Acca f2 revision notes opentuition

PAPER F2

REVISION NOTES

Formulae Sheet Regression analysis y = a + bx

Economic order quantity

=

2C0D Ch

Economic batch quantity

=

2C0D D Ch (1 – ) R

16

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PAPER F2

REVISION NOTES

Present Value Table Present value of 1 i.e. (1 + r)–n Where

r = discount rate n = number of periods until payment Discount rate (r)

Periods (n)

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1 2 3 4 5

0·990 0·980 0·971 0·961 0·951

0·980 0·961 0·942 0·924 0·906

0·971 0·943 0·915 0·888 0·863

0·962 0·925 0·889 0·855 0·822

0·952 0·907 0·864 0·823 0·784

0·943 0·890 0·840 0·792 0·747

0·935 0·873 0·816 0·763 0·713

0·926 0·857 0·794 0·735 0·681

0·917 0·842 0·772 0·708 0·650

0·909 0·826 0·751 0·683 0·621

1 2 3 4 5

6 7 8 9 10

0·942 0·933 0·923 0·941 0·905

0·888 0·871 0·853 0·837 0·820

0·837 0·813 0·789 0·766 0·744

0·790 0·760 0·731 0·703 0·676

0·746 0·711 0·677 0·645 0·614

0·705 0·665 0·627 0·592 0·558

0·666 0·623 0·582 0·544 0·508

0·630 0·583 0·540 0·500 0·463

0·596 0·547 0·502 0·460 0·422

0·564 0·513 0·467 0·424 0·386

6 7 8 9 10

11 12 13 14 15

0·896 0·887 0·879 0·870 0·861

0·804 0·788 0·773 0·758 0·743

0·722 0·701 0·681 0·661 0·642

0·650 0·625 0·601 0·577 0·555

0·585 0·557 0·530 0·505 0·481

0·527 0·497 0·469 0·442 0·417

0·475 0·444 0·415 0·388 0·362

0·429 0·397 0·368 0·340 0·315

0·388 0·356 0·326 0·299 0·275

0·305 0·319 0·290 0·263 0·239

11 12 13 14 15

(n)

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

1 2 3 4 5

0·901 0·812 0·731 0·659 0·593

0·893 0·797 0·712 0·636 0·567

0·885 0·783 0·693 0·613 0·543

0·877 0·769 0·675 0·592 0·519

0·870 0·756 0·658 0·572 0·497

0·862 0·743 0·641 0·552 0·476

0·855 0·731 0·624 0·534 0·456

0·847 0·718 0·609 0·516 0·437

0·840 0·706 0·593 0·499 0·419

0·833 0·694 0·579 0·482 0·402

1 2 3 4 5

6 7 8 9 10

0·535 0·482 0·434 0·391 0·352

0·507 0·452 0·404 0·361 0·322

0·480 0·425 0·376 0·333 0·295

0·456 0·400 0·351 0·308 0·270

0·432 0·376 0·327 0·284 0·247

0·410 0·354 0·305 0·263 0·227

0·390 0·333 0·285 0·243 0·208

0·370 0·314 0·266 0·225 0·191

0·352 0·296 0·249 0·209 0·176

0·335 0·279 0·233 0·194 0·162

6 7 8 9 10

11 12 13 14 15

0·317 0·286 0·258 0·232 0·209

0·287 0·257 0·229 0·205 0·183

0·261 0·231 0·204 0·181 0·160

0·237 0·208 0·182 0·160 0·140

0·215 0·187 0·163 0·141 0·123

0·195 0·168 0·145 0·125 0·108

0·178 0·152 0·130 0·111 0·095

0·162 0·137 0·116 0·099 0·084

0·148 0·124 0·104 0·088 0·074

0·135 0·112 0·093 0·078 0·065

11 12 13 14 15

17

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PAPER F2

REVISION NOTES

Annuity Table – (1 + r)–n Present value of an annuity of 1 i.e. 1————–– r Where

r = discount rate n = number of periods Discount rate (r)

