CAP 2 SFMA CAse Study 2016/2017

fe1manuals

ACAguy wrote: »

This is a great help for the exam for someone like myself who hasnt done mgt accounting or finance in a couple of years. Has anyone gone to the ACA revisions course or is anyone going to the Chartered Grinds School one tomorrow?

I'm going to the CGS one tomorrow.

fe1manuals

ronnie75 wrote: »

Phew, thought I might have been calculating the value and cost of the existing long term loan incorrectly.

Do you think they will ask us to calculate the fixed costs for the sunglasses using the high low method because it gives the existing costs for 2 months and more information to follow suggesting the fixed costs will have to be worked out. We will then be able to calculate contribution for the sunglasses in that question using the variable costs. It doesn't say how long it will take to produce the order but will probably be in the additional information.

If this is a relevant costing question are fixed costs not irrelevant in that they are fixed and won't therefore change with the amount of sunglasses produced? So why would fixed costs need to be calculated? Sorry, maybe I'm mis-understanding your point.

ronnie75

fe1manuals wrote: »

If this is a relevant costing question are fixed costs not irrelevant in that they are fixed and won't therefore change with the amount of sunglasses produced? So why would fixed costs need to be calculated? Sorry, maybe I'm mis-understanding your point.

We will have to calculate the fixed costs and then take the fixed costs out of the monthly costs in order to get the variable costs when making the sunglasses

Tgt16

fe1manuals wrote: »

If this is a relevant costing question are fixed costs not irrelevant in that they are fixed and won't therefore change with the amount of sunglasses produced? So why would fixed costs need to be calculated? Sorry, maybe I'm mis-understanding your point.

Would this be used for the high low method by adding the total overhead costs for each month and working out the incremental cost which we can assume to be the increase in variable o/h? Then dividing by the increase in batches produced to find the variable o/h cost per batch?

The J Stands for Jay

Tgt16 wrote: »

Would this be used for the high low method by adding the total overhead costs for each month and working out the incremental cost which we can assume to be the increase in variable o/h? Then dividing by the increase in batches produced to find the variable o/h cost per batch?

Of the costs listed, rent and rates are fixed, maintenance id variable and electricity is semi-variable. You need to look at high-low for electricity to get the variable cost.

Tgt16

McGaggs wrote: »

Of the costs listed, rent and rates are fixed, maintenance id variable and electricity is semi-variable. You need to look at high-low for electricity to get the variable cost.

I'm not sure I understand. I got €650 variable o/h per batched produced i.e 1000 extra batches produced in October. The increase in costs would only be a variable element I presume? Even if electricity has a fixed portion , I don't think it's fixed cost will rise with regard to the number of batches produced? So therefore it's only the variable taken into consideration.

Catherine210

Hi Guys!

Just a quick question. I came through CAP 1 exempt so is there any point in me studying the CAP 2 notes so far? Or should I just use my college notes for finance and management accounting?

The J Stands for Jay

Tgt16 wrote: »

I'm not sure I understand. I got €650 variable o/h per batched produced i.e 1000 extra batches produced in October. The increase in costs would only be a variable element I presume? Even if electricity has a fixed portion , I don't think it's fixed cost will rise with regard to the number of batches produced? So therefore it's only the variable taken into consideration.

Rent - fixed - ignore
rates - fixed - ignore
maintenance - variable - 1000000 / 2000 = 500 per batch
electricity - semi variable - ignore the fixed portion. Variable cost = 150000 / 1000 = 150 per batch.

I just looked at the electricity figure on the high low method, whereas you used it on the total overheads. Your answer of 650 per batch total variable o/h is consistent with my 150 variable electricity.

tanit

In my opinion for the sunglasses contract the first offering is a relevant costs question as they have spare capacity so any fixed costs should be disregarded, but you should consider any opportunity costs (the screws already in stock can be sold) and compare everything to the subcontract costs.

But after that first contract if it's going to become a regular contract you need to consider all costs and you will have to contrast them with the subcontract costs and see if it's profitable to produce in-house or subcontract the whole thing. Then you would have to consider the usual qualitative issues of whether it's such a good idea to subcontract the quality of the subcontracted product, the reliability of the company used and their supplies to the American client, will the client have any issues with production being subcontracted?, etc.

