Section B - Performance Measures

AAshareen12y ago

-Background The following information, for the year to 31 Dec 20X9, is available for Fun Co which operates in the toys and games industry. Sales 7,660,000 Gross profit 1,200,000 Operating profit 590,000 Capital employed 3,330,000 Current assets 400,000 The cost of capital of Fun Co is 12% per annum Fun Co sold 350,000 units in the year 31 Dec 20X9. Total sales for the toys and games idustry for the year were $61,280,000. -Task 1- Calculate the following performance measures for Fun Co for the year ended 31 Dec 20X9: Operating profit margin : (My answer : 8%) Asset turnover : (My answer : 2.3 times) Return on investment : (My answer : 18%) Market share : (My answer : 1%) -Task 2- Return on investment (ROI) and residual income (RI) are both measures of investment performance. Does each of the following statements describe a feature of ROI only, RI only, both ROI and RI or nether of the two measures? -Ensure(s) that managers will select investment projects with positive NPV. -Provide(s) a relative measure of investment performance -Based on profit rather than cash flow -Facilitates the comparison of performance of business units of different size -Task 3- An analyst has calculated the following ratios for Fun Co for comparison with the toys and games industry average. Fun Co Toys and Games industry average Current ratio 1:4:1 1:2:1 Gearing 55% 30% Interest cover 6 5 Acid test 0:8:1 0:8:1 Complete the following commentary on Fun Co's performance relative to the industry average. Fun Co's liquidity is ( ) than the industry average It capital gearing is ( ) than the industry average Its ability to service its loans is ( ) than the industry average, which could mean that Fun Co is having a ( ) level of profitability than the industry average.

John MoffatTutor12y ago#1

You have not said why you have typed up an entire question!!! Since you presumably have the answers, it would be more sensible if you said which parts you need help with! Task 1: Your answers are correct (to the nearest %) except for market share. It should be 7,660,000/61,280,000 = 12.5% Task 2: 1st statement is true for neither (both based on profits rather than cash flows) 2nd statement is true for both 3rd statement is true for both 4th statement is true for ROI only Task 3: 1) liquidity is higher (current ratio is bigger) 2) gearing is higher 3) ability is higher (interest cover is higher). Could mean higher profitability.

AAshareen12y ago#2

im sorry sir. I forgot to wrote on top of the qusrtion that want you to check the answer for me. Btw. thank you for your reply sir. Here i need your help to check my answer. Please assist me sir. Question: Kidling Co uses a std marginal costing system for cost control of its single product. Standard cost card : Direct material 2.5kg at $12.60 per kg 31.50 Direct labour 2hour at $ 11.20 per hour 22.40 Variable production overhead 8.80 Fixed production overhead are budgeted at $160,200 per month. Actual result: Production 6200 unit Direct material 15,240kg purchased and used at a total cost of $195,920 Direct labour 12,590 hours worked Variable production overhead $52,820 Calculate: 1) Direct material price 3896(F) 2) Direct material usage 3276(F) 3) Direct labour efficiency 2261(A) 4) Total variable production overhead 139204(A) 5) Fixed production overhead expenditure 9200(A) Sir, i don't know how to calculate this question. Please help me sir. The direct labour rate variance in the month just ended was $1,908 favourable. What was the total direct labour cost in the month?

John MoffatTutor12y ago#3

The material price variance is 3896 adverse (not favourable) The material usage variance is correct - 3276 favourable The labour efficiency variance is wrong - it should be 2128 adverse In (4) I assume you mean the total variance production overhead variance. The correct answer is (6200 x 8.80) - 52820 = 1740 favourable It is not possible to calculate the fixed overhead expenditure variance from the information you have given. The standard cost of labour for the actual hours worked is 12,590 x 11.20 = 141008. Since there is a rate variance of 1908 favourable, the actual cost must have been 141008 - 1908 = 139,100

AAshareen12y ago#4

Sir, how do you get 2128 adverse for direct labour efficiency ?

John MoffatTutor12y ago#5

The standard hours for the actual production are 6200 x 2 hours = 12400. The actual hours are 12590. So they worked 190 hours more than they should have. At standard cost of 11.20 per hour, this comes to 190 x 11.20 = $2128 adverse

AAshareen12y ago#6

i really careless sir. i (X) with wrong std cost per hour that why i got wrong answer. hehe :D Btw sir, thank you so much. you have opened my eyes :)

John MoffatTutor12y ago#7

You are welcome :-)