Periods (n)

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1 2 3 4 5

0·990 1·970 2·941 3·902 4·853

0·980 1·942 2·884 3·808 4·713

0·971 1·913 2·829 3·717 4·580

0·962 1·886 2·775 3·630 4·452

0·952 1·859 2·723 3·546 4·329

0·943 1·833 2·673 3·465 4·212

0·935 1·808 2·624 3·387 4·100

0·926 1·783 2·577 3·312 3·993

0·917 1·759 2·531 3·240 3·890

0·909 1·736 2·487 3·170 3·791

1 2 3 4 5

6 7 8 9 10

5·795 6·728 7·652 8·566 9·471

5·601 6·472 7·325 8·162 8·983

5·417 6·230 7·020 7·786 8·530

5·242 6·002 6·733 7·435 8·111

5·076 5·786 6·463 7·108 7·722

4·917 5·582 6·210 6·802 7·360

4·767 5·389 5·971 6·515 7·024

4·623 5·206 5·747 6·247 6·710

4·486 5·033 5·535 5·995 6·418

4·355 4·868 5·335 5·759 6·145

6 7 8 9 10

11 12 13 14 15

10·37 11·26 12·13 13·00 13·87

9·787 10·58 11·35 12·11 12·85

9·253 9·954 10·63 11·30 11·94

8·760 9·385 9·986 10·56 11·12

8·306 8·863 9·394 9·899 10·38

7·887 8·384 8·853 9·295 9·712

7·499 7·943 8·358 8·745 9·108

7·139 7·536 7·904 8·244 8·559

6·805 7·161 7·487 7·786 8·061

6·495 6·814 7·103 7·367 7·606

11 12 13 14 15

(n)

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

1 2 3 4 5

0·901 1·713 2·444 3·102 3·696

0·893 1·690 2·402 3·037 3·605

0·885 1·668 2·361 2·974 3·517

0·877 1·647 2·322 2·914 3·433

0·870 1·626 2·283 2·855 3·352

0·862 1·605 2·246 2·798 3·274

0·855 1·585 2·210 2·743 3·199

0·847 1·566 2·174 2·690 3·127

0·840 1·547 2·140 2·639 3·058

0·833 1·528 2·106 2·589 2·991

1 2 3 4 5

6 7 8 9 10

4·231 4·712 5·146 5·537 5·889

4·111 4·564 4·968 5·328 5·650

3·998 4·423 4·799 5·132 5·426

3·889 4·288 4·639 4·946 5·216

3·784 4·160 4·487 4·772 5·019

3·685 4·039 4·344 4·607 4·833

3·589 3·922 4·207 4·451 4·659

3·498 3·812 4·078 4·303 4·494

3·410 3·706 3·954 4·163 4·339

3·326 3·605 3·837 4·031 4·192

6 7 8 9 10

11 12 13 14 15

6·207 6·492 6·750 6·982 7·191

5·938 6·194 6·424 6·628 6·811

5·687 5·918 6·122 6·302 6·462

5·453 5·660 5·842 6·002 6·142

5·234 5·421 5·583 5·724 5·847

5·029 5·197 5·342 5·468 5·575

4·836 4·988 5·118 5·229 5·324

4·656 4·793 4·910 5·008 5·092

4·486 4·611 4·715 4·802 4·876

4·327 4·439 4·533 4·611 4·675

11 12 13 14 15

End of Question Paper

18

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PAPER F2

REVISION NOTES

OVERHEAD ALLOCATION AND ABSORPTION Jones Ltd has allocated overheads between departments as follows: Dept $ A 336,000 B 210,000 Repairs 42,000 Maintenance 28,000 In addition there are general overheads of $308,000 which should be apportioned: A: 40%;

B: 30%;

Repairs: 20%;

Maintenance: 10%.

A & B are production departments. The repairs and maintenance service production department as follows: A 60% 40%

Repairs Maintenance

B 40% 40%

Repairs – 20%

Maintenance – –

Budgeted labour hours: A: 40,000 hrs; B: 8,000 hrs Budgeted machine hours: A: 5,000hrs; B: 60,000 hrs (a)

Calculate an overhead absorption rate for each production dept.