Quick question this come up talking with a classmate we both agree that the 5 million spent in the Omagh factory are improvement to premises and as such they will never be released back in the investment. But some people she has been talking to say those 5 million are working capital investment and that after a some time that money will be released back and be income for the company. Are there more people around thinking it's working capital?

thefox1982

Hi all. I went through all the IA papers this morning and mapped them out to see how common each topic is and what papers it appears in. I hope this helps and you can open it. It is in PDF format.

fe1manuals

fe1manuals wrote: »

Thanks for this davindub. On the gearing ratio, €300,000,000 / €800,000,000 = .375 - should the market value of the equity be used such that the gearing ratio is .121 or 12.1%?

Deeman1991 - Re the ratios - how do you / people see them coming up? I can't see what kinda question we would get on them. Would welcome peoples thoughts.

Re gearing - Just to let ye know, at one of the revision courses I went to, we were told to use book value for gearing (so my earlier comment re using market value may be wrong, but see paragraph below). Was also told the gearing formula was simply: Debt / Equity, so for ANT the current gearing would be €300,000,000 / €570,000,000 = 52.6%.

Against that, page 479 of the Finance textbook uses the formula: Debt / (Debt + Equity) and Example 14.1 on page 479 uses the market value of equity.

Sorry this doesn't exact clarify the position - just wanted to make people aware of the different 'approaches'.

Cinnym

Hi there. I have been working out the various workings for board paper 1&2. I'm at a loss as to board paper 3. Does anyone have any tips as to where to begin on that paper. Any suggestions greatly appreciated

thefox1982

[/TABLE]

McGaggs wrote: »

That's what I got.

I am getting 15.33%
I have the cost of equity as 15.81% (same as calculated on here)

Cost of debt using untraded debt formula:-
Kdt = i(1 - t)
= 0.05(1-0.2)
= 4%

WACC
Source of funds | Total MV(€m) | Weight | Cost of Source| Weighted Cost
Ordinary Shares | 2,100 | 87.5% | 15.81% | 13.83%
5% Term Loan | 300 | 12.5% | 4.00% | 1.50%
Total WACC = 15.33%

Please can someone help me with where I have gone wrong

Cinnym

thefox1982 wrote: »

[/TABLE]

I am getting 15.33%
I have the cost of equity as 15.81% (same as calculated on here)

Cost of debt using untraded debt formula:-
Kdt = i(1 - t)
= 0.05(1-0.2)
= 4%

WACC
Source of funds | Total MV(€m) | Weight | Cost of Source| Weighted Cost
Ordinary Shares | 2,100 | 87.5% | 15.81% | 13.83%
5% Term Loan | 300 | 12.5% | 4.00% | 1.50%
Total WACC = 15.33%

Please can someone help me with where I have gone wrong

Hiya I think u just calculated the term loan wrong. For Equity I got 13.83% (87.5%*.1581)
For the loan is got (12.5%*.04)= .5%

13.83%+.5% = 14.33%

If I'm wrong correct me

thefox1982

Cinnym wrote: »

Hiya I think u just calculated the term loan wrong. For Equity I got 13.83% (87.5%*.1581)
For the loan is got (12.5%*.04)= .5%

13.83%+.5% = 14.33%

If I'm wrong correct me

Thanks for that! Always the little calc that I tend to ignore when I am not getting the right answer.

In terms of the board paper 3, this is obvious that it will be a calculation to determine if it meets the investment criteria mentioned earlier in the case study. What I plan to do here is set out a template that I can use, fill in as much as I can and then complete the rest on the day. Also going to look at different ways to value a company, the various ways a company can block an acquisition and the advantages and risks of acquisitions

Cinnym

thefox1982 wrote: »

Thanks for that! Always the little calc that I tend to ignore when I am not getting the right answer.

In terms of the board paper 3, this is obvious that it will be a calculation to determine if it meets the investment criteria mentioned earlier in the case study. What I plan to do here is set out a template that I can use, fill in as much as I can and then complete the rest on the day. Also going to look at different ways to value a company, the various ways a company can block an acquisition and the advantages and risks of acquisitions

Thanks a mill. My head was fried trying to figure it out after the other 2

The J Stands for Jay

thefox1982 wrote: »

[/TABLE]

I am getting 15.33%
I have the cost of equity as 15.81% (same as calculated on here)

Cost of debt using untraded debt formula:-
Kdt = i(1 - t)
= 0.05(1-0.2)
= 4%

WACC
Source of funds | Total MV(€m) | Weight | Cost of Source| Weighted Cost
Ordinary Shares | 2,100 | 87.5% | 15.81% | 13.83%
5% Term Loan | 300 | 12.5% | 4.00% | 1.50%
Total WACC = 15.33%

Please can someone help me with where I have gone wrong

12.5% x 4% = 0.5%

Tgt16

Catherine210 wrote: »

Hi Guys!

