Financial Management Hardest Exam: Quiz!

The main functions of a budget include planning and coordination, as well as authorization and evaluation. Planning and coordination involve setting financial goals and allocating resources to achieve those goals. Authorization and evaluation involve approving and monitoring the use of funds to ensure they are being used effectively and efficiently. Both functions are important in managing and controlling financial activities within an organization.

The cash flow statement is part of the financial statements. It provides information about the inflow and outflow of cash during a specific period, helping stakeholders understand the company's liquidity and cash management. The financial statements include the balance sheet, income statement, and statement of cash flows, which collectively provide a comprehensive overview of a company's financial performance and position. The directors report, auditor's report, and articles of association are separate documents that may accompany the financial statements but do not include the cash flow statement.

Cost control is partly dependent on both the length of the budget period and the authorization of the budget holder. The length of the budget period refers to the timeframe within which the budget is set and monitored. A longer budget period allows for better planning and monitoring of costs, enabling adjustments to be made as necessary. The authorization of the budget holder is crucial as they have the authority to allocate and control the budget. Their involvement ensures that costs are managed effectively and in line with the overall financial goals and objectives. Therefore, both factors contribute to effective cost control.

Research costs are not entered on the balance sheet as an asset due to the principle of prudence. The principle of prudence requires that companies be cautious and conservative in their financial reporting. Research costs are considered uncertain and speculative in nature, and therefore cannot be reliably measured or assigned a future economic benefit. As a result, they are expensed as incurred rather than being recognized as an asset on the balance sheet. This approach ensures that financial statements provide a more realistic and conservative representation of a company's financial position and performance.

If a company's total contribution margin over a certain period is equal to the total fixed costs for that period, it has achieved a break-even result. This means that the company's revenue from sales is exactly enough to cover all of its variable costs and fixed costs, resulting in no profit or loss. In other words, the company is neither making a profit nor incurring a loss, and its total contribution margin is equal to its total fixed costs.

The direct costing method produces a higher profit figure for last year because it only includes variable production costs in the cost of goods sold. Since the company sold more products than it manufactured, the fixed production costs are not included in the cost of goods sold, resulting in a higher profit figure. Additionally, the direct costing method produces a lower value for the closing inventory because it does not include fixed production costs in the inventory valuation. Therefore, both A and B are correct.

Machine manufacturer Smith and Son is not legally obliged to draw up a financial statement because it is not a publicly traded company. Publicly traded companies are typically required by law to prepare and publish financial statements to provide transparency and accountability to their shareholders and the public. However, private companies like Smith and Son may not have the same legal obligations and may choose not to prepare financial statements unless required by other specific regulations or agreements.

Proportionally variable costs per unit remain the same with an increase in activity because as the activity level increases, the variable costs also increase in direct proportion to the increase in activity. Similarly, proportionally variable costs per unit remain the same with a decrease in production levels because as the production levels decrease, the variable costs also decrease in direct proportion to the decrease in production. Therefore, both an increase in activity and a decrease in production levels result in the same proportional variable costs per unit.

The payment of dividends is classified as a cash expenditure in the cash flow statement because it represents an outflow of cash from the company to its shareholders. Dividends are typically paid out of the company's profits or retained earnings, and they reduce the cash balance of the company. Therefore, this activity is considered a cash expenditure and is reported under the financing activities section of the cash flow statement.

The payment of dividend is part of the cash flow from financing activities because it involves the distribution of profits to shareholders. This payment represents an outflow of cash from the company's financing activities, as it reduces the company's retained earnings and is considered a return of capital to the shareholders.

The margin of safety is the difference between the actual sales volume and the break-even point. In this case, the break-even point has been lowered from 130,000 bicycles to 100,000 bicycles. Therefore, the margin of safety is 30,000 bicycles. However, the margin of safety is partly dependent on the forecast sales volume, meaning that it can change based on the accuracy of the sales projections. So, the correct answer is that the margin of safety is partly dependent on the forecast sales volume.

The correct answer states that the difference between 'fair value through profit and loss' and the replacement cost system is that price increases in the first system are part of profit and the second system are not. This means that when using the fair value through profit and loss system, any increase in prices is considered as profit, while in the replacement cost system, price increases are not included in the calculation of profit. This highlights a key distinction between the two systems in terms of how they treat price increases and their impact on profit.

Creative accounting refers to the practice of manipulating financial statements to present a more positive picture of a company's financial position than what is actually true. This can involve various techniques such as inflating revenues, understating expenses, or misrepresenting assets and liabilities. By doing so, the company aims to deceive stakeholders, such as investors or creditors, and create a false perception of its financial health. Therefore, the given statement correctly defines creative accounting as painting a more favorable picture of the business's financial position.

