financial management 101 (fm101) pilot memorandum may 2011 - imm
Page 1 of 5
FINANCIAL MANAGEMENT 101 (FM101) PILOT MEMORANDUM MAY 2011
GENERAL This memorandum is prepared to assist in the marking process as it indicates (a) the correct answer and (b) how marks should be allocated. In evaluating answers, markers must keep in mind that the IMM GSM examinations are set on a higher education level and that the student should therefore not only illustrate an adequate understanding of theory, but also insight into the application of knowledge. In addition, the student should illustrate independent critical thinking. The marker accepts that the student should be familiar with the contents of the learner guide and the prescribed textbook. If, however, factual and correct information is included from other valid academic sources besides the learner guide and the prescribed textbook, such knowledge and insights also qualify for the allocation of marks. When answering questions the student is required to: Read each question carefully and thoroughly before attempting the answer, in order to determine exactly what is required. Allocate sufficient time to answer each question in proportion to the marks indicated on the examination paper. Number answers clearly and correctly. Provide answers in a legible handwritten format. Set out the answers in a structured format and formulate statements in full and coherent sentences. In most papers one mark is normally allocated for each factual statement. This memorandum should also assist students and student support centres in preparing for future examinations. As the memorandum accompanies the examination paper and is prepared prior to the examination session, it is not able to include areas where the students provided incorrect answers. The memorandum is also central to the moderating team when performing moderation of examination scripts. After the release of marks for any examination session, the memorandum becomes public knowledge and is available to students.
© IMM Graduate School of Marketing May 2011 Memorandum
FM101
Page 2 of 5
Answer ALL the questions QUESTION 1
[40]
1.1 Inventory management centres on the balancing of costs that increase with larger inventory holdings (storage and security) and a set of costs that decline with larger holdings (ordering costs, lost sales prevented). Good inventory management will result in relatively high inventory turnover, low write-off of obsolete or deteriorated inventories, and fewer lost sales due to stock-outs. NOTE: practical examples must be used. (10) 1.2 Carrying costs are those costs associated with the storage of the stock and include: Storage charges (rent, heating and lighting, air-conditioning and refrigeration) Staffing costs of stores personnel Equipment and maintenance Security and insurance charges Cost associated with stocktaking, recording and auditing Handling charges Obsolescence (items no longer required) and deterioration (e.g. corrosion) Theft, evaporation and vermin damage (rats and other pests) Interest on capital invested in stock. Note: ½ mark for each tick, up to 10 marks maximum. 1.3 √
2 x (20 x 320 days) x R450 R15
EOQ
=
EOQ
=
EOQ
=
EOQ
= 620 units of raw material
√
2 x 6400 x R450 R15
√
5 760 000 R15
© IMM Graduate School of Marketing May 2011 Memorandum
FM101
Page 3 of 5
1.4
Answer:
Date 1 2
Units
RECEIVED Price Amount
500
4,20 2 100,00
6
16
Units
160 140
180
20
2,25
ISSUED Price Amount
3,50 4,20
560,00 588,00
Units 160 500
BALANCE Price Amount 3,50 560,00 4,20 2 100,00
500 360
4.2 2 100,00 4,20 1 512,00
360 180
4,20 1512,00 2,25 405,00
180 170
2.25 2,25
405,00 360 10
4,20 1 512,00 2,25 22,50
405,00 382,50
Closing stock value = R382,50 Cost of sales = R560 + R588 + R1 512 + R22.50 = R2682.50 Gross profit = 30/100 x R2682.50 = R804.75 OR R3487.25 - R2682.50 = R804.75 QUESTION 2
[20]
2.1
Direct labour can be physically traced to the creation of a specific product (such as wages of assembly line workers). Indirect labour is labour cost that cannot be physically traced to a specific product such as: Employer contributions Wages of factory cleaners General and casual labour Idle time costs of direct labourers Overtime premiums Shift premiums Holiday pay and service bonus pay Salaries of raw material handlers Storeman’s salary Wages of security guard at factory. (Plus maximum of 2 marks for any 2 examples of indirect labour)
2.2
a) Overhead absorption rate (OAR) = = =
Budgeted overhead Budgeted machine hours R 320 000 200 000 R1,60 per machine hour
Overheads applied to Job 755 are: - R1,60 x 2000 machine hrs = R3 200
© IMM Graduate School of Marketing May 2011 Memorandum
FM101
Page 4 of 5
Total cost of Job 755 Direct materials Add: Direct labour Prime cost Add: Applied overheads (R1,60 X 2000) Total cost
18 000 16 000 34 000 3 200 37 200
b) Applied overheads less actual overheads = R3,200 – R3,500 = (R300) The overheads were under applied c) Add mark-up (25% on cost) = R37,200 x 25% = R9,300 The invoice price should be R37,200 + R9,300 = R46,500 QUESTION 3 3.1
[40]
Answer: a) Units
Flexible budget Cost
Fixed
Variable
Direct labour Direct materials Production overheads Administrative overheads
60 000 32 000
2.00 9.00 2.00
Total budgeted costs
3 500 4 000 4 500 7 000 8 000 9 000 31 500 36 000 40 500 67 000 68 000 69 000 32 000 32 000 32 000 137 000 148 000 150 500
One mark awarded for each correct value in the 3,500 and 4,500 units column. b) Flexed
Performance report for flexed budget Cost Direct labour Direct materials Production overheads Administrative overheads Total budgeted costs
Units
Actual
Variance
4 300
8 600 38 700 68 600 32 000 147 900
9 000 37 000 72 400 32 800 151 200
-400 1 700 -3 800 -800 -3 300
Negative amounts indicated above could also be put into brackets to show unfavourable variance.
