Master of Business Administration (MBA)

1st Semester Accounting For Decision Makers (MBA 7001)

Instructions to candidates
You are allowed two hours to answer this question paper. You are allowed 10 minutes reading time before the examination begins during which you should read the question paper and, if you wish, highlight and/or make notes on the question paper. However, you will not be allowed, under any circumstances, to open the answer book and start writing or use your calculator during the reading time. You are strongly advised to carefully read ALL the question requirements before attempting the question concerned (that is all parts and/or subquestions). ALL answers must be written in the answer book. Answers or notes written on the question paper will not be submitted for marking. You have to answer 2 QUESTIONS only. Write your candidate number, the paper number and examination subject title in the spaces provided on the front of the answer book. Please indicate the questions you have attempted on the front Right hand Corner of the Answer book Only scientific calculators are permitted.

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Master of Business Administration (MBA)

Model Paper 01.

(a) State the components of the financial statements. (b)State five stake holders of a business organization. (c) Briefly explain the following accounting concepts/assumptions. - Business entity concept. -Money measurement concept. -Historical cost concept.

(d) Hiru PLC has been in the business of manufacturing and sale of biscuits. The following information was extracted from the financial statements of the company for the financial year 2010/2011 Current assets (31st March 2011) Inventories (31st March 2011) Inventories (1st April 2010) Current Liabilities (31st March 2011) Net profit before interest and tax Capital employed as at 01/04/2010 Capital employed as at 31/03/2011 Cost of goods sold Interest Expenditure Income Tax Number of shares in issue as at 31/03,2011 Market price per share as at 31/03/2011 Dividend paid during 2010/2011 final year -Rs.250mn -Rs.120mn -Rs.150mn -Rs.190mn -Rs.96mn -Rs350mn -Rs420mn -Rs.530mn -Rs.18mn -Rs.12mn. - 12,250,000 shares. - Rs.80 -Rs.2 Per share

You are required to compute, 1)Earnings per share 2) Current Ratio 3) Return on capital employed (ROCE) 4) Average inventories holding period 5) Interest cover ratio 6) Dividend payout ratio 7) Price Earnings Ratio
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Master of Business Administration (MBA)

(e).You are working as a Management Trainee in XYZ Plc.XYZ Plc has been in the business of manufacturing and sale of Ice Cream. The following information is made available to you from XYZ Plc.

2010/2011

2009/2010

2008/2009

Industry Average. 38%. 26%. 22% 1:2 1:1 60 60 60 4 6.2 48%

Gross profit ratio Net profit ratio Return on capital employed Current ratio Acid test ratio Inventory holding period (days) Debt collection period(days) Creditors payment period(days) Interest cover (times) EPS (Rs.) Gearing ratio

35% 27% 17% 1:4 1:0.7 120 120 20 4.5 12.20 38%

35% 22% 11% 1:3.2 1:0.8 101 90 20 3 9.50 45%

32% (10%) (08%) 1:2.8 1:0.4 60 120 40 0.5 (2.2) 59%

Your Managing Director requests you to analyze the above information and write a detailed report to him detailing the following aspects of the business. -Profitability. -Liquidity -Gearing. -Efficiency of working capital management. Total 50 Marks.

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Master of Business Administration (MBA)

2. (a) What do you understand by an option contract? b) Briefly explain the difference between option contracts and forward contracts ? (c) Mr.Roy is a call writer/seller. Mr.Raj entered into a call contract with Mr. Roy to buy 5000 shares of Maturate plc at the strike price of Rs.20/= per share. This call contract expires on 31st July 2011.Mr.Raj paid Rs.10,000/= to Mr.Roy as the option premium. If the price of a share of maturate PLC drop to Rs.15/= as of 31st July 2011, state the positions of Mr. Roy and Mr. Raj (c) Mr.John (put buyer) purchase a put contract to sell 10000 shares of Udarata PLC to Mr.Travis (put writer)for Rs.50 per share. Mr. John paid a premium of Rs. 10 per share being the option price to Mr.Travis. The put contract will expire on 31st July 2011. Evaluate the position of Mr.John and Mr.Traviss if the share price drops to Rs.30 as of 31st July 2011

(d). State the reason why NPV method is considered as better method of investment appraisal technique when compared with the payback period method.

(e) NM PLC is considering manufacturing a new product. The cost of machinery required for this purpose is Rs.1, 000,000/= , and useful life of the machinery is six years. Scrap value of machinery is Rs.200, 000/=..Cost of the capital of the company is 12%.All sales and expenses are expected to be in cash. Sales per year is Rs.600, 000/= , and expenses per year is Rs.420,000/= including depreciation. Assume sales and expenses are constant over the first six years. Ignore inflation and taxation. i) ii) Using the NPV technique, advice whether the company should accept this project? Compute the IRR of the project?

(Total 50 marks)
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Master of Business Administration (MBA)

3. (a) Briefly explain what you understand by, 1. Relevant cost 2. Sunk cost 3. Fixed cost. 4. Variable cost.

(b). the following information is available to you from Good luck PLC. Present Production and sales Selling price per unit Variable cost per unit -Direct Material -Direct Labour -Variable overhead Fixed cost -500,000 units -Rs 40 -Rs.12 -Rs.8 -Rs.5 -Rs.600, 000

You are required to compute 1. Breakeven point (in unit) 2. Margin of safety (in unit) 3. Number of units to be sold to earn a net profit of Rs.1, 000,000 for the year.

(c)Largest PLC makes two products by using the same Raw material. However Raw material supply is limited to 1200 Kgs per month. Details pertaining to individual products are given below. Product Big small. Contribution per unit (Rs) Raw materials required to produce 1 unit Maximum demand per month (units) 50 5kg 80 70 14kg 120 40 8kg 70 Product Medium Product

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Advice the company as to the quantity of each product to be produced in order to maximize profits?

Master of Business Administration (MBA)

d) TOYO PLC is currently negotiating with an outside supplier regarding outsourcing the device big that it manufactures. The company currently manufactures 20,000 units of device big per annum. The cost incurred to produce 20,000 units is as follows. TOTAL COST IN Rs. (20,000 UNITS) Direct material 500,000 Direct labour 375,000 Variable manufacturing Overhead 50,000 Fixed manufacturing overhead 150,000 Share of non manufacturing fixed overhead 120,000 ---------1,195,000 ===== The above costs are expected to remain unchanged in the foreseeable future period if Auto PLC continues to manufacture the device big The outside supplier has offered to supply 20,000 units of device big at a price of Rs.50/= per unit. If Auto plc outsources the supply of device big, the direct labour force currently employed in producing the device will be redundant. However, no redundancy cost needs to be incurred as they can be deployed in other division of the company. Direct material and variable overhead costs are avoidable if the supply of device big is outsourced. However fixed overhead costs will remain unchanged. You are required to, advice management, whether Auto PLC should produce device big in house or outsource the supply to the outside supplier.

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