Just a quick question. I came through CAP 1 exempt so is there any point in me studying the CAP 2 notes so far? Or should I just use my college notes for finance and management accounting?

The cap two notes so far would be useful and a mix of your undergrad. I guess just study what is relevant to the paper

thefox1982

McGaggs wrote: »

Rent - fixed - ignore
rates - fixed - ignore
maintenance - variable - 1000000 / 2000 = 500 per batch
electricity - semi variable - ignore the fixed portion. Variable cost = 150000 / 1000 = 150 per batch.

I just looked at the electricity figure on the high low method, whereas you used it on the total overheads. Your answer of 650 per batch total variable o/h is consistent with my 150 variable electricity.

As the case study says that 80% of the order will be carried out by Arklow plant and 20% will be sub-contracted, when we are working out the costings (i am doing up a template at the moment), we should only cost for 800 batches? Am I right in saying that as the remaining batches will be sub-contracted out

The J Stands for Jay

thefox1982 wrote: »

As the case study says that 80% of the order will be carried out by Arklow plant and 20% will be sub-contracted, when we are working out the costings (i am doing up a template at the moment), we should only cost for 800 batches? Am I right in saying that as the remaining batches will be sub-contracted out

I don't have any if the details here in front of me, but I was only looking at the 80%; I think it was 800 batches. We'll be given prices for the subcontracting work on the day.

thefox1982

Attachment not found.These are the notes that I have done up for the case study on what I believe will come up and some of my calculations/templates.

May as well put them up here so people can use if they want. Whats the point in keeping these to myself!

UPDATED THE ATTACHMENT WITH TrisHolmes comments

TrisHolmes

Thanks thefox1982! I have a few of my own workings done now and just had a quick glance at yours to see if we are coming up with the same answers.

I just had a quick look at board paper 2. For the opportunity cost (loss of sale) of the screws I have the full 75,000 as they already bought the 3,000,000 screws previously which would be a sunk cost and therefore shouldn't be included.

I think this is right but correct me if I am wrong

thefox1982

TrisHolmes wrote: »

Thanks thefox1982! I have a few of my own workings done now and just had a quick glance at yours to see if we are coming up with the same answers.

I just had a quick look at board paper 2. For the opportunity cost (loss of sale) of the screws I have the full 75,000 as they already bought the 3,000,000 screws previously which would be a sunk cost and therefore shouldn't be included.

I think this is right but correct me if I am wrong

Hi TrisHolmes. Yes you are right. The original cost of the screws (45,000) would be considered as sunk costs and the resale value (75,000) would be consider the relevant costs and should therefore be included. There is a good question in CAP 1 MA Session 12 question 5 which shows this (the red ink)

Thanks for pointing that out. I have amended it and replaced the attachment with the newer version

The J Stands for Jay

thefox1982 wrote: »

Attachment not found.These are the notes that I have done up for the case study on what I believe will come up and some of my calculations/templates.

May as well put them up here so people can use if they want. Whats the point in keeping these to myself!

UPDATED THE ATTACHMENT WITH TrisHolmes comments

Thanks for this. I'm blown away by the amount of work that's gone into this. Thanks for sharing. Very happy to see my own scribblings on a spreadsheet are matching your numbers so far.

The J Stands for Jay

I can add very little to The Foxes notes, but here's some of my own additonal thoughts anyway:

• The Tuam plant makes shoes, so the workforce may not be any use in making sunglasses
• Non-negotiable price from the customer. Dangerous with political instability and the effects of fx. Both for the US order and the Omagh purchase.
• There may be a question on the buy vs manufacture option based on the outsourcing cost
• I don't think variances will come up based on what's been given so far

davindub

McGaggs wrote: »

I can add very little to The Foxes notes, but here's some of my own additonal thoughts anyway:

• The Tuam plant makes shoes, so the workforce may not be any use in making sunglasses
• Non-negotiable price from the customer. Dangerous with political instability and the effects of fx. Both for the US order and the Omagh purchase.
• There may be a question on the buy vs manufacture option based on the outsourcing cost
• I don't think variances will come up based on what's been given so far

The guy at the lecture talked about transfer pricing a lot, I prepared something just in case.

eimeark700

Hello could anyone explain how to calculate the cost of equity please?

thefox1982

McGaggs wrote: »

I can add very little to The Foxes notes, but here's some of my own additonal thoughts anyway:

• The Tuam plant makes shoes, so the workforce may not be any use in making sunglasses
• Non-negotiable price from the customer. Dangerous with political instability and the effects of fx. Both for the US order and the Omagh purchase.
• There may be a question on the buy vs manufacture option based on the outsourcing cost
• I don't think variances will come up based on what's been given so far

Thanks McGaggs for that, a few more things to think about. You are right about the variances, I don't see them come up in under board paper two, but possibly under board paper three. They have come up a good few times over the last few years, so just threw them in just in case.