© IMM Graduate School of Marketing May 2011 Memorandum
FM101
Page 5 of 5
3.2
Answer: Calculation of cash collected from cash and credit sales March Cash Credit 22500 Cash 27000 Received in the month 16875 Received from February sales 12600 Received from January sales 22500 56475 Total received April Cash Received in the month Received from sales Received from sales Total received
Cash
Credit
18000 21600 20250 15750 57600
18000
Calculation of payment for purchases March April 50 000 40 000 Purchases 5 000 4 000 Cash payment 45 000 36 000 Credit portion 900 720 Less discount 35 280 Cash payment for credit purchases 44 100 49 100 39 280 Total payment for purchases
Cash budget for
Empire Traders March April
Opening Balance Add Cash receipts: Cash sales Cash received from debtors Less: Cash payments Purchases Salaries and wages Rental General expenses Closing Balance
(Each tick = ½ mark)
May 2011 Memorandum
7 500
4975
22 500 56 475
18 000 57 600
56 5649 100 5627 000 56 800 564 600 56 4975 56 56 56 56 56 56 47 5 of Marketing © IMM Graduate School
39 280 21 000 800 3 200 16 295
FM101
FINANCIAL MANAGEMENT 101 (FM101) PILOT MEMORANDUM MAY 2011
GENERAL This memorandum is prepared to assist in the marking process as it indicates (a) the correct answer and (b) how marks should be allocated. In evaluating answers, markers must keep in mind that the IMM GSM examinations are set on a higher education level and that the student should therefore not only illustrate an adequate understanding of theory, but also insight into the application of knowledge. In addition, the student should illustrate independent critical thinking. The marker accepts that the student should be familiar with the contents of the learner guide and the prescribed textbook. If, however, factual and correct information is included from other valid academic sources besides the learner guide and the prescribed textbook, such knowledge and insights also qualify for the allocation of marks. When answering questions the student is required to: Read each question carefully and thoroughly before attempting the answer, in order to determine exactly what is required. Allocate sufficient time to answer each question in proportion to the marks indicated on the examination paper. Number answers clearly and correctly. Provide answers in a legible handwritten format. Set out the answers in a structured format and formulate statements in full and coherent sentences. In most papers one mark is normally allocated for each factual statement. This memorandum should also assist students and student support centres in preparing for future examinations. As the memorandum accompanies the examination paper and is prepared prior to the examination session, it is not able to include areas where the students provided incorrect answers. The memorandum is also central to the moderating team when performing moderation of examination scripts. After the release of marks for any examination session, the memorandum becomes public knowledge and is available to students.