(b) Smith Ltd has budgeted overheads of $200,000 and budgeted labour hours of 50,000. Actual hours worked were 48,000 and actual overheads were $205,000.

Calculate the amount of over or under absorption of overheads

Answer (a) Already allocated General Overheads Reallocate maintenance Reallocate repairs

A 336,000 123,200

B 210,000 92,400

Repairs 42,000 61,600

Maintenance 28,000 30,800

23,520

23,520

(58,800)

69,216 551,936

46,144 372,064

11,760 115,360 115,360

Absorb A on labour hours:

551,936 40,000

= $13.80 per labour hour

Absorb B on machine hours:

372,064 60,000

= $6.20 per labour hour

(b)

Absorb B on machine hours: Actual total overheads Amount absorbed (48,000 x $4) Under Absorption

200,000 50,000

= $4

per labour hour

205,000 192,000 $13,000

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PAPER F2

REVISION NOTES

OVERHEAD ABSORPTION - SERVICE DEPARTMENTS After allocating and apportioning overheads, the total overheads for each department are: X Y Stores Canteen 280,000 196,000 84,000 56,000 Stores and Canteen are service departments, and are used by other departments as follows: X Y Stores Canteen Stores 80% 10% – 10% Canteen 60% 36% 4% – Reallocate the service department costs Answer If S is stores and C is canteen, then: S = 84,000 + 0.04 C (1) C = 56,000 + 0.10S (2) Substituting for C in (1): S = 84,000 + 2,240 + 0.004 S 0.996 S = 86,240

S = 86,586 Substituting for S in (2):

C = 56,000 + 8658.6 C = 64,659

Department X = 280,000 + (0.8 x 86,586) + (0.6 x 64,659) = $388,064 Department Y = 196,000 + (0.1 x 86,586) + (0.36 x 64,659( = $227,936

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PAPER F2

REVISION NOTES

PROCESS COSTING (EXAMPLE 1) In process X, 8,000 units were started during the month. There is a normal loss of 10% of input. All losses are sold for $1 p.u. Actual units completed during the month were 7300u.

Costs incurred during the month: Materials: $20,000

Labour and overheads: $3,840 (There was no W.I.P at start or end of month) Write up the Process account and Loss account for the month

Answer units

Materials Labour o/h Overheads Normal loss (10%)

Cost per unit

8,000 8,000 (800) 7,200

$

20,000 3,840 8,000 (800) $23,040

$23,040 = $3.20 7,200 kg

units

Materials Labour & overheads Abnormal gain

800

Process Account $

100

20,000 3,840 320

8,100

24,160

Normal loss Finished

units

$

800 7,300

800 23,360

8,100

24,160

Loss Account units

Normal loss

800

Profit

$

800

units

Normal loss Cost

$

100 700

320 700

800

1,020

220

800

1,020

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PAPER F2

REVISION NOTES

PROCESS COSTING (EXAMPLE 2) In process Y, 6,000u were started during the month.

W.I.P. at the start of month:

400u [Materials 100% complete: $1,600

Labour 30% complete: $240] W.I.P. at the end of month: 600u [

Materials 100% complete Labour 60% complete]

Expenditure during the month: Materials: $30,000 Labour: $18,120 (There were no losses during the month) Write up the process account, using FIFO

Answer Materials

Finish W.I.P b/f (400 units) Start to finish (6,000 – 600 = 5,400u) Start WIP c/f (600u)

280 5,400 5,400 600 360 6,000 6,040 $30,000 $18,120 $5 $3 Total cost $8 p.u.

