Ans.

a) Option A

Conversion costs = Direct labour + Manufacturing overhead.

Ans. £ 54,000
Ans. A) only I

Ans. a) working capital management

Ans. d) £78,000

Ans. a) True

Ans. a) Fixed cost per unit - INCREASE; Variable cost per unit -
NO CHANGE
Ans. b) False
**********

Ans. b) remains constant at each activity level.

Ans. b) Direct labour cost and manufacturing overhead cost.

SECTION B1
5- What is meant by the ‘margin of safety’?

Margin of safety is an investment theory that states that an investor should only buy assets
when their market price is considerably lower than their true worth. The gap between the
market price of a security and your estimate of its intrinsic worth is known as the margin of
safety. Because investors may set a safety margin in line with their own risk choices,
purchasing assets while this difference is present permits an investment to be made with little
negative risk.

Similarly, the safety margin in accounting refers to the gap between actual sales and break-
even sales. Managers can use the margin of safety to determine how much a firm or project
can lose money before it becomes unprofitable.

6- Distinguish between (a) variable cost, (b) fixed cost, and (c) mixed cost.

Ans.
Variable Cost: Variations in overall cost directly proportional to changes in activity level.
As the number of units produced rises or falls, the overall cost rises or falls. When stated as a
cost per unit, variable cost is equal to zero. Direct materials, direct labour, and variable
overhead are all examples of variable expenses. Costs that fluctuate based on sales, such as
commission, are referred to as variable costs. If it costs you extra to manufacture or sell
another one, it's a variable cost. The price of raw materials is a classic case of a variable cost.

Fixed Cost: Total costs remain constant regardless of activity levels (within a relevant
range). As the quantity of unit’s changes, so does the price per unit. Fixed expenses include
things like rent, insurance, and administrative wages. As long as you stay within the
appropriate range, these expenses will not alter if you produce or sell one additional item.
Rent is a frequent instance of a fixed expense.
Mixed Costs (also known as semi-variable costs) are costs that include the properties of
variable costs and fixed costs. one that has both variable and fixed expenses Fixed - a
minimum fee for having a service ready and available for usage, Variable: the fee incurred
when the service is actually used.

Costs in the Mixed Stream = Total Fixed Cost $ + (Activity Variable Cost $ x Activity
Count).

SECTION B2

a) Using the high–low method, estimate the variable and fixed cost
elements of the annual cost of truck operation.

b) Express the variable and fixed costs in the form y = a + bx.

c) If a truck were driven 70,000 kilometres during a year, what total cost
would you expect to be incurred?
d) What should be the goal of the financial manager of a corporation?
Explain your answer.

Ans.
An important role in the long financial health is ensured by the work of a financial manager
who generates financial reports, directs investment operations, and develops plans. In
addition to helping leaders make decisions affecting the team's growth, accountants have the
best understanding of a company's finances of anybody in the business.

Financial Manager Responsibilities

Financial advisors must manage the preparation of several reports, such as income statement,
company activity recently reported, and trend predictions. Other workers who are responsible
for financial reporting and budgeting must report to the financial manager, who also serves as
their supervisor. They must guarantee that all legal obligations concerning the company's
finances, such as taxes and employee wages, are satisfied.

Aside from compiling reports, financial managers must be able to provide data-driven ideas
to benefit the firm. They must analyse financial data for the firm and assist in cost-cutting
measures. They examine industry-wide market trends to identify new prospects for expansion
or acquisition.

Due to technology developments that minimise the amount of time required to compile
financial reports, the particular tasks of a financial manager have altered in recent years.
Previously, generating these reports consumed the majority of a financial manager's work;
currently, the primary responsibilities of company finance managers are to evaluate reports
and advise senior management on how to optimise profitability. As a result, they are
increasingly being expected to function as consultants to CEOs, assisting them in making
decisions that influence the whole business.

As a business grows, so will the responsibilities of a finance manager. When a company is

tiny, it may outsource numerous tasks that will later be brought in-house.

Financial Management Objectives

The long-term goal of financial management is to help the firm maximise earnings. To
accomplish so, a financial manager must concentrate on smaller, more specialised financial
management goals including as planning, cost minimization, cash flow management, and
compliance with the law.

Planning

A money adviser varies from an accountant in that he will focus on long-term financial
planning while delegating the actual bookkeeping to his subordinates. These plans may
contain goals for reducing overhead expenditures, production expenses, and debt service, as
well as attaining certain revenues, profit margins, and total revenue.

To develop these plans, he will need to prepare a master budget known as a flexible budget
analysis. it includes the company’s financial statements, accounts receivable and payable
reports, cash flow records, and profit and loss statements. The finance manager will evaluate
this budget variance analysis on a regular basis to see if the company's actual performance is
matching its forecasts, and if not, he will assist in determining what adjustments should be
done.

