A company wishes to evaluation a division which has the following profit and loss account and balance sheet: Profit and loss account £000 Sales 500 Gross profit 200 Other costs (80) Net profit 120 Balance sheet £000 Fixed assets 750 Current assets 350 Current liabilities (450) Net assets 650 What is the residual income for the division if the company has a cost of capital […]

Bollon uses residual income to appraise its division using a cost of capital of 10%. It gives the managers of these division considerable autonomy although it retains the cash control function at head office. The following information was available for one of the divisions: Net profit after tax £’000 Profit before interest and tax £’000 Divisional net assets £’000 Cash/ (overdraft) £’000 Division 1 47 […]

Division Q makes a single product. Information for the division for the year just ended it: Sales 30 000 units Fixed costs £487 000 Depreciation £247 500 Residual income £47 200 Net asset £1 250 000 Head office assesses divisional performance by the residual income achieved. It uses a cost of capital of 12% a year. Division Q’s average contribution per unit was A £14.82 […]

Flexible budgets and variance analysis A company has obtained the following information regarding costs and revenue for the past financial year: Original budget: Sales 10 000 units Production 12 000 units Standard cost per unit: £ Direct materials 5 Direct labour 9 Fixed production overheads 8 22 30 Selling price Actual result: Sales 9750 units Revenue £325 000 Production 11 000 units Material cost £65 […]

Fixed and flexible budgets (a) Explain what is meant by the terms ‘fixed budget’ and ‘flexible budget’, and state the main objective of preparing flexible budgets. (b) (i) prepare a flexible budget for 20X5 for the overhead expenses of a production department at the activity levels of 80%, 90% and 100% using the information listed below. The direct labour hourly rate is expected to be […]

Comments on a performance report The victoria Hospital is located in a holiday resort that attracts visitors to such an extent the population of the area is trebled for the summer months of June. July and August. From past experience, this influx of visitors doubles the activity of the hospital these months. The annual budget for the hospital’s laundry department is broken down into four […]

The promoters of proposed Prosperity Ltd. purchased a running business on 1 April 2009 from Mr. Alphonse and was incorporated on 1 August 2009. The combined P&L A/c of the company prior to and after the date of incorporation is as under: Particulars Particulars To Rent, Rates, 36,000 By Gross Profit 4,50,000 Insurance By Discount 18,000 Electricity & Received from Salaries Creditors To Director”s 10,800 […]

Flexible budgets and the motivational role of budgets Club Atlantic is an all-weather holiday complex providing holidays throughout the year. The fee charged to guests is fully inclusive of accommodation and meals. However, because the holiday industry is so competitive. Club Atlantic is only able to generate profits by maintaining strict financial control of all activities. The club’s restaurant is one area where is a […]

From the following particulars supplied by the personnel department of a firm, calculate labour turnover Total no. of employees at the beginning of the month 2,010 No. of employees who are recruited during the month 30 No. of employees who left during the month 50 Total no. of employees at the end of the month 1,990

The following information relates to labour costs for the past month: Budget Labour rate £10 per hour Production time 15 000 hours Time per unit 3 hours Production units 5000 units Actual Wages paid £176 000 Production 5500 units Total hours worked 14 000 hours There was no idle time. What were the labour rate and efficiency variances? Rate variance Efficiency variance A £26 000 […]