Spent this month Cost per unit Valuation of finished units: WIP b/f (400u) To finish labour 400 x 70% x$3 Completed this month: 5,400 x $8 = Valuation of Closing WIP Materials 600 x $5 Labour & overheads 600 x 60% x $3

units

WIP b/f Materials Labour & overheads

Labour

1,840 840 43,200 $45,880 3,000 1,080 $4,080

Process Account $

400 6,000

1,840 30,000 18,120

6,400

49,960

Finished WIP c/f

units

$

5,800 600

45,880 4,080

6,400

49,960

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PAPER F2

REVISION NOTES

JOINT COSTS AND BY-PRODUCTS Jackson Ltd produces 2 products (& a by-product) in a joint process.

During 2010, production was as follows: S.P. (per kg) A 10,000 kg $10 B 40,000 kg $14 By-product 10,000 kg $1.40 The costs incurred in the process are $460,000 Product A needs a further $3 per kg to be spent before it is ready for sale.

For products A & B, calculate the stock value per kg splitting the joint costs (i)

on the basis of weight

(ii) on the basis of sales value

Answer Joint costs Less: proceeds of by-product

(i)

(10,000 × $1.40)

460,000 (14,000) $446,000

on basis of weight: Cost per kg

(ii)

446,000 10,000 + 40,000

$8.92

(for A and B)

on basis of sales value: A: 10,000 x ($10 – $3) B: 40,000 x $14

70,000 560,000 Total sales value: $630,000

Total cost applied to A =

70,000 x 446,000 = 630,000

Cost per kg for A

49,556 = $4.96 10,000

Total cost applied to B =

560,000 x 446,000 = 630,000

Cost per kg for B

396,444 = $9.91 40,000

= $49,556

= $396,444

Note: In both cases, these are the values when A & B leave the joint process. The final stock value of A will be $3 higher in both cases due to the further processing

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PAPER F2

REVISION NOTES

STOCK CONTROL (a) X plc needs to purchase 1,800 units a year. The purchase price of each unit is $25.

Delivery costs per order: Stock holding costs p.a. (as %age of purchase cost):

$32 18 % p.a.

Calculate the optimum order quantity, and the total costs p.a. at that order quantity.

Answer EBQ =

2C oD = D CH (1− ) R

2 × 1,800 × 32 0.18 × 25

= 160units

$ Order costs: Holding cost

= 1,800/160 = 160/2

= 11.25 orders x $32 = 80 units x (18% x $25) Total inventory costs

= =

360 360 $720

(b) Y Plc has minimum dexmand of 20 units per day, average demand of 30 units per day, and maximum demand of 40 units per day. The lead time varies between 10 and 15 days. (i)

What should the reorder level be?

(ii) If the reorder quantity is 1,200 units, what will be the maximum stock level?

Answer (i) Reorder level = maximum lead time x maximum demand per day = 15 x 40 = 600 units (ii) Minimum demand over lead time = 10 x 20 = 200 units

Therefore, maximum inventory left when new order arrives is 600 – 200 = 400 units

New order is 1,200 units, so maximum inventory level is 1,200 + 400 = 1,600 units (c)

A company has physical inventory of 20,000 units.

An order has been placed with suppliers for another 10,000 units, and orders from customers for 14,000 units are outstanding.

What is the free inventory?

Answer Physical Add: outstanding order from suppliers Less: outstanding orders by customers Free inventory

20,000 10,000 (14,000) 16,000 units

(d) buffer (or safety) stock Buffer stock is extra stock held throughout the year in case of unexpected level of demand

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PAPER F2

REVISION NOTES

REGRESSION Units

Costs ($’000’s) y 40 45 50 65 70 70 80

x 100 200 300 400 500 600 700 (a)

xy

x2

y2

Calculate the regression line

(b) Calculate the coefficient of correlation (c)

Calculate the coefficient of determination

Answer Units

Costs ($’000’s) y 40 45 50 65 70 70 80 420

x 100 200 300 400 500 600 700 2,800 (a)

