ECR Monday 29 November 2004 (my views)

System · November 2004

I suspect that I can be more consise than my June 2004 exam comments, mainly because this paper has had a concerted thumbs up from this forum and needs little more to be said. It is also the final Andy Royle paper, the June 2005 paper has been prepared by Les Nightingale and will no doubt reflect his interpretation of the syllabus. SECTION 1 Tasks 1.1 to 1.6 were fair and reasonably predictable. 1.1 After FIFO last December AVCO last June and FIFO again here, who's predicting AVCO next time? Anyone who had missed off reorder levels from their revision may have found 1.2 difficult, but a fairly logical idea of maximum usage (not an issue here) x maximum lead time with an additional week of stock as a minimum stock should get the marks. 1.3 I think most candidates would have settled any exam nerves by now and this should have been a very straight forward exercise 1.4 was similar, only asking for one apportiionment of the overhead. The rest were allocated 1.5 was similarly fair, but I wonder how many candidates might have tried to use the actual fixed overhead values to calculate the absorption rates. If so, I suspect theywould then come back to the question when they did 1.5(b) and found their over/under absorption amounts didn't work. In future I would not be surprised if irrelevant data were to start appearing e.g. on budgeted labour hours in a department absorbing on a machine hour basis. 1.6 recognising individual unit overhead costs is one way to assess the fact that fixed costs remain fixed so they are spread more thinly when production volumes increase. SECTION 2 Tasks 2.1 to 2.5 were fair and reasonable Tasks 2.1 and 2.2 were fair and I must give the examiner a pat on the back in 2.2. It is very good to see contribution per unit being tested first before it is used to find another value. I do prefer to find total contribution by multiplying contribution per unit by the volume sold, so when 2.1 asked for total figures for the sales revenue, the variable cost and the contribution I was a little disappointed. But I doubt this would cause a problem for most students. 2.3 provided an opportunity to show off limiting factor calculation skills. I liked it and hope that future exams will not have prepared layouts. In the past these layouts appeared in the activities and projects simulations and very many good students found them misleading. Students reading this in preparation for June, I'd add that finding the contibution and profit for the optimum mix must be likely to be tested. It is just the step after number of units of each asked here. 2.4 Break even was on my short list, and sure enough it turned up in a very straight forward question. My students in June will be ready for break even units, values, margins of safety and a lot more. I think a bigger break even question is overdue. 2.4 (b) written recommendations regarding a course of action - ECR staple task with a number of possible answers 2.5 I guess I was among very many lecturers who expected to see an explanation of what IRR come up. Here it was, alongside explanations of NPV and payback. I tyhink it should be straight forward, but I wouldn't be surprised if some students who would have flown through some numbers may have had to stop and think more. This may well have been the intention. But I have known students who find these questions so difficult that their most effective approach is to put an example in, and then use the numbers from the example to explain the definition. I think that would earn good marks, and when you think of the likely lack of numerical skills on many boards of directors this approach may be more than suitable. Overall, I'd say Andy signed-off this subject with a definite thumbs-up. Sandy

System · November 2004

ECR Monday 29 November 2004 (my views)

Hi Sandy, In regards to the paper we sat yesterday for the ECR. I just wanted to see if you knew if any of my answers were correct. For the re-order level I put 75,000kgs. For the labour question I put the: Ã‚Â£3000 as a CR in the ledger code for Ã¢??Work - In - Progress) Employee NI and Employers NI Ã¢?? I added these together and put it in the ledger code for Ã¢??NI PayableÃ¢?? as a DR. Net wages went is a DR in the ledger code for Ã¢??Net Wages Payable) And the other one, which I cannot remember what it was, went in the ledger code remaining as a DR also. For the break-even I got Ã‚Â£52,000 / Ã‚Â£52 contribution per unit for Beta = 1000 units We should make more the Beta range and then the Gamma range and then the Alpha range. We should not adopt the policy of making just Beta, as the company would need to make and sell 1000 units of the Beta range, but the demand is only 200 units. Also, the other reason was because it may upset your current clients and therefore they might decide to buy all three of the products elsewhere, thus resulting in a loss of business for China Ltd. For the unit contribution it was Ã‚Â£27 for Alpha, Ã‚Â£52 for Beta and Ã‚Â£43 for Gamma (I think). For the question were it asked if budgeted activity increases then what happens to the cost of overheads charged to an individual product. I put that if activity goes up the cost of overheads charged to one single unit is going to be less than if the activity was less, since you are spreading the cost over more hours. For the memo I put: - Payback - is the amount of time it would take us to recover our initial cash cost of this investment. This is used to help us evaluate this project as it lets you know how quickly you will recover your initial investment. - Internal rate of return Ã¢?? is the rate of return which the company would like on its investment. (We didnÃ¢??t actually cover this is class). - NPV is the net present value of money. It tells you the value of Ã‚Â£x received in the future in todayÃ¢??s value, i.e. how much Ã‚Â£1 received in the future would be worth now. So, having a positive NPV means that you have cash surplus and that therefore you should go ahead with the project. This method deducts any costs that will be incurred against the initial cash flow, thus leaving the net present cash flow. - I said that you should go ahead with the project as it has a relatively short payback period of 3 years, and that because it has a positive NPV, thus a cash surplus. Look forward to hearing from you. Bhav

System · November 2004

ECR Monday 29 November 2004 (my views)

Hi, I also took ECR on Monday! my answers seem to be very similar to yours so I hope this is a good sign! I left the exam after 1hr I don't know if this is a good thing or a bad thing but I don't fancy feeling nervous until the middle of Feb! seeing your answers has put me at ease slightly! Good luck fingers crossed :-)

ECR Monday 29 November 2004 (my views)

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