Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

MSIN0211 Financial Frameworks

In-Person Controlled Condition Examination

Sample Paper 2022/23

SECTION A

This section contains ONE (1) compulsory question. Marks for each part of the question are as detailed. Answer ALL parts in this Section.  

QUESTION 1A [36 MARKS] THIS QUESTION IS COMPULSORY

SUPERSUNLtd is a UK clothing company incorporated in 2019 based on the north coast of Cornwall selling surf-wear and beach apparel. Their unique designs and quirky company culture has recently caught the eye of the global market and demand for their products is at an all-time high.

The directors of SUPERSUNLtd have been looking to diversify into the solar energy market with the design of a new solar fabric that will change the future of charging small appliances on the go. The new product will be a solar fabric hoody with the capability to charge your phone whilst out on the go.

R&D costs attributed to the new project, already paid, are £250,000. The purchase of new plant and equipment necessary to develop the fabric solar panels requires an initial outlay of £750,000. The SUPERSUN depreciation policy allows for 20% straight-line depreciation on all plant and equipment.

The social media marketing campaign outlay will be £10,000 and SUPERSUN projected sales are 20,000 units in year 1 with expected growth of 10% year on year until year 3. As part of the marketing strategy, SUPERSUNLtd has secured product endorsement by Princess Luna, an influencer with 5 million followers worldwide, who has agreed to be part of a global campaign for a fee of £250,000 but is not available until Year 3. She will be paid in the third year of the 5-year project and with Princess Luna’s endorsement, projected sales are expected to rise to 30,000 units in year 3 with growth of 20% year on year thereafter. The SUPERSUNLtd Hoody     sells for £50 per unit with variable costs per unit of £30 and fixed costs of £310,000 per annum (including depreciation). The business has a cost of capital of 12% and hurdle rate of 20%. Implications of taxation are to be ignored.

Required:

I. Prepare a statement of incremental cash flows arising from the innovative SUPERSUNLtd project.              [3.5 Marks]

II. Evaluate the suitability of the project using the four methods below using discount tables at the end of the paper:

Annual rate of return      [1 Marks]

Payback period                  [1.5 Marks]

Net Present Value              [1.5 Marks]

Internal Rate of Return using the interpolation method and discount tables provided below               [2.5 Marks]

III. Provide a summary advising the directors of SUPERSUNLtd as to the viability of the new venture. Use evidence from your calculations to support your conclusions and include a critical evaluation of each of the methods used.      [15 Marks]

IV. The directors have also asked you to undertake some cost-volume-profit (CVP) analysis to confirm if their forecasting is correct:

Contribution per unit        [1 Marks]

Break-even point in units        [1 Marks]

Margin of Safety        [1 Marks]

V. As a caveat to your summary calculations in part (d) prepare a short note of no more than 200 words to advise directors and disclose the limitations of CVP analysis to the directors of SUPERSUNLtd.                [8 Marks]

                                                                                         [TOTAL 36 Marks]

Marking criteria note:

Within the allocated marks for Q1 parts (a, b, c & d), marks are awarded for correct figures only. Note: you must show all relevant workings and itemised parts individually. No method marks will be awarded.  Within the mark allocation of part (c) to this question, there is a sub-allocation of 10 marks reflecting academic judgement applied by the marker/assessor, based on the marker/assessor’s perception of logic, rationale, thrust, and communication. The composition of the 10 marks is based upon the assessment criteria for a level 7 module in relation to Knowledge and Understanding as well as Intellectual Skills.

QUESTION 1B [14 MARKS] THIS QUESTION IS COMPULSORY

You have been asked to prepare the statement of cash flows in a form suitable for publication for SUPERSUNLtd for the year ended 31 March 2021.

The most recent income statement and statement of financial position (with comparatives for the previous year) of SUPERSUNLtd are set out below.

SUPERSUNLtd – Income Statement for the year ended 31 March 2021

SUPERSUNLtd – Statements of financial position as at 31 March 2021/20

Further information relating to the year ended 31 March 2021:

The total depreciation charge for the year was £95,240

Property, plant and equipment with a carrying amount of £8,360 was sold in the year.

All sales and purchases were on credit. Other expenses were paid for in cash.

Required

I. Using the above information generate the cash flow statement for publication using the ‘indirect method’ for year ended 31 March 2021.Note you must show all relevant workings and itemised parts individually.  If your answer is not in this format and does not use the ‘indirect method’, you will be awarded ZERO marks for this question.                                       [10 Marks]

II. The directors of SUPERSUNLtd are puzzled by the fact that they have reported a profit of £107,010 for the year but have had to use the authorised overdraft facility agreed with their bank. Explain to the directors how this situation arises providing relevant examples where necessary to illustrate your answer.

     [4 Marks]

            [TOTAL 14 Marks]

QUESTION 1C [10 MARKS] THIS QUESTION IS COMPULSORY

SUPERSUNLtd also have a sister company SUPERPASTELtd, making and selling high-end organic toothpaste with added vitamins and minerals for domestic pets. For the financial year just ended 31^st March 2021, SUPERPASTELtd had budgeted to produce 20,000 units, selling them for £160,000. SUPERPASTELtd adopted a standard costing method to prepare the budget. That production was budgeted to use 900 kg of materials, costing £13,500. Direct labour was budgeted as being £10,000, based on 500 labour hours being worked. Variable production overheads were budgeted to be £30,000 and fixed production overheads as £25,000.

The actual results for the year ended 31^st March 2021 were:

Required

Prepare a statement for the directors of SUPERPASTELtd showing Original

Budget, Actual Results, Flexed Budget, and Variances. Include a reconciliation of the

Budgeted Profit with Actual Profit.                     [10 Marks]

SECTION B 

QUESTION 2 [40 MARKS] THIS QUESTION IS COMPULSORY

‘Why should we spend significant amounts of resources investigating cost behaviour? It is much simpler just to use the traditional (full) costing method.’

Required

Critically evaluate the above statement with reference to the advantages and disadvantages of both traditional (full) costing and the alternative, activity-based costing method using relevant examples.

             [40 Marks]

                   [TOTAL 40 Marks]

Marking criteria note:

Within the mark allocation to this question, there is a sub-allocation of 10 marks reflecting academic judgement applied by the marker/assessor, based on the marker/assessor’s perception of logic, rationale, thrust, and communication. The composition of the 10 marks is based upon the assessment criteria for a level 7 module in relation to Knowledge and Understanding as well as Intellectual Skills

Ratio Formula (to be used as appropriate).

Gross Profit = Sales less Cost of Sales

Return on Capital Employed = Operating profit/Total Capital employed

Return on Equity = Profit for the year/Ordinary Shareholders Equity

Operating profit percentage = Operating profit/Sales x 100%

Mark up = Gross profit/Cost of Sales

Current Ratio = Current Assets: Current Liabilities

Acid Test Ratio = Current Assets (less Inventories): Current Liabilities

Trade Receivables Days = Receivables/Sales x 365 days

Trade Payables Days = Payables/Account Purchases x 365 days

Inventory Days = Inventory/Cost of Sales x 365 days

Gearing = External Funding/Total Capital Employed

Interest Cover = Operating Profit/Interest Payable

Earnings per Share = Ordinary Shareholders Earnings/Ordinary Shares issued