(b)

xy 4,000 9,000 15,000 26,000 35,000 42,000 56,000 187,000

x2 10,000 40,000 90,000 160,000 250,000 360,000 490,000 1,400,000

y2 1,600 2,025 2,500 4,225 4,900 4,900 6,400 26,550

(7 x 187,000) – (2,800 x 420) 133,000 = = 0.0679 2 1,960,000 (7 x 1,400,000) – (2,800)

b= a=

420 0.0679 x 2,800 – = 60 – 27.16 = 32.84 7 7

y = 32.84 + 0.0679x

(7 x 187,000) – (2,800 × 420)

r=

(7 × 1,400,000) – (2,800)2  − (7 × 26,550) − (420)2 

=

+133,000 +133,000 = 196,000 × 9, 450 136,096

= 0.977 (c)

r2 =

(0.977)2

= 0.95 (or 95%)

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PAPER F2

REVISION NOTES

LABOUR COSTS Ratios: Production Volume Ratio =

Expected hours to make output Hours budgeted

Capacity Ratio =

Actual hours worked Hours budgeted

Efficiency Ratio =

Expected hours to make output Actual hours worked

Piecework:

Pay workers per unit produced

Labour Turnover Rate =

Employees Replaced Average Number of Employees

Example Firm had 200 employees at start of the year, and 160 at the end of the year.

During the year 50 employees had left.

Answer Number of employees fell by 40, so if 50 left 10 must have been replaced.

Average number of employees 200 +160 Average number of employees = = 180 2 Labour turnover rate =

10 × 100% = 5.56% 180

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PAPER F2

REVISION NOTES

MARGINAL AND ABSORPTION COSTING Z Ltd produces desks for which the standard cost card is as follows: $ pu Materials 10 Labour 6 Variable overheads 4 Fixed overheads 3 $23 During January, Z Ltd produced 50,000 desks and sold 45,000.

The profit was calculated at $220,000, using absorption costing What would the profit be using marginal costing?

Answer

Absorption profit Fixed overheads increase in inventory (5,000 units x $3 per unit) Marginal profit

$ 220,000 (15,000) $205,000

(Inventory increases and so absorption profit is higher than marginal profit)

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PAPER F2

REVISION NOTES

VARIANCES – MATERIALS Standard cost of materials:

20 kg at $4 per kg = $80 per unit

During the month we produced 5000 units.

We purchased 120,000 kg of material and paid $500,000 We used 105,000 kg in production (the other 15,000 kg are in inventory) What are the materials variances?

Answer

Materials expenditure (price) variance:

$

Actual purchases Actual purchases

at actual cost 120,000kg at standard cost 120,000kg x $4

500,000 480,000 $20,000(A)

Materials usage variance:

kg

Actual usage Standard usage for actual production (5,000 u × 20kg)

105,000 100,000 5,000kg

x $4 = $20,000(A)

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PAPER F2

REVISION NOTES

VARIANCES – LABOUR Standard cost of labour:

8 hours at $3 per hr = $24 per unit

During the month we produced 6000 units.

We paid for 52,000 hours of labour at the rate of $3.20 per hour.

We worked 49,500 hours.

What are the Labour variances?

Answer Labour rate of pay variance:

$

Actual hours paid Actual hours paid

at actual cost 52,000 hours x $3.20 at standard cost 52,000 hours x $3

166,400 156,000 $10,400(A)

Labour idle time variance:

Actual hours paid Actual hours worked

52,000 49,500 2,500hours x $3

$7,500(A)

Labour efficiency variance:

Actual hours worked Standard hours worked for actual production 6,000 x 8 hours =

49,500 48,000 1,500hours x $3

$4,500(A)

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PAPER F2

REVISION NOTES

VARIANCES – VARIABLE OVERHEADS Standard cost of variable overheads:

6 hours at $2 per hr = $12 per unit

During the month we produced 1,200 units.

We worked for 7100 hours, and paid $13,900 for variable overheads.

What are the variable overhead variances?