The economic lifespan of the machine is 2 years because the residual value of the machine decreases to 70,000 at the end of Year 2, indicating that it can still be used for another year. However, at the end of Year 3, the residual value drops to 30,000, suggesting that the machine is no longer economically viable to use beyond Year 3. Therefore, the machine can be used for a total of 2 years before it becomes economically inefficient.

The business should take its profits in November 2010 because that is when the goods were delivered to the customer. According to the revenue recognition principle, revenue should be recognized when the goods or services are delivered or rendered, and the risks and rewards of ownership have been transferred to the customer. In this case, the goods were delivered in November, so that is when the revenue should be recognized. The subsequent invoicing and payment in December 2010 and January 2011 are separate from the recognition of revenue.

The selling price as a percentage of the purchase price is 400%. This can be calculated by dividing the gross profit (75%) by the selling price (100%) and then multiplying the result by 100 to convert it to a percentage. This means that the selling price is four times the purchase price, or 400% of the purchase price.

The x-axis on a cost-volume-profit analysis graph represents the level of production and sales. This means that as you move along the x-axis, you are looking at different levels of production and sales. This information is important in understanding the relationship between production, sales, and profit. By analyzing this graph, one can determine the break-even point, the level of production and sales needed to cover all costs, and the level of production and sales needed to generate a desired level of profit.

The contribution margin is calculated by subtracting the variable costs from the selling price. In this case, the variable costs are $18. Therefore, the contribution margin would be $45 - $18 = $27. To express this as a percentage of the selling price, we divide the contribution margin by the selling price and multiply by 100. So, the contribution margin percentage would be ($27 / $45) * 100 = 60%.

The final stage of creating the master budget involves drawing up a budgeted balance sheet. A budgeted balance sheet is a financial statement that provides an overview of a company's assets, liabilities, and equity at a specific point in time. It helps in assessing the financial position of the company and is an essential tool for making informed decisions regarding resource allocation and financial planning. By creating a budgeted balance sheet, the company can evaluate its projected financial performance and make necessary adjustments to achieve its financial goals.

A provision by an oil firm for an expected fall in crude oil prices is not permitted because it goes against the principle of prudence in accounting. The principle of prudence requires that provisions should only be recognized for probable obligations or losses, and not for possible gains. Therefore, a provision for an expected fall in crude oil prices, which implies a possible gain for the oil firm, would not be permitted.

Paid interest is not deducted from revenue when determining added value because it is a financial expense that is separate from the operational costs of running a business. Revenue represents the total amount of money generated from sales or services, while paid interest is a cost incurred from borrowing money or financing activities. Therefore, it is not directly related to the production or delivery of goods or services, and is not subtracted from revenue when calculating added value.

A flexible budget is a budget that is created at the end of a planned period, taking into account the actual business activity that occurred during that period. Unlike a static budget, which is prepared before the period begins and remains fixed regardless of actual activity, a flexible budget adjusts for variations in activity levels. This allows for a more accurate evaluation of performance and helps in making informed decisions based on the actual business activity.

To maximize profits, capacity should be allocated 100% for B. This is because product B has a higher contribution margin of 60% compared to product A's 40%. Allocating 100% of the machine time to B will result in a higher overall contribution margin and therefore higher profits for the company.

The paid dividend is 0 because there is no information provided in the given figures about any dividend payments made by the company.

In this scenario, as the production volume increases, the total variable costs also increase. This indicates that the variable costs are progressively increasing in relation to the production volume. Therefore, the correct answer is progressively variable costs.

An increase in the contribution margin will result in a higher profit per unit sold. This means that the company will need to sell fewer units in order to cover its fixed costs and reach the break-even point. As a result, the break-even turnover level will fall.

Under the direct costing method, period costs consist of both fixed production costs and fixed sales and general costs. This means that all fixed costs associated with the production process, as well as fixed costs related to sales and general administration, are considered as period costs. This method does not include these costs in the product's cost of goods sold, but rather treats them as expenses in the period they are incurred. Therefore, the correct answer is "Both A and B."

The given answer of "900 favourable and 3,900 unfavourable" means that the company had a favorable variance of 900 euros in terms of direct labor costs, indicating that the actual labor costs were lower than expected. However, there was an unfavorable variance of 3,900 euros, indicating that the actual labor hours worked exceeded the expected hours. This suggests that the company spent less on labor costs than anticipated, but had to pay for more labor hours than planned.

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The correct answer is 110 and 175,000 loss. This is because the full production cost per unit is given as 110. The expected volume variance can be calculated by subtracting the estimated total production (17,500 units) from the normal volume per period (20,000 units) and multiplying it by the full production cost per unit (110). Therefore, the expected volume variance is (20,000 - 17,500) * 110 = 175,000 loss.

