CAP2 SFMA Assessment January 2012 - Details needed

EDudder

j4m3s wrote: »

Hi,

The Sales Volume is important if we need to do calculations to assess whether better to But Internally or Externally, from a shareholder perspective.

Could anyone have a look at the attached and let me know if I've missed something as I see it the Maximum external price to benefit the Group is less than €1.50

Best of Luck to all!

I would have thought it's as simple as an external price will only benefit the company as a whole if the cost is under 1.50, as this is reducing costs. Remember transfer pricing only moves profits around.

All those calculations seem a bit unneeded to me.

What do others think? Maybe I'm wrong, I didn't do CAP 1 management. Do you think we would need to show those calculations?

apeking

No

If It is greater than 1.5 the sales will increase by 8% if they purchase externally ( so they will sell more if they purchase externally and you have to take into account)

Also that the extra fixed costs wont change no matter how much they purchase

EDudder

But if they could get the units internally for 1.50 would sales not increase by 8% aswell?

I don't really understand what you're referring to with the Fixed Costs. I would have thought the fixed costs are fixed no matter what, and therefore make no impact on the decision between internal v external. Or even settling an internal price.

Tricky1979

Is BKL presently using cost plus pricing?

I have a handout that says its employing a cost plus pricing model whilst they hav been instructed to employ target costing throughout the full yr and price products on 50% margin of sales....

So is it correct to say 50% margin is evidenced in case, but target costing is not? Thanks

apeking

Sorry for confusing you....it is actually confusing how it is worded in the case study

I am assuming there is no increase in sales if they keep sourcing internally and an increase in sales if they source externally.

And sorry yes fixed costs remain the same but they will have a lower cost per unit if the unit number increases

From my calcs they are better off purchasing externally if the price is between €1.50 and €2.00

nikond60

j4m3s wrote: »

For SFMA.

Hi j4m3s on your document for purchasing externally even if PCM lose the order of 360,000 from FF they still turn a profit of 3.6mil less the 540,000 (1.5 * 360,000) bringing their profit down to 3.06mil & margin down to 42% and adversely affecting the group profits and margin??



i'm going to step away from all the calculations now and go over some theory getting more & more confused.

QueenV

I'm getting so confused!Just gonna stick with what I have at this stage.As long as you state a reasonable assumptions I'm sure it'll be fine

EDudder

Tricky1979 wrote: »

Is BKL presently using cost plus pricing?

I have a handout that says its employing a cost plus pricing model whilst they hav been instructed to employ target costing throughout the full yr and price products on 50% margin of sales....

So is it correct to say 50% margin is evidenced in case, but target costing is not? Thanks

As far as I can see, and I think this was mentioned earlier in the thread - It could well be target pricing or cost plus. You can't tell unless you know in what order the calculation was carried out. The cost breakdown could just be laid out that way for the sake of being easy to understand. (If you think about it, it probably is the most easy to understand way of laying it out). This doesn't mean BKL didn't work backwards from a target price initially.

I'd be of the opinion that we can't really claim that they aren't using target pricing unless the case study detailed the divisions method of deciding the price (which it hasn't). So we can assume that BKL worked backwards from the target price, and the cost breakdown is just laid out the way it is for the sake of simplicity.

Anyone else agree/disagree?

IhateSFMA

No more posting calculations people. I say get the rosary beads out now and then get a good nights sleep.

Fitzy7

IhateSFMA wrote: »

No more posting calculations people. I say get the rosary beads out now and then get a good nights sleep.

i like this comment!:D

Tricky1979

EDudder wrote: »

As far as I can see, and I think this was mentioned earlier in the thread - It could well be target pricing or cost plus. You can't tell unless you know in what order the calculation was carried out. The cost breakdown could just be laid out that way for the sake of being easy to understand. (If you think about it, it probably is the most easy to understand way of laying it out). This doesn't mean BKL didn't work backwards from a target price initially.

I'd be of the opinion that we can't really claim that they aren't using target pricing unless the case study detailed the divisions method of deciding the price (which it hasn't). So we can assume that BKL worked backwards from the target price, and the cost breakdown is just laid out the way it is for the sake of simplicity.

Anyone else agree/disagree?

I take your pts - think you can argue it both ways depending on assumptions. They know their costs (determined them), but they are probably not keeping them as low as they should be and they are then adding a 50% margin although there is no mention of a mkt adjustment = cost plus pricing. No sign of Target costing which works the other way!!!

The Mole 88

j4m3s wrote: »

For SFMA.

