Question

00 MAONG TO IMPROVE FINANCIAL PERFORMANCE MCO TEST What are fed costs of a business makes a profit for the year of E400,000 after turnover of $50,000 and variable costs of £225,000 A £225,000 8 (625,000 C £425,000 D £450,000 oo oo Which of the following variances should contribute to a firm achieving a higher operating profit than expected? A Favourable cash flow variance B Favourable cost variance C Adverse cost variance D Adverse revenue variance oo oo By how much would profit change if revenues rose by £150,000, variable costs increased by £75,000 and fixed costs fell by £25,000? A £25,000 B £50,000 C £75,000 D £100,000 oo o o An internal influence on a firm's financial objective would be: A Competitor strategy B Economic conditions The nature of business ownership D Changes in the political & social environment o o o o 1 mark

Answer 1

1.2	Turnover	850000
	Less: Variable costs	225000
	Contribution	625000
	Less: Fixed costs(Bal.fig.)	225000
	Profit	400000
	Fixed costs=850000-225000-400000=
	ANSWER :A--- 225000

1.3	ANSWER: B. Favourable cost variance
	Favourable cost variance means lesser actual costs than budgeted, which results in higher operating profit than expected.
	With respect to Option:
	A--favourable cash flow variance will not reflect non-cash items like depreciation or gain on sale of assets.
	C---Adverse cost variance means more costs than that budgeted & so will bring down the operating profit.
	D--Adverse revenue variance means lesser actual revenues than budgeted, which will also result in lower opg. Profit than expected.

1.4	Increase in revenues	150000
	Less:Increase in Variable costs	75000
	Less:Fixed costs	-25000
	Profits	100000
	Increase in profits=150000-75000-(-25000)=
	ANSWER: 100000

1.5	ANSWER: C. The nature of business ownership
	ie.Who owns the business-- family business or funded by venture capitalists--will have a bearing on the financial objectives to be nurtured by a company.
	All the other 3 options (A,B & D) are external influences , in the formation of the company's financial objectives.