© IMM Graduate School of Marketing May 2011 Memorandum
FM101
Page 2 of 5
Answer ALL the questions QUESTION 1
[40]
1.1 Inventory management centres on the balancing of costs that increase with larger inventory holdings (storage and security) and a set of costs that decline with larger holdings (ordering costs, lost sales prevented). Good inventory management will result in relatively high inventory turnover, low write-off of obsolete or deteriorated inventories, and fewer lost sales due to stock-outs. NOTE: practical examples must be used. (10) 1.2 Carrying costs are those costs associated with the storage of the stock and include: Storage charges (rent, heating and lighting, air-conditioning and refrigeration) Staffing costs of stores personnel Equipment and maintenance Security and insurance charges Cost associated with stocktaking, recording and auditing Handling charges Obsolescence (items no longer required) and deterioration (e.g. corrosion) Theft, evaporation and vermin damage (rats and other pests) Interest on capital invested in stock. Note: ½ mark for each tick, up to 10 marks maximum. 1.3 √
2 x (20 x 320 days) x R450 R15
EOQ
=
EOQ
=
EOQ
=
EOQ
= 620 units of raw material
√
2 x 6400 x R450 R15
√
5 760 000 R15
© IMM Graduate School of Marketing May 2011 Memorandum
FM101
Page 3 of 5
1.4
Answer:
Date 1 2
Units
RECEIVED Price Amount
500
4,20 2 100,00
6
16
Units
160 140
180
20
2,25
ISSUED Price Amount
3,50 4,20
560,00 588,00
Units 160 500
BALANCE Price Amount 3,50 560,00 4,20 2 100,00
500 360
4.2 2 100,00 4,20 1 512,00
360 180
4,20 1512,00 2,25 405,00
180 170
2.25 2,25
405,00 360 10
4,20 1 512,00 2,25 22,50
405,00 382,50
Closing stock value = R382,50 Cost of sales = R560 + R588 + R1 512 + R22.50 = R2682.50 Gross profit = 30/100 x R2682.50 = R804.75 OR R3487.25 - R2682.50 = R804.75 QUESTION 2
[20]
2.1
Direct labour can be physically traced to the creation of a specific product (such as wages of assembly line workers). Indirect labour is labour cost that cannot be physically traced to a specific product such as: Employer contributions Wages of factory cleaners General and casual labour Idle time costs of direct labourers Overtime premiums Shift premiums Holiday pay and service bonus pay Salaries of raw material handlers Storeman’s salary Wages of security guard at factory. (Plus maximum of 2 marks for any 2 examples of indirect labour)
2.2
a) Overhead absorption rate (OAR) = = =
Budgeted overhead Budgeted machine hours R 320 000 200 000 R1,60 per machine hour
Overheads applied to Job 755 are: - R1,60 x 2000 machine hrs = R3 200
© IMM Graduate School of Marketing May 2011 Memorandum
FM101
Page 4 of 5
Total cost of Job 755 Direct materials Add: Direct labour Prime cost Add: Applied overheads (R1,60 X 2000) Total cost
18 000 16 000 34 000 3 200 37 200
b) Applied overheads less actual overheads = R3,200 – R3,500 = (R300) The overheads were under applied c) Add mark-up (25% on cost) = R37,200 x 25% = R9,300 The invoice price should be R37,200 + R9,300 = R46,500 QUESTION 3 3.1
[40]
Answer: a) Units
Flexible budget Cost
Fixed
Variable
Direct labour Direct materials Production overheads Administrative overheads
60 000 32 000
2.00 9.00 2.00
Total budgeted costs
3 500 4 000 4 500 7 000 8 000 9 000 31 500 36 000 40 500 67 000 68 000 69 000 32 000 32 000 32 000 137 000 148 000 150 500
One mark awarded for each correct value in the 3,500 and 4,500 units column. b) Flexed
Performance report for flexed budget Cost Direct labour Direct materials Production overheads Administrative overheads Total budgeted costs
Units
Actual
Variance
4 300
8 600 38 700 68 600 32 000 147 900
9 000 37 000 72 400 32 800 151 200
-400 1 700 -3 800 -800 -3 300
Negative amounts indicated above could also be put into brackets to show unfavourable variance.
© IMM Graduate School of Marketing May 2011 Memorandum
FM101
Page 5 of 5
3.2
Answer: Calculation of cash collected from cash and credit sales March Cash Credit 22500 Cash 27000 Received in the month 16875 Received from February sales 12600 Received from January sales 22500 56475 Total received April Cash Received in the month Received from sales Received from sales Total received
Cash
Credit
18000 21600 20250 15750 57600
18000
Calculation of payment for purchases March April 50 000 40 000 Purchases 5 000 4 000 Cash payment 45 000 36 000 Credit portion 900 720 Less discount 35 280 Cash payment for credit purchases 44 100 49 100 39 280 Total payment for purchases
Cash budget for
Empire Traders March April
Opening Balance Add Cash receipts: Cash sales Cash received from debtors Less: Cash payments Purchases Salaries and wages Rental General expenses Closing Balance
(Each tick = ½ mark)
May 2011 Memorandum
7 500
4975
22 500 56 475
18 000 57 600
56 5649 100 5627 000 56 800 564 600 56 4975 56 56 56 56 56 56 47 5 of Marketing © IMM Graduate School
39 280 21 000 800 3 200 16 295
FM101