Answer Variable overhead expenditure variance:

$

Actual hours Actual hours

at actual cost 7,100 hours at standard cost 7,100 hours x $2

13,900 14,200 $300(F)

Variable overhead efficiency variance:

Actual hours Standard hours for actual production 1,200 units x $6

7,100 7,200 100hours x $2

$200(F)

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PAPER F2

REVISION NOTES

VARIANCES – FIXED OVERHEADS Our company uses absorption costing, and budgeted to produce and sell 8,000 units.

Standard cost of fixed overheads:

4 hours at $3 per hr = $12 per unit During the month we produced 9,000 units.

We worked for 35,000 hours, and paid $100,000 for fixed overheads.

What are the fixed overhead variances?

Answer

Total fixed overhead variance:

Actual total cost Standard cost for actual production 9,000 units x $12

100,000 108,000 $8,000(F)

Fixed overhead expenditure variance:

Actual total cost Budget total cost

100,000 96,000 $4,000(A)

8,000 units x $12

Fixed overhead volume variance:

Actual production Budget production

9,000 8,000 1,000units x $12

$12,000(F)

35,000 32,000 3,000 hours x $3

$9,000(F)

Fixed overhead capacity variance:

Actual hours Budget hours 8,000 x 4 Fixed overhead efficiency variance:

Actual hours Standard hours for actual production 9,000 x 4 hours

35,000 36,000 1,000 x $3

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$3,000(F)

PAPER F2

REVISION NOTES

VARIANCES – SALES We budgeted to sell 10,000 units.

The standard selling price is $20 per unit.

The standard costs are:

Variable costs $12 per unit

Fixed costs $ 5 per unit The actual sales were 12,000 units at a selling price of $19 per unit What are the sales variances?

Answer Absorption costing: Sales price variance:

Actual sales at actual selling price 12,000 x $19 Actual sales at standard selling price 12,000 units x $20

228,000 240,000 $12,000(A)

Sales volume variance:

Actual sales Budget sales

12,000 10,000 2,000units x standard profit x $3p.u.

$6,000(F)

Marginal costing:

Sales price variance: $12,000(A)

As absorption costing

Sales volume variance: Actual sales Budget sales

12,000 10,000 2,000units x standard contribution $8p.u.

$16,000(F)

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PAPER F2

REVISION NOTES

COST CLASSIFICATION AND BEHAVIOUR Direct costs Indirect costs

Variable costs Fixed costs Semi-variable costs Stepped fixed costs

Controllable costs Non-controllable costs

High-Low In a month when the production was 10,000 units, the total costs were $60,000.

In another month, the production was 18,000 units and the total costs were $100,000.

What is the variable cost per unit, and the fixed cost per month?

Answer units

High Low

Variable cost =

$

18,000 100,000 10,000 60,000 8,000 40,000 40,000 = $5 per unit 8,000

High: Total cost Total variable cost 18,000 x $5 Fixed cost

100,000 (90,000) $10,000 per month

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PAPER F2

REVISION NOTES

INDEX NUMBERS 1

Price index numbers for a particular product are as follows: 2001 100 2002 105 2003 108 2004 115 2005 109 If the product cost $25 in 2002, what will it cost in 2005 (to the nearest cent)?

Answer 109 x $25 = $25.95 105

2

The following data relates to a typical shopping basket in each of 2010 and 2011: 2010

2011

Product

Units

Cost per unit

Units

Cost per unit

A B

100 200

$5 $12

150 180

$8 $13

With 2010 as base year, calculate: (a) the Laspeyre price index (b) the Paasche price index

What are the Labour variances?

Answer Laspeyre (Use base year quantities) 2010

A B

100 x $5 = 200 x $12 =

Index number =

500 2,400 $2,900

2011

100 x 8 = 200 x 13=

800 2,600 $3,400

3,400 × 100 = 117.2 2,900

Paasche (Use current year quantities) 2010

A B

150 x $5 = 180 x $12 =

Index number =

750 2,160 $2,910

2011

150 x $8 = 180 x $13=

1,200 2,340 $3,540

3,540 × 100 = 121.6 2,910

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PAPER F2

REVISION NOTES

INTEREST 1

If $1,000 is invested for 2 years at compound interest of 10% per year, what will the deposit have grown to by the end of the period?