Have we considered the catering side of the business. I have valued it at 3 million. Anyone else close to this?

SFMA4LIFE

The Mole 88 wrote: »

j4m3s wrote: »

For SFMA.

Have we considered the catering side of the business. I have valued it at 3 million. Anyone else close to this?

Well according to the notes being sent around today by that French firm, the value of catering is closer to 2.5m, maybe just readjust your terminal growth rate to 4% and you should get it? Can see catering being quite important tomorrow.

The Mole 88

4% terminal growth rate for the catering industry is appropriate. I was looking at Wharton university's paper on the industry. 3.6 to 4.5 is recommended. I'll reference it tomorrow.

http://executiveeducation.wharton.upenn.edu/executive-education/open-enrollment/view-all-programs.cfm

Best of luck everyone.

bordsie

made a mess of that, praying for even 50% so i don't have to catch-up with the summer exam.

didn't have a clue how to do the npv with the new info, thought the reasonable thing to expect would just be the lease amount. tbh i just wrote out my one from the notes anyway.

the variances kind of flustered me a bit so didnt do well there either.

the notes pretty much covered the poland bit and transfer pricing so picked up marks there.

overall not looking good!

EDudder

Disaster for me. Basically completely left out the variance Q, and the rest wasn't great.

Just wasn't what I was expecting. The things I really prepared for were low marks Qs and the bits I only touched on were half the paper. And the lease question just threw me off, thinking we would definitely get the quote.

Ahh well, at least it's only the 15%. Happy it's over for a while still. To the bar.

acc12345

disaster. too many questions to answer. Did anybody think it went well?

Ajwalsh7

Easily could have spent another hour in that exam.... just wasnt enough time and the transfer pricing calculation only to be worth 6 marks....disaster... didnt want variances to come up at all and it was 30 marks... glad its over!!

Anerak

Didnt want variances & lease was confusing
Anyone know what story is with Assessment in May can you sit again if you want or is it only for special circumstances

Rosy4Truck

That was well easy!!! 15/15. Bout time the institute made people actually think in the exam in terms of the calculations questions. Hate this idea of people preparing all possible answers and then just transcribing. A big panic then when they alter one question very slightly!!!

QueenV

Rosy4Truck wrote: »

That was well easy!!! 15/15. Bout time the institute made people actually think in the exam in terms of the calculations questions. Hate this idea of people preparing all possible answers and then just transcribing. A big panic then when they alter one question very slightly!!!

Are you being serious?Every single person I spoke thoughtt it was a difficult.It was an absolute disaster for me!

2802

QueenV wrote: »

Are you being serious?Every single person I spoke thoughtt it was a difficult.It was an absolute disaster for me!

Thought there was way to much to do within the time - definitely a lot more in there than usual!! Very tight time-wise!!

Rosy4Truck

How was time a factor? The investment appraisal question took roughly 4 minutes and was worth either 30 or 40%, for the theory they are not looking for/requiring long explanations. My only issue with the paper is that the tranfer pricing part took roughly same time as investment appraisal part yet was only worth 6 or nine marks

2802

Rosy4Truck wrote: »

How was time a factor? The investment appraisal question took roughly 4 minutes and was worth either 30 or 40%, for the theory they are not looking for/requiring long explanations. My only issue with the paper is that the tranfer pricing part took roughly same time as investment appraisal part yet was only worth 6 or nine marks

Well if you got investment appraisal done in 4 min and transfer pricing similarily....thats approx 55% of the paper done in 8 mins - And a lot of people here saying they didnt get to finish the paper - I'd rather not have finished it than write off 55% in 8 minutes!! Good luck with your 15/15

Rosy4Truck

2802 wrote: »

Well if you got investment appraisal done in 4 min and transfer pricing similarily....thats approx 55% of the paper done in 8 mins - And a lot of people here saying they didnt get to finish the paper - I'd rather not have finished it than write off 55% in 8 minutes!! Good luck with your 15/15

The marks for these questions were been awarded for the correct
figure(s). Apportioning time based on the the % of the exam that these questions are worth is not applicable. Once figure is arrived at why would you wait before moving on? 8 minutes is sufficient.

Also if these questions are worth a total of 41 marks(35+6) out of a total of 100 marks then would this not be 41% and not 55%?-best of luck with your calculation questions!!

dtmckeown

41 marks in 8 minutes.

Smells like a bit of exaggeration to me. Don't mean to burst your bubble, but if you think you will get 35 marks on investment appraisal for simply calculating the correct figure you are destined to be disappointed when the results come out. Best to keep expectations low with the CAI exams, I find.