In relation to the normal loss of 20% in the Omagh factory, what are your thoughts on this? Are the cost of these less any scrap value, absorbed by the remaining 80%?

thefox1982

davindub wrote: »

The guy at the lecture talked about transfer pricing a lot, I prepared something just in case.

Thanks davindub, I will print that off and bring with me on the day. However, I do not see where this can come up. I know that the guy went into it in detail on the night, but he was going through the last IA paper which dealt with transfer pricing.

On a side note, he was a sound lecture!

thefox1982

eimeark700 wrote: »

Hello could anyone explain how to calculate the cost of equity please?

Hi eimeark700,

it is a bit hard to type it up on this as the format comes up ****e. If you look at page 4 of my notes in the attachment below, it shows how to calculate it. If you have any problems, give me a shout either on this or by PM.

Deeman1991

http://www.charteredgrindschool.com/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=27&cntnt01returnid=15

Heres the link for Chartered Grind School notes, the lecturer has a template of all potential calcs and has highlighted areas where information will change

The J Stands for Jay

thefox1982 wrote: »

Thanks McGaggs for that, a few more things to think about. You are right about the variances, I don't see them come up in under board paper two, but possibly under board paper three. They have come up a good few times over the last few years, so just threw them in just in case.

In relation to the normal loss of 20% in the Omagh factory, what are your thoughts on this? Are the cost of these less any scrap value, absorbed by the remaining 80%?

I took it that their cost was absorbed into the cost of the 80%. I didn't see anything else mentioning the 20%.

Crazednuttyboy

I only knew there was this thread for SFMA IA yesterday. Thank you thefox1982, fantastic notes by the way. I had a look, and I want to ask something about BP2. In your notes P9, i see you have included all fixed cost of Arklow, which I think it is irrelevant. The only part that should form part of the calculation should be just variable cost in my opinion, as the fixed cost would incur regardless. What are your thoughts on this?

thefox1982

Crazednuttyboy wrote: »

I only knew there was this thread for SFMA IA yesterday. Thank you thefox1982, fantastic notes by the way. I had a look, and I want to ask something about BP2. In your notes P9, i see you have included all fixed cost of Arklow, which I think it is irrelevant. The only part that should form part of the calculation should be just variable cost in my opinion, as the fixed cost would incur regardless. What are your thoughts on this?

Hi! Yeah you are absolutely correct, I realised this yesterday and have amended my notes!

davindub

Anyone else doing Discounted CF on board paper 3?

Have a loss on the figures given, SP * (3m*.8) - VC of 5.70 * 3m

The J Stands for Jay

davindub wrote: »

Anyone else doing Discounted CF on board paper 3?

Have a loss on the figures given, SP * (3m*.8) - VC of 5.70 * 3m

It'll be at a discount rate of 10% IIRC, but without details of the improvements, it's not possible to say. The current setup is making a loss though

thefox1982

davindub wrote: »

Anyone else doing Discounted CF on board paper 3?

Have a loss on the figures given, SP * (3m*.8) - VC of 5.70 * 3m

Hi davindub,

I don't think it will work out at a loss. We are to assume the production amount with increase and the loss level to decrease. Also I think the sales price will be increasing as the quality will be increasing.

davindub

thefox1982 wrote: »

Hi davindub,

I don't think it will work out at a loss. We are to assume the production amount with increase and the loss level to decrease. Also I think the sales price will be increasing as the quality will be increasing.

Thanks, that makes sense.

The J Stands for Jay

Many thanks to thefox1982 for doing such a great job on the notes, and for sharing them.

I'm going to guess from your username that, like me, you won't be at the Everleigh to be bought all those pints you deserve (don't think it's a thirty-something crowd in there).

Fiskar

Yes, Mr or Mrs Fox, thanks very much, used your tabular format for the WAAC. Went well enough but time pressure versus presentation was my issue, as well as forgetting a bloody ruler and tippex!

thefox1982

How is everyone fixed for the Audit IA on Saturday?

thefox1982

Here are my notes for the assessment tomorrow if anyone is stuck