Bits To Remember

Question 1

What are the different types of variances

Answer 1

Sales volume variance
Sales price variance

Material price variance
Material usage variance

Labour rate variance
Labour efficiency variance

Fixed overhead expenditure variance

Question 2

How do you calculate the sales volume variance.

Answer 2

Budgeted sales x standard contribution
Actual sales x standard contribution

Question 3

How do you calculate sales price variance

Answer 3

Actual sales x actual price
Actual sales x budgeted price

Question 4

How do you calculate material variances

Answer 4

PRICE
Actual materials x actual price
Actual materials x budgeted price

USAGE
Actual materials x budgeted price
Budgeted materials flexed x budgeted price

Think: PAMAP

Question 5

How do you calculate the fixed overhead variance

Answer 5

Actual fixed overheads less budgeted fixed overheads

Question 6

How do you calculate labour variances

Answer 6

RATE
Actual hours x actual rate
Actual hours x budgeted rate

EFFICIENCY
Actual hours x budgeted rate
Budgeted hours flexed x budgeted rate

Question 7

Under IAS 2 how are overheads included in inventory

Answer 7

Only PRODUCTION overheads are included in inventory based on NORMAL LEVELS OF ACTIVITY

Question 8

What percentage of ownership is needed for a special resolution to be passed

What does this allow

Answer 8

75%

Allows changes in the articles of association

Question 9

What is the equation for ROI

Answer 9

Divisional profit / divisional investment

Where divisional investment is either TALCL or net assets

Question 10

How can the calculation of ROI differ when you are calculating it

Answer 10

If appraising a manager then should remove uncontrollable costs such as allocated head office costs

If appraising a branch then should be including these costs

Question 11

What is residual income

How do you calculate residual income

Answer 11

Net profit of a division after having deducted a notional change for interest based on amount of investment tied up in the division

Divisional profit
Less: notional interest (divisional investment x cost of capital)
Residual income

Question 12

What are some benefits of RI

What are some benefits of ROI

Answer 12

RI
Technically better method as linked to COC
Result in fewer dysfunctional decisions

ROI
Gives a % answer so more understandable
Relative measure so easier to compare different sizes of divisions
Dysfunctional decision making deemed not to happen too much in reality

Question 13

Define sustainability

Answer 13

The extent to which development meets the needs of the present without compromising the ability of future generations to meet their own needs

Question 14

How do you calculate earnings per share

Answer 14

EPS = PAT - preference share dividends / weighted average number of shares

Question 15

How do you calculate the P/E ratio

What does a low ratio mean

Answer 15

Share price / EPS

Low means stock could be undervalued or investors don’t see much potential

Question 16

How do you calculate dividend per share

Answer 16

Dividend paid / number of shares

Question 17

How do you calculate dividend yield

Answer 17

(Dividend per share / share price) * 100

Question 18

What 4 categories should an effective framework be around for monitoring a project

Answer 18

Targets
Timing
Cost and budget
Risks and risk management

Question 19

What are the benefits of a single supplier relationship (6)

Answer 19

Easier to know quality levels and to monitor the levels

Should be well treated by supplier as you provide most of their business

Easy to communicate with one supplier

Supplier might be more inclined to develop new products as you are main customer

Easier to integrate systems with one supplier

More scale economies

Question 20

What are the disadvantages of single supplier relationship (2)

Answer 20

Supplier has more power to raise prices as you don’t have alternative

Production problems with supplier can have knock on effects on you

Question 21

What are the advantages of multiple supplier relationship (4)

Answer 21

Can set them in competition to get good prices

More flexibility with problems as can shift supply between suppliers

Each supplier can bid for new designs if required

Can benefit from innovation in product development from many companies not just one

Question 22

What are 5 disadvantages of multiple supplier relationship

Answer 22

Quality harder to control

Harder to control consistency of product

Suppliers might be less inclined to develop new products if you are not as large a customer

Supplier might not prioritize your requirements if you are not as important to them

Communications might be harder and more expensive

Question 23

What’s are 3 benefits of moving production in house

Answer 23

Supply chain internalized so control can be exercised on product quality and delivery

No need for price negotiations as prices are internal transfer prices

Can benefit from controlling innovation and stand to gain entire benefit from doing so

Question 24

What are 3 disadvantages of moving production in house

Answer 24

High operating gearing from fixed costs

Management might be distracted from day to day running of business if they have a new project

You are taking on all the risks of production

Question 25

What relations would be deemed a close family member under IAS 24

Answer 25

Children Spouse Children or spouse Dependents But the wording says ‘include’ so another close family member eg brother could also be included here if there is a lot of influence

Question 26

How can someone’s family member be a related party of an entity

Answer 26

The person should be a close family member of key management if they may influence each other

Question 27

How do you calculate gearing

Answer 27

Debt / equity OR debt / (debt + equity) Where debt is the amount of loans (not current liabilities)

Question 28

How might managers assessed on ROCE perform dysfunctional decision making

Answer 28

Denominator of ROCE is carrying amount of assets. Managers might retain old assets beyond useful lives as they have low CA and boost ROCE. Might stop managers from replacing assets when they are needed to be replaced

Question 29

What are the columns of the discount table for a lease that is paid in advance What is special about the first year

Answer 29

Opening balance Payment Balance remaining Interest Carry forward Payment is 0 and the first payment is taken off the opening balance

Question 30

How is a ROU asset depreciated in terms of a lease

Answer 30

Depreciated over the shorter of the lease term and the useful life

Question 31

What is the best way to decide between leasing and buying an asset

Answer 31

Compare the cash flows by performing an NPV and choosing the least negative NPV as this will be lowest cost

Question 32

What discount rate do you use when performing a lease vs buy calculation

Answer 32

Discount the cash flows at an after tax cost of borrowing (cost of equity)

Question 33

Which cash flows are important in a lease vs buy calculation

Answer 33

Initial cost, disposal value, tax relief on WDA, tax relief on lease payments, lease payments