Managerial Accounting End of term test January 2010

Time allowed: one hour

Answer all questions on the paper.

Show all your workings; marks are available for the method you use.

Greggs plc is the UKs leading bakery retailer, specialising in sandwiches, savouries and other fresh takeaway food. Extracts from the 2007 annual report are shown below. Income statement for year ended 29 December 2007 (summarised extracts) Revenue Cost of sales Gross profit Distribution, selling and administrative expenses Operating profit Finance income (net) Profit before tax Income tax Profit for the financial year attributable to shareholders 000 586,303 (218,656) 367,647 (317,738) 49,909 1,234 51,143 (14,792) 36,351

Balance sheet as at 29 December 2007 (summarised) Non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets LIABILITIES Current liabilities Trade and other payables Current tax liabilities Non-current liabilities Total liabilities Net assets Total equity 000 196,783 9,908 19,934 11,581 41,423 238,206

(68,183) (9,008) (77,191) (15,421) (92,612) 145,594 145,594

Question 1: profitability ratios The following profitability ratios are available for a close competitor for the year ended 31st December 2007. Return on capital employed Asset turnover Operating profit margin Gross profit margin 34.7% 3.4 times 10.2% 57.9%

Required (a) Calculate the same four ratios for Greggs plc for the year ended 29 th December 2007. (20 marks) (b) Compare the results of your calculations with the competitor ratios and comment briefly on the relative performance of the two companies. (18 marks) (Total for Question 1 = 38 marks)

Question 2: breakeven analysis A new savoury pastry product is being considered. Forecast information for a month is as follows.

Units to be sold each month Selling price Direct material Production overhead: variable Production overhead: fixed Other directly attributable overhead: fixed Other directly attributable overhead: variable

2,500 cases 125 per case 62.50 per case 12.50 per case 26,450 17,500 3.75 per case

Required (a) Calculate the forecast profit to be earned each month. (12 marks) (b) Calculate the number of cases that must be sold to break even each month. (20 marks) (Total for Question 2 = 32 marks)

Question 3: participative budgeting Participative budgeting is a budgeting system in which budget holders are expected to participate in setting their own budgets for the forthcoming period. Required State three advantages and three disadvantages of a participative system of budgetary planning compared with a system of imposed budgets, where the budget allowance is set without giving the budget holder the opportunity to participate in the planning process. (Total for Question 3 = 30 marks)

(Total for whole paper = 100 marks)