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AF201 FINAL EXAM REVISION PACKAGE - s2, 2016 SECTION A: MULTIPLE CHOICE Coverage: Chapters 15, 16, 17, & 19 Attempt all the relevant multiple choice questions in the S1, 2013 Final Exam paper posted for you on moodle (See the Final Exam Revision Resources folder under the 'Course Resources.') Revise all the relevant multiple choice questions in the S1, 2014 Final Exam paper in your I&A booklet as well as on the moodle page (See the Final Exam Revision Resources folder under the 'Course Resources.') Attempt all the relevant multiple choice questions in the S2, 2014 Final Exam paper posted for you on moodle (See the Final Exam Revision Resources folder under the 'Course Resources.') Attempt all the relevant multiple choice questions in the S1, 2015 Final Exam paper posted for you on moodle (See the Final Exam Revision Resources folder under the 'Course Resources.') Attempt all the relevant multiple choice questions in the S1, 2016 Final Exam paper posted for you on moodle (See the Final Exam Revision Resources folder under the 'Course Resources.') SECTION B: PROBLEM SOLVING QUESTIONS REVISION QUESTIONS AF201 Final Exam S2, 2016 Revision Package | 1 REVISE TAKE HOME QUESTIONS IN WEEK 14 LECTURE GUIDE - S2, 2010 FINAL EXAM Q4 (b) and S2, 2012 FINAL EXAM Q5 (4). SEMESTER 2, 2011 FINAL EXAM QUESTION 4 Kimer Company's Small Motor Division produces a variety of small motors that are used in various household and office appliances. Kimer's Kitchen Products Division manufactures appliances such as blenders, juicers, coffee grinders, and so on. The most frequently used motor is Model A28, which can be purchased from a number of outside suppliers for $2.30 each. The manager of the Kitchen Products Division has approached the manager of the small Motor Division and offered to buy 150,000 Model A28 small motors. The Small Motor Division currently is producing at capacity and produces and sells 200,000 Model A28 motors to outside customers for $2.30 each. REQUIRED 1. What is the minimum transfer price for the Small Motor Division? What is the maximum transfer price for the Kitchen Products Division? Is it important that transfers take place internally? If transfers do take place, what should the transfer price be? Show ALL relevant workings. ( 5 marks) 2. Now assume that the Small Motor Division incurs selling costs of $0.20 per motor that could be avoided if the motors are sold internally. Identify the minimum transfer price for the Small Motor Division and the maximum transfer price for the Kitchen Products Division. Should internal transfers take place? If so, what is the benefit to the firm as a whole? Show ALL relevant workings. (5 marks) 3. Suppose you are the manager of the Small Motor Division. Selling costs of $0.20 per motor are avoidable if they are sold internally. Would you accept an offer of $2.20 from the manager of the other division? How much better off (or worse off) would your division be if this price is accepted? Show ALL relevant workings. (5 marks) Total Marks for this question: 15 marks S1, 2016 FINAL EXAM: QUESTION 3: PERFORMANCE MEASUREMENT AF201 Final Exam S2, 2016 Revision Package | 2 An electronics division has the opportunity to invest in two projects for the coming year: a digital telephone answering machine and a portable video game player. The outlay required for each investment, the dollar returns, and the ROI follow: Investment Operating profit ROI Answering Machine $10,000,000 $1,300,000 13% Video Game Player $4,000,000 $640,000 16% The division is currently earning an ROI of 18 percent, using operating assets (invested capital) of $75 million; operating profit on the current investment is $13.5 million. The division has approval to request up to $15 million in new investment capital. Corporate headquarters requires that all investments earn at least 12 percent. (This rate represents the amount the corporation must earn to cover the cost of acquiring the capital.) The weighted average cost of capital for the company is 12 percent. REQUIRED 1. Calculate the ROI for the division with each of the following scenarios: a. Invest in the answering machine; b. Invest in the video game player; c. Invest in both; d. Invest in neither. (8 marks) 2. Referring to your answers in (1), which option should the divisional manager choose? (2 marks) 3. Calculate the EVA for the division with each of the following scenarios; assuming operating profit is net profit after tax: a. Invest in the answering machine; b. Invest in the video game player; c. Invest in both; d. Invest in neither. (8 marks) 4. If the manager is evaluated on the basis of EVA, what choice of investments (answering machine, video game player, neither, or both) will be made? Why? (2 marks) Total marks for this question: 20 marks S2, 2012 FINAL EXAM: QUESTION 3: Performance evaluation & reward system AF201 Final Exam S2, 2016 Revision Package | 3 Supertronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisional managers have the authority to make investment for up to $2 million. Furthermore, they are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 