2019-20 Financial Performance Management - MOCK Test Paper

Question 1

A divisional manager receives a bonus depending on whether she achieves the target Return  on Investment for her division.  The divisional performance for the last financial period was as follows:

The division’s capital investment for the same financial period was worth £150,000.   The       divisional manager has the authority and autonomy in running her division and the                 Administration Costs and Selling and Distribution Costs are incurred for the division’s              operation. The Head Office Cost allocation relates to the costs of running the Head Quarters which is based 200 miles away from the Division.

What is the fairest Return on Investment figure that the divisional manager’s bonus should be based on?

(A) 10%

(B) 2.67%

(C) 6%

(D) 12%

Question 2

AB plc has two large divisions, A and B, and each of the divisions is managed by a divisional manager who has the authority to make their investment decisions.  The divisional managers’ performance is measured by the Return on Investment (ROI) of their division, but there is a discussion of changing it to Residual Income (RI) . The cost of capital for the Company is 10% .  The divisions are currently considering their own new investment project:

What is the ROI of Division A’s new project and the RI of Division B’s new project?

(A) Division A’s ROI is 15% and Division B’s RI is £3 million

(B) Division A’s ROI is 15% and Division B’s RI is £4 million

(C) Division A’s ROI is 17.50% and Division B’s RI is £3 million

(D) Division A’s ROI is 17.50% and Division B’s Ri is £4 million

Question 3

Alphabet Plc has two Divisions A and B.   Division A makes one product called the Beta which has the following cost structure .  The Beta is sold to external customers for £40.

Division B could use the Beta to produce a new product called Omega and the Manager has asked Division A for a quote of the lowest possible transfer price for 10,000 units of Beta.

Division A currently has spare capacity of 20,000 units of Beta.  Both managers are paid bonuses linked to Alphabet Plc's overall profits.

What is the lowest transfer price per unit of Beta that Division A manager could offer to Division B?

(A) £20 per unit

(B) £18 per unit

(C) £2   per unit

(D) £25 per unit

Question 4

A company has two divisions G and H.  The manager of Division G receives his bonus if the        division makes a Net Profit of £960,000  each year.  Division G only sells one product called G to external customers at a selling price of £100.   Financial data for the Division G and the product are shown below:

Division H Manager would like to buy 20,000  units of G per year from Division G .

What is the transfer price that Division G Manager would like to charge for Product G if he wishes to achieve his profit target of £960,000 per year in order to get the bonus?

(A) £72

(B) £60

(C) £100

(D) £80

Question 5

XY plc has two divisions, Division X and Division Y.

Division X manufactures and sells taps to external customers for £80, the variable cost of the taps is £30 per unit.  Current external demand for the taps is 60,000 units per year. The         maximum capacity of Division X is 75,000 units.

Division Y manufactures bathroom furniture and is launching a new bath. They would like to request for a transfer of 40,000 taps per year from Division X.

What is the transfer price that the manager of Division X could quote if he does not wish to reduce his current level of profits?

(A) £50 per unit

(B) £80 per unit

(C) £30 per unit

(D) £61.25 per unit

Question 6

Fantastica Bakery sells a standard loaf of bread for £1.  The demand for the bread at this price  is 4,000 loaves per month. The price of flour has increased last month, and the bakery wishes   to increase the price of a loaf to £1.10 to cover the additional costs.  Previous calculations have shown that the price elasticity of demand is 0.25 (ignore the minus sign) .

How many loaves can Fantastica Bakery expect to sell at the new price £1.10 if the Elasticity of Demand has remained as 0.25?

(A) 3,900 loaves

(B) 3,000 loaves

(C) 4, 100 loaves

(D) 5,000 loaves

Question 7

The Car Warehouse has done a market research of the sales of various models of cars.  At a selling price of £22,000 per car for Model X,the current sales are 3,000 cars per month. The Market research has suggested that if the price of Model X were to be increased to £25,000  per car, the demand would fall to 1,500 cars.

What is the price elasticity of demand for Model X cars?

(A) Elastic 3.7

(B) Elastic 2

(C) Elastic 13.60

(D) Inelastic 0.27

Question 8

Gigi Limited's sells only one product, the Flibble .  The Flibble has had the same selling price of   £45 throughout last year and demand has stayed constant at 20,000 units per annum. The        marketing department have done some research and they think that for every £2 decrease in    price, demand will increase by 4,000 units.  If the price of the product reached £55, then            demand would be zero as a competitor has a better product which is sold for £54.50 each.  The variable cost for a Flibble is £20.

Note: P = a- bQ   and    MR = a - 2bQ

What is the total contribution from the sales of Flibble at the profit maximisation selling price and sales quantity?

(A) £500,000

(B) £900,000

(C) £612,500

(D) £1,100,000

Question 9

A special job for a customer will required 10 tonnes of a Material X. The Company no longer     uses this material regularly although it holds 5 tonnes in inventory. These materials were          originally bought at a cost of £50 per tonne and could be resold to a supplier for £30 per tonne . The current market price of Material X is £60 per tonne .

Alternatively, the 5 tonnes of Material X in inventory could be used to complete another job instead of using other materials that would cost £400 in total to purchase .

The Company needs to identify the cost of materials for the special job s o that a price can be set. What would be the relevant cost of Material X for this special job?

A .  £800

B.   £600

C.   £700

D.  £300

Question 10

In a manufacturing plant, the work force is operating at full capacity.  The work force is highly skilled and paid £15 per hour.   In order to motivate the skilled workers, the management has agreed to pay them a bonus of £1 per hour worked.

A customer has asked for a special job to be done which will require to take the workers away from the regular work which earns a contribution of 20 per hour.   The special job would take 100 hours of labour time .   The company must decide whether to agree to the customer’s       request for the work and to set a price . What would be the relevant cost of labour for this job?

A .   £3,600

B.   £1,600

C.   £1,500

D.  £2,000