Module 4 questions and answers

Read the Success on the OAES document for full instructions about how to use this system.

Assigned questions for Module 4 are:

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Q9-1: What type of information system includes both financial and non-financial information and can be presented graphically relative to targets?

Q9-2: What type of information system provides holistic information across multiple business activities?

Q9-3: Explain the concept of reporting on a horizontal perspective.

Q9-4: Why is information systems design and control important?

Q13-1: Williams, a professional services firm has overhead of £625,000. It operates three divisions and an accountant’s estimate of the overhead allocation per division is 38% for Division 1, 22% for Division 2 and 40% for Division 3. The divisions respectively bill 4,100, 1,950 and 3,300 hours. Calculate the business-wide overhead recovery rate and the cost centre overhead recovery rate for each division.

Q13-2: Randy’s Components uses an activity based costing system for its product costing. For the last quarter, the following data relates to costs, output volume and cost drivers. If set-up costs are driven by the number of production runs, what are the correct set-up costs for each product? 

Overhead Cost

£

Machinery

172,000

Set-ups 75,000
Materials Handling

25,000

Total

272,000

   
Product information A B C
Production and sales units   5,000 3,500 2,800
Number of production runs  11 9 6
Number of stores orders 15 10 9

Q13-3: What is the difference between absorption costing and ABC costing?

Q13-4: The main proposal made by Cooper & Kaplan in their article “How cost accounting distorts product costs” is best described as? (The article can be found as Reading A on page 390 of your textbook.)

Q14-1a: The projected net cash flows for an investment are (in £’000):

Y0: -950

Y1: 130

Y2: 200

Y3: 330

Y4: 270

Y5: 180

What is the net present value of the investment, assuming a 7% cost of capital and a 950 initial investment. What is the NPV when we change the cost of capital to 8% and have a 850 initial investment? Have a 9% cost of capital and a 825 initial investment? Or have a 6% cost of capital and a 900 initial investment?Q14:-1b: Given the cash flow in the prior question (14a) and for the $900 initial investment, what is the IRR of the cash flows?

Q14-2: General Sales is considering three alternative investment proposals but can only accept one of these. The investments and cash flows are shown below:

 

Year 0

Year 1

Year 2

Year 3

Year 4

Project A

         

Cost of Capital

12%

       

Cash inflows

-150,000

50,000

75,000

75,000

50,000

Project B

         

Cost of Capital

11%

       

Cash inflows

-200,000

75,000

75,000

75,000

75,000

Project C

         

Cost of Capital

10%

       

Cash inflows

-265,000

50,000

100,000

150,000

100,000

General uses discounted cash flow techniques to evaluate its investments, using a cost of capital as specified above. Compare for each alternative investment the Net present value, Profitability index, and the Internal rate of return. Which of the three investment proposals would you prefer and why?

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