13 percent return on investment. During the past week, management of the company's South Pacific Division was approached about the possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is acquired, it will be acquired at its book value). The data that follows relate to recent performance of the South Pacific Division and the competitor: South Pacific Division Sales Competitor $8,400,000 $5,200,000 70% of sales 65% of sales Fixed costs $2,150,000 $1,670,000 Invested capital $1,850,000 $625,000 Variable costs Management has determined that in order to upgrade the competitor to Supertronics' standards, an additional $375,000 of invested capital would be needed. REQUIRED 1. State THREE disadvantages of using ROI as a reward system to award bonuses to managers (3 marks) 2. (i) Compute the current ROI for the South Pacific Division (3 marks) (ii) Compute the South Pacific division's ROI if the competitor is acquired. (4 marks) What is the likely reaction of divisional management toward the acquisition? Why? (2 marks) 3. What is the likely reaction of Supertronics' corporate management toward the acquisition? Why? Show relevant computations to support your answer. (4 marks) 4. Assume that Supertronics uses residual income (RI) to evaluate performance and desires a 12 percent minimum return on invested capital. (i) Compute the current RI of the South Pacific Division (ii) Compute the South Pacific division's RI if the competitor is acquired and upgraded. AF201 Final Exam S2, 2016 Revision Package | 4 Will divisional management be likely to change its attitude toward the acquisition? Why? (6 marks) Total marks for this question: 22 marks SEMESTER 2, 2011 FINAL EXAM QUESTION 3 The manager of a division that produces add-on products for the automobile industries has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans and minivans. The second is a turbocharger. Without the investments, the division will have average assets for the coming year of $28.9 million and after tax profit of $3.179 million. The outlay for each investment and the expected operating incomes are as follows: Air Conditioner Turbocharger After-tax operating profit $67,500 $89,700 Outlay 750,000 690,000 Corporate headquarters will borrow up to $1.5 million for the automotive add-on division for further investments. The amount borrowed will be through unsecured bonds at a rate of 12 percent. The marginal tax rate is 25 percent. REQUIRED 1. Compute the ROI for each investment project. (4 marks) 2. Compute the budgeted divisional ROI for each of the following alternatives: a. b. c. d. The air conditioner investment is made. The turbocharger investment is made. Both investments are made. Neither additional investment is made. Assuming that divisional managers are evaluated and rewarded on the basis of ROI performance, which alternative do you think the divisional manager will choose? (13 marks) 3. Suppose that the borrowing must be for the entire $1.5 million. Calculate the EVA of the AF201 Final Exam S2, 2016 Revision Package | 5 two investments taken as a package. Based on EVA, are the investments profitable? (3 marks) Total marks for this question: 20 marks S1, 2016 FINAL EXAM: QUESTION 1: SEGMENTED INCOME STATEMENT. Rewa Dairy Ltd. is a wholesale distributor of Rewa Life cheeses that it sells throughout Fiji. Unfortunately, the company's profits have been declining, which has caused considerable concern. To help understand the condition of the company, the managing director of the company has requested that the monthly income statement be segmented by sales territory. Accordingly, the company's accounting department has prepared the following statement for March, the most recent month. Sales Territorial expenses (traceable) Cost of goods sold Salaries Insurance Advertising Depreciation Shipping Total territorial expenses Territorial income (loss) before corporate expenses Corporate expenses: Advertising (general) General administrative Total corporate expenses Net operating income (loss) Sales Territory Western Central Northern Division Division Division $300,000 $800,00 $700,000 0 93,000 54,000 9,000 105,000 21,000 15,000 297,000 3,000 240,000 56,000 16,000 240,000 32,000 32,000 616,000 184,000 315,000 112,000 14,000 245,000 28,000 42,000 756,000 (56,000) 15,000 20,000 35,000 $(32,000 ) 40,000 20,000 60,000 $124,00 0 35,000 20,000 55,000 $(111,00 0) Cost of goods sold and shipping expenses are both variable; other costs are all fixed. Rewa Dairy purchases cheeses at auction and from farmers' cooperatives, and it distributes them in the three territories listed above. Each of the three sales territories has its own manager and sales staff. The cheeses vary widely in profitability; some have a high margin and some have a low margin. (Certain AF201 Final Exam S2, 2016 Revision Package | 6 cheeses, after having been aged for long periods, are the most expensive and carry the highest margins.) REQUIRED 3. Prepare a new segmented contribution format income statement for March. Show a Total column as well as data for each territory. 