Answer

1,000 x (1.10)2 = $1,210

2

A bank gives simple interest of 12% per year, with interest credited to the account quarterly.

What is the actual rate of interest per year?

Answer 1 + r = (1.03)4 = 1.1255 actual interest rate = r = 0.1255 = 12.55% p.a.

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PAPER F2

REVISION NOTES

INVESTMENT APPRAISAL (1) A project has the following cash flows: 0 (75,000) 1 20,000 2 30,000 3 50,000 1

If the cost of capital is 10%, what is the net present value?

Answer d.f. @ 10%

0 1 2 3 2

(75,000) 20,000 30,000 20,000

0.909 0.826 0.751

P.V.

(75,000) 18,180 24,780 37,550 N.P.V. 5,510

What is the payback period?

Answer Total cash

1 2 3

20,000 50,000 100,000

Payback period = 2 +

3

(75,000 – 50,000) = 2.5 years 50,000

What is the discounted payback period?

Answer Total Present value

1 2 3

18,180 42,960 80,510

Discounted payback period = 2 +

4

(75,000 – 42,960) = 2.85 years 37,550

If the net present value at 15% is $(2,060), what is the Internal Rate of Return?

Answer NPV

10% 15% 5%

5,510 (2,060) (7,570)

5,510 x 5%) IRR = 10% + ( 7,570

= 13.64%

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PAPER F2

REVISION NOTES

INVESTMENT APPRAISAL (2) 1

The cost of capital is 9% What is the present value of $4,000 first receivable in 1 years time and thereafter every year with the last receipt being in 8 years time.

Answer

2

1 – 8

4,000 x 5.535

= $22,140

The cost of capital is 6%.

What is the present value of $8,000 first receivable in 1 years time and thereafter every year in perpetuity.

Answer

1 – ∞

8,000 x (1/0.06)

= $133,333

Sunk costs

= money already spent. NOT relevant

Opportunity costs

= lost income. IS relevant

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PAPER F2

REVISION NOTES

PERFORMANCE MEASUREMENT Financial measures Non-financial measures

Economy Efficiency Effectiveness

Residual Income / Return on Investment A new project is being considered that will generate a profit of $40,000 per year will require an investment of $350,000. (a) what is the Return on Investment?

Answer

40,000/350,000 x 100% = 11.43%

(b) what is the Residual Income (if the cost of capital is 10%)?

Answer Profit Less: Notional interest $350,000 x 10% Residual income

40,000 (35,000) $5,000

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PAPER F2

REVISION NOTES

SOURCES OF DATA Primary data

- collected specially for a specific purpose

Secondary dates

- collected for another purpose

Sampling frame

- numbered list of all items in a population

Random sampling

- every item in population has an equal chance of being selected

Systematic sampling

- selecting every n’th item

Stratified sampling

- divide population into categories, take random samples from each category

Multistage sampling

- divide into sub-populations. Take random sample from each

Quota sampling

- pick every item as it arises until a fixed number is reached

Cluster sampling

- use one subsection of the population as representative of the population

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PAPER F2

REVISION NOTES

TIME SERIES ANALYSIS 1

The trend forecast for sales in quarter 2 of next year is 18,000 units.

What is the actual forecast is the seasonal variation for quarter 2 is (a) +1,200 using the additive model (b) 85% (or 0.85) using the multiplicative model.

2

The sales trend (in units) is given by the following equation: Sales = 12,000 + 30t (where t is the month number, with January this year being month 1, February being month 2 etc.)

What is the sales forecast for July of this year?

3

The actual number of unemployed in October is 240,000.

If the seasonal variation for October is 105% (using the multiplicative model) what is the seasonally adjusted unemployment number for October?

Answers 1) (a) 18,000 + 1,200 = 19,200 units (b) 18,000 x 0.85 = 15,300 units 2) 3)

12,000 + (30x7) = 12,210 units 24,000 105%

(or 24,000 x 100/105) = 22,857

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