quantity 8000
(Standard quantity – Actual quantity)* standard rate 1020
Total Variable overhead variance
Operating Statement (OP):
Standard OP Varianc
es
Actual OP
£ £ £ £ £
Sales 32 155200 31
Direct materials 4 19400 4.26
Direct labour 8 38800 7.98
Variable overheads .60 2910 0.33
Total variable expenses 18.60 99910 12.57
Contribution 13.4 64990 18.43
8 of 12

Answer to the Question no. 4 (a)
Breakeven points in units:
Contribution per unit: Product
A
Product
B
£ £
Sales price 12 17
Variable cost 7.90 11.20
4.1 5.8
£
Contribution from standard mix:
sales 227714 170784
contribution 77801 58266.8
136027.8
Weighted average contribution per unit:
Total contribution/total unit sold 4.7
Breakeven point in units in standard mix = Fixed Cost /
Contribution per unit
28046
Breakeven points in units for each product:
Product A 16026
Product B 12020
Answer to the Question no. 4 (b)
Margin of safety in units:
9 of 12

Breakeven sales
£
Product A 35400
Product B -
35400
Calculation of margin of safety:
Margin of safety = Total sales- break even sales
Product A = 18976-1602
=2950*12
=35400
Product B =
Total breakeven sales unit =12020
Total sales unit =10046
Hence, product B has not been able to achieve break even sales.
Answer to the Question no. 4 (c)
Evaluation of relevance of breakeven analysis in a modern
manufacturing environment:
Break even point is that unit point of sales which depicts that no profit or no loss will occur to the
company at the point. In the modern business it has very much relevance. when the company
wants to know about the units that need to sold to achieve a desired profit break even point is
used. It is helpful in setting targets to the organisation Operation. Also helps in monitoring and
controlling cost for the product. The major importance is in when pricing strategy is set for a
product.
10 of 12

Answer to the Question no. 5
Significant steps in setting a financial/cost controlling
budget in a large organisation.
Steps involved in cost controlling budget:
1. Planning - This the initial stage where managers decide what targets need to be achieved. For
standards to be set up research is made and analysis is done to find out the realistic standards that
need to be achieved.
2. Implementation - This standards and Targets are communicating to the employees. And
strategy are implemented to achieve the target goals.
3. Actual output- when the performance of the company is matched with the desired results there
are some variations. These variations/ deviation can be either positive or negative. According to
their nature and outcome these are analysed and reason behind the outcome is studied.
4. Corrective measures- According to the analysis done on the reason of the outcome. Corrective
actions are taken against the adverse outcomes.
11 of 12

12 of 12