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Question 1

KKB non- financial aspects

Outsourcing

Answer 1

1. Reliability of external supplier: can the outside company be relied upon to meet the requirements in terms of:
quantity required
quality required
delivering on time
price stability

2. Specialist skills: the external supplier may possess some specialist skills that are not available in-house. An alternative perspective is that out-sourcing may result in the loss of in-house skills and competences.
3. Alternative use of resource: outsourcing will free up resources which may be used in another part of the business.
4. Social: will outsourcing result in a reduction of the workforce? Redundancy costs should be considered.
5. Legal: will outsourcing affect contractual obligations with suppliers or employees?
6. Confidentiality: is there a risk of loss of confidentiality, especially if the external supplier performs similar work for rival companies.
7. Customer reaction: do customers attach importance to the products being made in-house?

Question 2

Fraud occurs when someone purposefully produces deceptive data. You need to be on the lookout for two types of fraud:

Misstatements due to fraudulent financial reporting: In this type of fraud, management or owners are usually involved, and the fraud is facilitated by overriding internal controls.

Misstatements because of the misappropriation of assets: This type of fraud is usually perpetrated by nonmanagement employees.

Answer 2

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Question 3

not sure whether to bother trying to learn how to break FO vol var into capacity & efficiency.. read somewhere not examinable

Answer 3

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Question 4

For target costing questions watch out for choosing one of two options about different price/sales volume options when given what the actual fixed costs are..

Answer 4

After using the required profit margin to work out profit, & target total cost and then taking off given variable cost … taking all those off the given selling price and seeing what’s left to contribute to fixed costs … its tempting to multiply that residual amount by the given volume at each selling price and then choose the option that is LOWER than the Actual cost amount (feels like it is ‘within budget’) but that’s wrong ….

its counter-intuitive …. the multiplied amount shows what the maximum fixed costs can be for this option to work..so the one that is under means there is not enough left in the cost ‘pot’ to cover the FC at that volume.

Another way of doing it is to take the given fixed cost and divide by the ‘available’ amount left per unit for fixed costs to see how many units you need to make to ‘break even’ ie. cover the fixed costs …and see whether the BE result is lower than the planned quantity that would be made/sold at that volume in which case its viable.

.. you can also go further and work out what the actual profit would be over the required amount by calculating the amount of FC per unit (using the given quantity), deducting that from the amount of target or ‘available’ fixed cost per unit for that qty and adding the residual amount to the profit that was calculated as ‘required’ earlier…

Question 5

Ref BPP supermarkets have high inventory turnover but low profit margin.

I think the 2 kind of relate ie. high profit margin/low turnover something like jewellery.. opposite to supermarket with high turnover/low profit margin.

Answer 5

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Question 6

BPP T5 question about which MC option would slow down the operating cycle … I knew about the Receivable collection, inventory HP & Payables period but there was an extra option:

Reducing time taken to produce goods.
How did this affect ?

Answer 6

Reducing time taken to produce goods will Speed up the operating cycle. (I think just remember it as there will be more inventory holding because lots of WIP … so it acts like Inventory holding days)

Question 7

Ratio: Dividend cover?

Answer 7

Profit for the year (ie after Interest & tax) / Dividends

Unlike Interest cover which uses Operating Profit

Question 8

BPP Practice 1 Task 4

Don’t really get it but :
a proposed policy of pricing at 25% margin in a company that uses a full overhead recovery pricing model apparently WILL ensure that all new products at least break even

Answer 8

I think I’ll have to remember this by thinking of the products made (presumably the qty planned) and the pricing … and forget about the actual selling of them.

IE they will break on an individual basis even assuming they are sold!