SECTION B3
a) Prepare the monthly control report showing original budget, flexed
budget and variances.
b) Using your report, give a brief analysis of LiLi’s performance during the
month.

Ans.
Carry out a Variance Analysis
It's not uncommon for smaller companies to use forecasting software in their accounting
systems. Both dollars and percentages can be used to indicate differences. Both can be
beneficial. Large dollar differences are critical because, for example, a big sales shortfall
might lead to a financial imbalance for the firm. Compiling percentage variances aids in
putting things in perspective. Unless it represents 10% of a cost category, a $100 negative
variance may appear insignificant. A $1,000 difference, on the other hand, may not appear
alarming unless it occurred in a cost category that was expected to be $50,000 for the month
— merely a 2% difference.

Distinguish between the Most Important Variances

Now go a little further into the statistics and figure out what caused the large fluctuations.
You need to determine if the variations were driven by external sources like the economy.
For example, severe weather may cause people to stay off the roads and out of shopping
outlets. Look for recurring patterns, such as a decrease in consumer traffic at one of your
retail sites for the last three months. If you see recurring tendencies, you may want to rethink
your marketing approach.

Review the Important Metrics

The main parameters you set in your forecasting process might give hints when trying to
discover the cause of significant deviations. Metrics are statistical measurements that may be
tracked to examine your business in greater depth than just revenue and cost line items. You
may use website traffic as a major metric in setting goals. The lower your conversion rate is,
the less likely it is that your marketing effort is reaching your real target audience or that your
sales team is completing deals with consumers effectively. It's difficult to pinpoint the root
cause of an issue based just on sales figures.
Decide whether a Change is Necessary

Analyzing the company's performance reveals the most pressing concerns that must be
addressed if you want to see improved outcomes in the months to come. Changing your
marketing plan is an option. To enhance foot traffic in a retail business, the owner might send
emails to his customer list announcing special specials. If you're not happy with how things
are going in terms of achieving operational goals, come up with a plan to bring things back
on track. Your sales team may need further training if you fall short of your customer service
targets, which may be assessed by the amount of client complaints.

c) Suggest how this control report could be improved, describing any extra
information you would need in order to do so.

Ans.
How this control report could be improved:

To enhance your company's performance, you must successfully discover, preserve, manage,
and monitor critical business data through thorough analysis and reporting.

You won't know how successful your company is until you define and monitor success. Once
you've determined what success is, you can adjust your company plans appropriately, as
famed management expert Peter Drucker once stated, "If you can't measure it, you simply
can not afford it."

Recognize the Most Important Information

The jumble of unnecessary paperwork has now become a serious problem for the company's
management...” Data is your company's most important asset, and companies that have
access to useable data see productivity rise by 10% and revenue expand by 35% year over
year. To improve your company's performance, it's critical to understand the issues and
difficulties you face and what data can be monitored and improved. Finding the appropriate
data will allow you to gather crucial business knowledge that will help you develop focused
strategies and enhance client retention, acquisition, satisfaction, and total return on
investment.
Make a note of the information that's necessary

Once you've determined the data, you'll need to generate meaningful insights, you'll need to
know if you're presently collecting enough and relevant information. It's possible you'll just
need to make minor adjustments by customising your software or revamping your reports to
include features that give you a better picture of the data you need. Additionally, by reducing
"junk," you'll be able to get to the data that matters and use it to grow your business.

With the help of reliable data analysis and reporting, you can build roadmaps, predictions,
and forecasts that provide key decision-makers the ability to set budgets, define goals, and
spot trends and patterns.

Obtain Valuable Information

Predetermined analyses are a quick and easy method to get business information. However,
no two organisations are alike, so it's critical to employ data analytics (BI) tools to help you
analyse your data. Use tools that allow you to export data into Excel, which then lets you do
bespoke report creation. Additionally, the Excel add-on Powerful Pivots helps individuals
without specialised BI or analytics expertise by collecting and displaying the information you
want in a convenient style.

Graphs and charts are also a fantastic method to extract important real-time data. They have
the ability to access data from your accounting and customer relationship management
software.

Exhibit Your Information

Everything hinges on how well you present yourself. Simple and visual presentations should
be used to communicate your facts to decision-makers so that they can make well-informed
business decisions. Dashboards are excellent for displaying current data at a quick look.
When it comes to presenting your findings, your presentation ought to do the following:

Determine how well you've performed in comparison to past activities. Context may be
provided by comparing current data with those from prior months and projections.

Draw attention to unusual occurrences, dangers, and achievements. In your reports, you
should not overwhelm your readers with unnecessary material, but instead, concentrate on a
single important topic and take one or more of the steps outlined above.