4. Analyze the statement that you prepared in (3) above. What points that might help to improve the company's performance would you bring to management's attention? S1, 2014 FINAL EXAM - QUESTION 1: SEGMENTED INCOME STATEMENT; RESPONSIBILITY ACCOUNTING. Show-Off, Inc., sells merchandise through three retail outlets - in Las Vegas, Reno, and Sacramento - and operates a general corporate headquarters in Reno. A review of the company's income statement indicates a record year in terms of sales and profits. Management, though, desires additional insights about the individual stores and has asked that Judson Wyatt, a newly hired intern, prepare a segmented income statement. The following information has been extracted from Show-Off's accounting records: The sales volume, sales price, and purchase price data follow: Las Reno Sacramen Vegas to Sales volume 37,000 41,000 units 46,000 units units Unit selling price $12.00 $11.00 $9.50 Unit purchase price $5.50 $5.50 $6.00 The following expenses were incurred for sales commissions, local advertising , property taxes, management salaries, and other noncontrollable (but traceable) costs: Las Reno Sacramen Vegas to Sales commissions 6% 6% 6% Local advertising $11,000 $22,000 $48,000 Local property taxes $4,500 $2,000 $6,000 Sales manager salary $32,000 Store manager salaries $31,000 $39,000 $38,000 Other noncontrollable costs $5,800 $4,600 $17,800 AF201 Final Exam S2, 2016 Revision Package | 7 Local advertising decisions are made at the store manager level. The sales manager's salary in Sacramento is determined by the Sacremento store manager; in contrast, store manager salaries are set by Show-Off's vice president. Nontraceable fixed corporate expenses total $192,300 The company uses a responsibility accounting system. REQUIRED 1. Assume the role of Judson Wyatt and prepare a segmented income statement for Show-Off. (12 marks) 2. Determine the weakest-performing store and present an analysis of the probable causes of poor performance. (5 marks) 3. Assume that an opening has arisen at the Reno corporate headquarters and the company's chief executive officer (CEO) desires to promote one of the three existing store managers. In evaluating the store manager's performance, should the CEO use a store's segment contribution margin, the profit margin controllable by the manager, or a store's segment profit margin? Justify your answer. (3 marks) Total marks for this question: 20 marks S1, 2013 FINAL EXAM PAPER Q3 Recently the Water Authority of Fiji (WAF) was commercialized. In its effort to measure how effectively and efficiently it has operated in the 4 years, the management accountant of WAF came to you to seek advice on implementing a balanced scorecard (BSC). The management accountant supplied you with the following information. Brief History The Water Authority of Fiji is a new Commercial Statutory Authority (CSA) The Government of Fiji started reforming the Water and Sewerage Department in 2009. The objective of this reform was to enhance the sustainable delivery of water and sewerage services to appropriate levels of service. The reform aimed at strengthening the then Water and Sewerage Department (WSD) before establishing the Water Authority of Fiji, which is dedicated to the delivery of water supply and sewerage services, autonomous and be able to mobilise the necessary resources to meet the demand, effectively and efficiently at required quality standards. From January, 1, 2010, WAF officially took over responsibilities, functions and operations previously carried out by WSD. The Water Authority of Fiji operates as a CSA. AF201 Final Exam S2, 2016 Revision Package | 8 The first two years of operations are key to establishing the most effective culture and mix of people, processes, procedures, governance, equipment, policies and monitoring and reporting. 2013 will be WAF's fourth year of operations. Vision The effective and efficient delivery of quality drinking water and wastewater services in accordance with the World Health Organisation guidelines. Mission The Water Authority of Fiji is committed to operating as an independent, effective, efficient and financially viable water supply and waste water service provider delivering agreed levels of service to the people of Fiji. Values The values that are key to Water Authority of Fiji's culture are: Customer Service focus Individual attitude to do the right job, do it once, and do it right Continuous improvements Individual accountability' Team Work Transparency Honesty (Source: http://www.waterauthority.com.fj) REQUIRED (1) Prepare a BSC for WAF that you will take with you in your next meeting with the management accountant. For each of the four perspectives of BSC, you must: State the appropriate objective State two Lag indicators State two Lead indicators Ensure that the lag and lead indicators must reflect the operation of WAF. General lag and lead indicators are not acceptable. (12 marks) (2) How would you address environmental performance into the balanced scorecard of WAF? (6 marks) (3) Suggest TWO performance measures you would use to measure WAF's environmental performance? (2 marks) Total Marks for this question: 20 marks AF201 Final Exam S2, 2016 Revision Package | 9