May 2021 Solutions

Question 1
a) (15 marks total, 3 marks for each of the 5 methods
1- ARR: 1.5 marks (including 0.5 mark for the choice)

2- NPV: 1.5 marks (including 0.5 mark for the choice)

3- IRR: 1.5 marks (including 0.5 mark for the choice)
 4- PAY BACK PERIOD: 1.5 marks (including 0.5 mark for the choice)

5- PROFITABILITY INDEX 1.5 marks (including 0.5 mark for the choice)

A : 452,400/400,000 = 1.13%
B: 708,150/600,000 = 1.18%

B) total 10 marks

NPV is the most superior method. (1 mark)

Why grant 2 marks for each reason up to 4 reasons well referenced and explained

1 mark for the structure

C) total 15 marks
PAYBACK PERIOD: time required to get back the employed capital.
5 marks

Mentioning uncertainty and the desire for risk taking and well discussion of other advantages
of payback period (10 marks)

Question 2: (total 40 marks)

a) 4 marks for cost calculation as below (yellow) and 1 for price
b) 9 marks for cost calculation as below (blue) and 1 for the price
c- 6 marks

A reasonable discussion should be offered highlighting the product that is over (under)-priced, and how prices
should be adjusted accordingly – bearing in mind factors such as competition and demand. In addition the
accuracy of ABC systems (6 marks)

d- 19 marks including 2 marks for the structure and references.

End of section A

Section B:
Q3: 30 marks

Sales price per guitar 800

Variable cost per guitar 520
3
Contribution per guitar 280 marks

Break even point = 2,679 3

£750,000/£280 guitars marks
or £ 3
2,142,857 marks

Margin of safety

3,000
Budgeted sales guitars
-2,679
Break-even sales guitars
321 2
Margin of safety guitars marks
Margin of safety (%) 1
11% marks

200,00
Required profit 0
750,00
Fixed costs 0
€
Total contribution 950,00
required 0

Contribution per guitar 280

Required sales 3,393 3

guitars marks

c) 15 marks (advantages 4 marks 2 for each upto 2

Assumptions of B/even (11 mark: 2 mark for each discussion up to 4 assumptions and 3 marks
for the structure)

 All other variables remain constant throughout the analysis. It is assumed that volume is the
only factor that will cause costs and revenues to change. In reality, sales mix and price levels
change which requires re-calculation of CVP analysis.
 CVP assumes that either a single product is sold, or multi-products are sold in accordance
with pre-determined sales mix. Must be interpreted carefully if the initial assumptions alter.
 CVP assumes that unit variable cost and selling price are constant.
  Fixed costs do not change in the short-term which will vary potentially with different
businesses.
 CVP assumes costs can be accurately analysed into variable and fixed, particularly difficult
with semi-variable costs.
 Analysis only applies to the relevant production range and not beyond.
 CVP, as with fixed cost applies to the short-term, significant changes to prices and costs
cannot be made.

Q4: Total 30 marks

1- 2 marks for each variance total (12 marks)

b- total 14 marks ( 7 for each of the two approach)

7 marks= 3 marks for definition and 4 marks for 2 disadvantages.

Bottom-up budget is started by inviting those who will implement the budget to be
involved in setting the budget.
7 marks= 3 marks for definition and 4 marks for 2 disadvantages.
Top-down budget is set by management and imposed on those who will implement the
budget.

c- total 4 marks

d)) Discuss the following statement: Should all variances be investigated to find their cause?
- Cannot investigate all of them, time and resource constraints 2 marks
- But the significant ones should be investigated 2 marks

Question 5 (30 marks)

Question 5

a) 15 marks
 BS is introduced to improve corporate performance by aligning it with the corporate strategy,
which must be in place first. 5 mark
 Holistic approach incorporating four perspectives of business: financial/customer/internal
processes/innovation & learning. Co may determine if it needs five perspectives: Once
decided it determines on four goals for each perspective. Each goal is monitored by a
different KPI with a target set for each KPI.Choice of KPI is key, must be measurable
10 mark

B- 10 marks 2 for each

Reasons it is not adopted (not exhaustive):
 Expensive to introduce;
 Requires large cultural change;
 Encourages participation from bottom up which may not be popular;
 Increased ongoing costs.
C- 5 MARKS
The Balanced Scorecard is a flexible tool, and can be implemented by any kind of
organization:
-Large, medium and small businesses to ensure achievement of revenue / profit objective for
its shareholders
-Non-profit organizations, to enable delivery of its social objectives, based on the availability
of limited resources
-Government organizations / departments to enable delivery to the public / community