As you said, the calculations can be done very quickly, but the institute would expect those first two questions to take approximately an hour, and so there should be a hefty bit of analysis in your answer.

Rosy4Truck

dtmckeown wrote: »

41 marks in 8 minutes.

Smells like a bit of exaggeration to me. Don't mean to burst your bubble, but if you think you will get 35 marks on investment appraisal for simply calculating the correct figure you are destined to be disappointed when the results come out. Best to keep expectations low with the CAI exams, I find.

As you said, the calculations can be done very quickly, but the institute would expect those first two questions to take approximately an hour, and so there should be a hefty bit of analysis in your answer.

I appreciate what you are saying however Q2 is a calculation question pure and simple. If you can write more than 2 relevant lines after your calcultion has been done then fair play

myshirt

I found this rough also.

There were more pertinent issues for the group that should have been weighted more heavily. I just think we were given a bad steer.

In isolation itself, the material was quite simple.

I don't think there is one person who would not be able to deal with this in a practice scenario.

EDudder

Yeah pretty peeved that the case study seemed to point us to particular questions (y'know, the way they told us it would), and then it asked different ones. In an hour n a half exam theres no time for relatively starting from scratch.

I think I actually got the appraisal answer (the number) but didn't add notes to back it up my figures, or any analysis, so probably lost a wreck of marks there too

What's the story with repeating?

Rosy4Truck

EDudder wrote: »

Yeah pretty peeved that the case study seemed to point us to particular questions (y'know, the way they told us it would), and then it asked different ones. In an hour n a half exam theres no time for relatively starting from scratch.

I think I actually got the appraisal answer (the number) but didn't add notes to back it up my figures, or any analysis, so probably lost a wreck of marks there too

What's the story with repeating?

I wouldn't worry about back up for that question edudder!! If you read the question carefully you will see that there is no mention of analysis needed!! For questions phrased in this way the institute aportion all marks to the actual calculation. Anything written after this is just considered filler and is generally included by students who have no idea how to calculate the answer so they just include this unwanted analysis in a desperate attempt to gain some marks. Also congrats on getting the correct number and achieving 35/35

MindGuru

Question 2 Solution to put you out of your misery (or mine if I stand corrected)

(A)
To break the question down, you were told that the project had a life of 2 years and it should pay itself back in 2 years to be accepted i.e rewording this, it must give a positive NPV, as it only has a life of 2 years anyway

(B)
From your preprepared workings you would of worked out the total DISCOUNTED cashflow without the lease payments,
Lets call that figure 1,710,127 (yours may be different)
(-140,000*1 + 1,049,500*0.893+1,145,450*0.797)(i.e. the NPV over 2 years without lease payments)


(C)
The max lease payments they'll accept is the amount that sets that the NPV back to Zero.
Any higher and it'll be rejected for not meeting the 2 years discount payback, Now there are 2 equal lease payments (assume they fall in YR0 (start of year 2012) and YR1 (at the start of the year 2013/end of 2012)

(D)
So all you had to do for 35 marks in the exam was this (not including copying out your preprepared work:

Let lease payments = X

So
(X + X*discount factor) - total discounted cashflow without lease payment=0
(X + X*0.893) - 1710127 = 0
1.893X=1710127
X=903,395
Maximum lease payment acceptable is 903,395 per year (assuming only 2 lease payments are made at the start of each year).

YOUR ANSWER MAY DIFFER DEPENDING IF YOU
(A) USED BUDGETED OR ACTUAL FIGURES FOR 2011 TO CALCULATE 2012 AND 2013 SALES
(B) ASSUMED CASHFLOW OCCURRED AT YEAR ENDS (YR1 AND YR2) OR THERE WERE 3 LEASE PAYMENTS

Proof (not needed in exam)
.......................YR0....................YR1..................YR2
Lease............(903,395)......... (903,395).............

---

Cashflow........(140,000)..........1,049,500.............1145450
Net cashflow...(1,043,395)........146,105...............1145450
DF.......................1..................0.893..................0.797
DCF................(1,043,395).........130,472.............912,924
NPV = 0
Payback period= 2 years

dtmckeown

Excellent, this is what I got too. I know a lot of people have put lease payments at year 1 and year 2 though.

Is this just your workings, or is it from someone in the know? Any breakdown of the Q1 reconciliation?