The material costs per bolt C can be calculated by finding the proportion of steel used in each type of bolt and then multiplying it by the total material costs. The ratio of steel used in bolts A, B, and C is 2:3:5.

To find the proportion of steel used in bolt C, we can divide the steel ratio of bolt C (5) by the sum of the steel ratios of all bolts (2+3+5=10).

So, the proportion of steel used in bolt C is 5/10 = 0.5.

Finally, we can multiply the proportion of steel used in bolt C (0.5) by the total material costs per week (6,000) to find the material costs per bolt C.

0.5 * 6,000 = 3,000.

Since there are 2,000 bolts C produced per week, the material costs per bolt C is 3,000/2,000 = 1.5.

Therefore, the correct answer is 0.9375.

The cash flow from operating activities can be calculated by adjusting the net income for non-cash expenses and changes in working capital. In this case, the net income before tax is 20,000 and the corporate tax is 5,000. Therefore, the net tax (net income after tax) is 15,000. Additionally, there is a decrease in accounts receivable of 15,000 and an increase in accounts payable of 130,000. The cash flow from operating activities is calculated as net tax + decrease in accounts receivable - increase in accounts payable, which equals +10,000.

Indirect costs refer to expenses that cannot be directly attributed to specific finished products. These costs are not necessarily related to the day-to-day operations of a business and cannot be allocated or assigned to any particular activity or product. Instead, they are costs that are incurred in the overall production process but cannot be directly linked to the final output. Therefore, they cannot be ascribed directly to finished products.

In order to calculate the profit, we need to subtract the total costs from the total revenue. The total revenue is calculated by multiplying the selling price by the number of units sold, which is 500 euro * 10,000 units = 5,000,000 euro. The total costs include the materials, wages, and overhead costs, which sum up to 2,000,000 + 1,600,000 + 1,200,000 = 4,800,000 euro. Therefore, the profit is 5,000,000 - 4,800,000 = 200,000 euro. However, the given answer is 800,000 euro, which is incorrect.

To find the costs per unit in January, we need to calculate the cost per unit based on the total production costs and the number of units completed.

The total production costs in January were 120,000 and 45,000 units were completed. Therefore, the cost per unit would be 120,000 divided by 45,000, which equals 2.67.

Since the answer choices are given in increments of 0.05, the closest option to 2.67 is 2.50.

The unfavourable labour variance is calculated by finding the difference between the standard labour cost and the actual labour cost.

Standard labour cost = 300 units * 4 hours per unit * $36 per hour = $43,200
Actual labour cost = 250 units * 3 hours per unit * $39 per hour = $29,250

Unfavourable labour variance = Standard labour cost - Actual labour cost = $43,200 - $29,250 = $13,950

However, since the question asks for the unfavourable labour variance and the answer choices are all positive values, the correct answer is the absolute value of the calculated variance, which is $13,950 or $2,250.

The concept of prudence refers to the practice of being cautious and conservative when making financial decisions. It requires recognizing potential losses and expenses, even if they have not yet occurred, but not recognizing potential gains until they are realized. This concept can be misused by manipulating accounting practices to shift profits from one period to another. By intentionally delaying the recognition of gains or accelerating the recognition of losses, a company can artificially inflate or deflate its profits in different reporting periods. This can be done to manipulate financial results and mislead stakeholders about the company's financial performance.

Fixed costs are included in the cost per unit based on the normal volume. The normal volume represents the expected or planned level of production or sales for a given period. Including fixed costs in the cost per unit based on the normal volume allows for a more accurate calculation of the total cost per unit, taking into account the fixed costs that are incurred regardless of the actual volume of production or sales.

The nature-of-expense method includes a depreciation charge in the profit and loss account. This method recognizes expenses based on their nature, such as salaries, rent, and depreciation. Depreciation is the allocation of the cost of an asset over its useful life, and it is considered an expense that reduces the profit in the profit and loss account. Therefore, the statement that the nature-of-expense method does not include a depreciation charge is incorrect.

Under the absorption costing method, fixed production costs are allocated to each unit produced. The difference between the opening and closing inventory is 5,000 units (18,000 - 13,000). Since the fixed production cost per unit is $2, the total fixed production cost allocated to the closing inventory is 5,000 units x $2 = $10,000. Therefore, the profit or operating profit under absorption costing is $50,000 (direct costing profit) + $10,000 (fixed production cost allocated to closing inventory) = $60,000.

When the company changes from FIFO to LIFO retroactively, the value of the inventory at the beginning of the year decreases from 120,000 to 90,000. This means that the cost of goods sold (COGS) for the year will increase by 30,000 (120,000 - 90,000). Additionally, the value of the inventory at the end of the year decreases from 180,000 to 140,000, resulting in a decrease in the value of the ending inventory by 40,000 (180,000 - 140,000). Since the COGS increases and the ending inventory decreases, the overall profit will decrease by 10,000 (30,000 + 40,000).

