No.

of Pages: 3 FT MBA
No. of Questions: 4 Acc Man Re-sit

Subject MBA
Style and year of examination 2006/07 SEPTEMBER 2007 (Re-sits)
Title of Paper ACCOUNTING FOR MANAGERS
Time Allowed 2 HOURS
____________________________________________________________________________________________________________
Instructions to candidates
There are two sections to the paper.
Candidates should attempt ONE question from Section A and ONE question from Section B.
Non-programmable calculators may be used.
____________________________________________________________________________________________________________
SECTION A

1. Analyse the financial position and performance of an engineering company, Greening Ltd for 2005 and
2006, based on the following information. Your comments and conclusions should be supported by
appropriate financial ratios.
(50 marks)
Greening Ltd - Financial Statements
Profit and Loss Account for the year ended 31 December
2005 2006
£m £m
Turnover 91.2 118.6
Cost of Sales 65.4 89.6
Gross Profit 25.8 29.0
Operating Expenses 13.8 15.9
Operating Profit 12.0 13.1
Interest 4.2 5.7
Profit before taxation 7.8 7.4
Corporation tax 2.1 1.8
Profit after taxation 5.7 5.6
Dividends 4.0 5.0
Retained Profit for year 1.7 0.6

The operating expenses shown above include annual depreciation charges as follows:
2005 2006
£m £m
Freehold premises 1.0 1.0
Machinery and equipment 2.8 3.2
Motor vehicles 2.4 2.6
 Balance Sheet As At 31 December
2004 2005 2006
Fixed Assets £m £m £m
Freehold premises 18.0 17.0 22.0
Machinery and equipment 12.0 11.2 8.0
Motor vehicles 5.5 5.8 3.2
35.5 34.0 33.2
Current Assets
Stock 21.8 31.7 42.4
Debtors 26.1 30.2 48.1
47.9 61.9 90.5
Less: Creditors due
within 1 year
Creditors 16.3 17.4 26.2
Corporation Tax 2.0 2.1 1.8
Dividends 4.0 4.0 5.0
Bank Overdraft 4.1 3.7 10.4
26.4 27.2 43.4
21.5 34.7 47.1
57.0 68.7 80.3
Less: Creditors due beyond 1 year
Loan 20.0 30.0 30.0
Net Assets 37.0 38.7 50.3

Share Capital & Reserves

£1 Ordinary Shares 20.0 20.0 25.0
Revaluation reserve (on
Freehold premises) 6.0
Retained Profit 17.0 18.7 19.3
37.0 38.7 50.3

The cost (or valuation) of the fixed assets were as follows:

2004 2005 2006
£m £m £m
Freehold premises (cost or valuation) 25.0 25.0 31.0
Machinery and equipment (cost) 30.0 32.0 32.0
Motor vehicles (cost) 7.5 10.2 10.2

2. a) Limited liability is a legal device that allows owners, under certain conditions, to avoid paying debts due
to creditors. Why then has this organizational form become so widespread? (20
marks)
b) Why does the state need to regulate the financial information that limited companies make public?
(30 marks)

(Total 50 marks)
SECTION B

3. Blunt Ltd was established as a new business on 1 July 2006.

On that date, the shareholders bought 500,000 £1 ordinary shares at their face value and the company
borrowed £100,000 from their bank. The interest charge on the loan was 12% p.a., payable on 29
June and 29 December each year.

The business then purchased:

Land and buildings for £400,000.
Plant and equipment for £75,000.
Motor vehicles for £62,000.
They also contracted to buy an initial stock of goods for resale, costing £120,000.

They expect their business transactions in the first six months of business to be as follows:
i.) monthly sales at £100,000 for the first two months of business, £125,000 in September and October
and £150,000 in November and December.
ii) the sale price of goods sold will be 25% above their cost.
iii) from August to December, the company will buy enough goods to maintain the stock of goods at its
level as at the end of July.
iv) all purchases of stock (including the initial purchase) will be on one month’s credit.
v) 40% of the sales will be for cash and the remainder on credit. Credit customers are expected to pay
two months after the sale is made.
vi) wages and salaries will be £12,000 per month. Other overheads will be £7,000 per month for the
first three months and £8,000 a month thereafter.
vii) in its financial accounts, the company will allow for depreciation at a rate of 10% p.a. on plant and
equipment, which has not been included in the overheads as above.
viii) the company will need to purchase further plant and equipment in November for £100,000.

a) Prepare a cash budget for the company for the six-month period to 31 December 2006, based on the
information provided above. (40 marks)

b) Identify THREE measures the company should consider in order to improve its cash position at the
end of the year (10 marks)
(Total 50 marks)

4. The following are the budgeted and actual profit and loss accounts for Hightec Ltd for December:
Budget Actual
Output 2,000 units 2,200 units
(production and sales)

£ £
Sales revenue 400,000 418,000
Raw material A (80,000) (160,000 kilos) (108,240) (180,400 kilos)
Raw material B (90,000) (120,000 kilos) (96,800) (121,000 kilos)
Labour (80,000) ( 20,000 hours) (79,800) ( 21,000 hours)
Fixed overheads (50,000) (52,000)
Operating profit 100,000 81,160

a) From the above data, prepare a statement of variances that reconciles the budgeted to the actual profit.
(35 marks)
b) Explain why the firm has been less successful than planned. (15 marks)
(Total 50 marks)

END OF PAPER