MindGuru

Question 1 Solution
For space considerations and cos I'm lazy, I'll only show working where variances occur

Budget
Budget Sales...16,800,000.....(1.40*12,000,000)
Budget Costs...8,400,000.......(0.7*12,000,000)
Budget Profit....8,400,000

Sales Price Variance..............0
Sales Quantity Variance........700,000F.......(13,000,000-12,000,000)*0.7

Bread Price & Quantity..........0

Filler Price..........................0
Filler Quanity...........1,950,000A........(19,500,000oz-13,000,000oz)*0.3

Labour Cost.......................0
Labour Efficiency..............(260,000)F..(11,700,000min-13,000,000min)*0.2 Note:195,000hrs*60=11,700,000 minutes

Fixed Overhead..........110,000A......(0.065*13,000,000)-955,000
note:Doing this is technically wrong as fixed cost should be fixed regardless of output but you need to do this to get the reconciliation

Actual Profit: 7,300,000
Filler Var:......1,950,000A
Labour Var:....(260,000)F
Fixed cost:....110,000A
Sales:...........(700,000)F
Budget Profit..8,400,000
You may fall down here by adding the favourable variances to the actual profit, you actually subtract

For the theory put down any reasonable things and you get you marks. However, although you won't get extra marks for it, you should of connected the labour favourable variance to the adverse filler variance


NOTE: Q1 AND Q.2 ARE MY EXAM ANSWERS AND WORKINGS (ALTHOUGH Q.1 I'VE NOT SHOWN ALL WORKINGS)

UPC123

Hi All,

Does anyone know when the results are out for this assessment. Thanks.

Padkir

UPC123 wrote: »

Hi All,

Does anyone know when the results are out for this assessment. Thanks.

I emailed the institute the other day and they reckoned approximately 6 weeks from the date of assessment, and you'll be let know an exact date about a week from it!

Tricky1979

Hi - can you resit this continuous assessment exam before the Summer exam if you are not happy with your result? Thanks

gh001

Hey everyone,

Have people attempted the assignment to have in for tomorrow. Is there a lot in it?
I have approached it but I am very confused!

For the fixed xosts calculation do you increase the FC by 2.3% but then keep the depreciation at set cost every year???

ted2767

You never ever put depreciation in an NPV calaulation

It's not a cash flow and you would loose a load of marks by putting it in there.

Tricky1979

Stuck on part B - is there any similar question anywhere to use as a guide? Ta

ted2767

As far as I can make out all you do is an IRR this will give you effectively the breakeven of the project in discounted cashflow terms.
Your answer therefore is IRR less WACC

gh001

thanks guys,
Ok so do I increase the €460k by 2.3% and then minus the €250k depreciation and include the balance in the NPV calculation?

ted2767

gh001 wrote: »

thanks guys,
Ok so do I increase the €460k by 2.3% and then minus the €250k depreciation and include the balance in the NPV calculation?

No you take away the depreciation and the centrally allocated overheads first whats left is incremental fixed costs.
These are then increased by 2.3% per year

aca student

Does anyone know what the average was for the assessment?

dtmckeown

66/100=9.9/15

EDudder

Is that the average, or what you got? And if the average, where'd you find this out?

I got 8.9. Actually really really happy with that considering how it went.

dtmckeown

That's the average - I emailed the exam department.

myshirt

I got 10 on the button.

Sentiment shared in that I am happy considering how it went. Variance Q was a complete and utter disaster. The comment was "Incorrect calculations and insufficent recommendations"

Look, as long as we have half the marks we're not goosed. Of course it would be nice to have a leg up... but no word of a lie I was expecting 5 or 6.

How is prep going for the audit assessment? I don't work in audit at all.. a lot of material.

acc12345

gobsmacked i got 10.5 which was 70% in that sfma. I was expecting somewhere between 40-50..

those that work in audit have a huge advantage for this next exam I think

EDudder

I was hoping that would be the case. And to be honest it's caused me to do very little on audit so far. That and the fact I simply haven't had any time with work.

But Audit has quite a high failure rate doesn't it? And when you consider most of the people doing these exams are working in audit....maybe I should be a bit more worried

Noni Goggins

Working in audit isn't a big advantage at all. The majority of auditors work in Funds / Financial Services in the Big 4 and they don't deal with testing stock, debtors etc.

All you need for the audit exam is a logical mind and to make sure you follow the style of answers from previous papers. The examiners make it very obvious the type of answers they want.

I actually think pure 'audit knowledge' is overrated. Put on your audit hat and give them what they want based on previous exam reports / solutions etc.