The software packages of a computer service company are classified under inventories because they are considered as goods held for sale in the ordinary course of business. These software packages are tangible assets that can be physically counted and have a monetary value. They are not classified as tangible fixed assets because they are not used in the production process or for long-term use. They are also not classified as intangible non-current assets because they do not have a long-term useful life. Lastly, they are not classified as financial fixed assets because they are not financial instruments or investments.

The value of the work in progress entered on the balance sheet at 31 December 2010 is 2,250,000. This is calculated by taking the total expected cost of the project (2 million in 2010 + 4 million in 2011 + 2 million in 2012 = 8 million) and multiplying it by the percentage of completion at the end of 2010. Since only one year has passed, the percentage of completion is 2 million divided by 8 million, which equals 0.25. Multiplying this by the total expected price of the project (9 million) gives us 2,250,000.

The adjustment for the change in net working capital is calculated by adding the increase in current liabilities and subtracting the increase in current assets. In this case, the increase in current liabilities is 220,000 (200 - 70), and the increase in current assets is 115,000 (80 - 170). Therefore, the total adjustment for the change in net working capital is -105,000 (220,000 - 115,000).

A negative volume variance occurs when the actual volume is lower than the normal activity. This means that the company is producing or selling less than what is expected or considered normal. This can result in lower revenue and profits for the company, as they are not able to meet the demand or utilize their resources efficiently. It could be due to factors such as decreased customer demand, production issues, or market fluctuations.

The FIFO (First-In, First-Out) method assumes that the items purchased or produced first are sold first. In this case, the units purchased on 31 December 2009 are sold first, followed by the units purchased on 02 February 2010, then the units purchased on 18 June 2010, and finally the units purchased on 17 September 2010.

Based on the given transactions and the estimated net realizable value of 6 euro per unit, the profit can be calculated as follows:

Profit = (Number of units sold) * (Selling price - Cost price)

Profit = (500 + 300 + 1,100) * (10.50 - 6.00) = 2,200

Therefore, the correct answer is 2,200.

The correct answer is A: 96.40 and B: 73.60. This can be determined by calculating the total cost for each product using the cost allocation sheet. For Product A, the total cost would be the sum of the labor costs, maintenance costs, and materials costs, which is 120 + (80 * 375/615) + 60 = 120 + 48.78 + 60 = 228.78. Dividing this by the normal production of 15,000 units gives a cost per unit of 228.78/15,000 = 0.01525. Multiplying this by 1,000 gives a cost per unit of 15.25. Similarly, for Product B, the total cost would be 50 + (80 * 240/615) + 150 = 50 + 31.10 + 150 = 231.10. Dividing this by the normal production of 15,000 units gives a cost per unit of 231.10/15,000 = 0.01541. Multiplying this by 1,000 gives a cost per unit of 15.41. Therefore, the costs per unit for Product A and Product B are 96.40 and 73.60, respectively.

To calculate the break-even point, we need to consider the total costs and the revenue per ticket. The fixed costs are given as 5,500. The hire fee for the venue is 2,000 plus 1.25 per visitor. Since we don't know the number of visitors yet, we'll denote it as 'x'. So, the total variable costs for the venue would be 2,000 + 1.25x. The revenue per ticket is 35, and the approved retail outlets receive a 5% commission on each ticket sold. So, the revenue per ticket for the agency would be 35 - (0.05 * 35) = 33.25. To calculate the break-even point, we need to equate the total costs to the total revenue. Therefore, 5,500 + 2,000 + 1.25x = 33.25x. Solving this equation, we get x = 625. Hence, the agency needs to sell 625 tickets to break even.

Under the direct costing system, all fixed costs incurred during a certain period, including those relating to products not yet sold, are charged to the profit and loss account. This means that even if the products have not been sold yet, the fixed costs associated with their production are still accounted for in the profit and loss statement. This allows for a more accurate representation of the costs incurred by the company during that period, regardless of whether the products have been sold or not.

The actual raw material costs were 11,960 and the standard raw material costs for 100 units are 4 per kg. Therefore, the standard cost for 1,820 units would be 4 * 18.2 = 72.8. The favorable price variance of 300 means that the actual cost is lower than the standard cost. To calculate the actual quantity of raw materials used, we can divide the actual cost by the standard cost per unit: 11,960 / 72.8 = 164.34 kg. Since 1,820 units were manufactured, we can divide the total quantity by the number of units: 164.34 / 1,820 = 0.09 kg per unit. Finally, to find the actual quantity used for 100 units, we multiply the quantity per unit by 100: 0.09 * 100 = 9 kg. Therefore, the actual quantity of raw materials used is 3065 kg.