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Diagnostic Tests - Questions and Answers ACCA Paper F9: Financial Management
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ACCA Paper F9: FINANCIAL MANAGEMENT
Diagnostic Tests - Questions and Answers
SAMPLE TOPIC COVERED: Cash Management
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Financial Management (FM)
Diagnostic Test – Practice Questions & Answers

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Contents
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Syllabus Study guide

The structure of the syllabus A. Financial management function
Intellectual levels B. Financial management environment
Learning hours C. Working capital management
Guide to exam structure D. Investment appraisal
Guide to examination assessment E. Business finance
Aim F. Cost of capital
Main capabilities G. Business valuations
Relational diagram of main capabilities H. Risk management
Rational
Detailed syllabus
Approach to examining the syllabus
Tools
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Formulae sheet
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Diagnostic Test Topics

1. Financial management function
2. Financial analysis
3. Financial management environment
4. Working capital Management
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ACCA Paper F9
Financial Management
Diagnostic Test:
Cash management
Questions
Question 1
What are the FOUR main responsibilities of the finance manager? A
(4 marks)
Question 2
Strategic financial management in a company is concerned with A
THREE key decisions. What are they? (3 marks)
Question 3
List FIVE responsibilities of a 'Cash manager' working in a large A
company. (5 marks)
Question 4
Write a formula which describes liquidity? (1 mark) A
Question 5
List FOUR categories of revenue expenses. (4 marks)
A
Question 6
List the FOUR main business motives for holding cash. (4 marks)
A
Question 7 A
One model used for forecasting cash is the 'Receipts and Payments Forecast'. List the SIX stages
involved in this model. (6 marks)
Question 8
Give THREE possible reasons for surplus cash. (3 marks)
A
Question 9
When the cash forecast shows surplus funds, plans are needed for putting them to use. List EIGHT
A
factors to be considered before investing these funds. (8 marks)
Question 10
Different investments bring different yields. List A
THREE main factors that influence the level of
yield. (3 marks)
Question 11 A
List FIVE short-term investments that a company
might make with temporary cash surpluses. (5 marks)
Question 12
In addition to deciding how much cash to hold in total and where spare cash should be invested, a A
company must decide upon the proportion held as liquid cash. List FOUR factors which influence this
decision. (4 marks)
Question 13
One model for determining the optimal cash balance is the 'economic quantity' model ('Baumol' A
model). State the equation which makes up this model. (2 marks)
Question 14 A
XYZ Company has a high investment of some $12m in short-term securities, which currently earn an
average return of 5.4% per annum, or 0.45 percent for a one-month period (i). The company's finance
director estimates a cash need of $2,000,000 (P) over a one-
month period where the cash is expected to be dispersed at a
constant rate. The transaction fee (T) each time money is
withdrawn from the short-term securities is $200.
Calculate, by using the Baumol model:
(a) the optimal transaction size (withdrawal lot size) (Q);

(2 marks)
(b) the average cash balance; and (1 mark)
(c) the number of transactions which the company should

make during the month. (1 mark) Brush up your knowledge by
working through small
questions. Large questions
are made up of small parts
Question 15
D Company expects to have a steady demand for cash for the next year amounting to $800,000. The A
transaction cost associated with selling marketable securities or borrowing each time the firm needs to
replenish its cash balances is $100. The company's opportunity interest rate is 8 percent per year.
Required:
(i) Calculate D Company's optimum transaction size (in $s). (2 marks)
(ii) Calculate the approximate number of transactions made each year, and their total cost.
(1 mark)
(iii) Suppose the company's opportunity interest rate increases from 8 percent to 10 percent. Calculate
the revised optimum transaction size, and the total cost of transactions over the next year.
(2 marks)
(iv) Now suppose transaction costs increase from $100 to $150 but the interest rate remains 8 percent.
Calculate the revised optimum transaction size, and the total cost of transactions over the year.
(2 marks)
The following formula should be used:
2 x P x T
Q =
i
Where : Q = optimal amount of funds to transfer to the firm' s cash account
P = total amount of net new cash needed for transactions over the specified period
T = fixed costs per transaction of selling securities or borrowing
i = opportunity cost of holding cash (rate of return foregone on marketable securities)
Question 16 A
FOR YOUR INTEREST ONLY: NOT EXAMINABLE. This question will help you understand the daily
variance that is used in the Miller-Orr model.
The last 50 day period had been analysed to determine the cash balance positions for XYZ Company.
The analysis showed the following pattern of cash balances (to the nearest $2,000):
Days $
5 12,000
10 14,000
20 18,000
8 22,000
7 24,000
50
You are required to calculate:
(a) the probability distribution for the cash position over the 50-day period; (2 marks)
(b) the 'expected' (arithmetic mean) cash balance for any day; (2 marks)
(c) the daily variance of cash flows. (2 marks)
(d) the standard deviation of cash per day. (1 mark)
For parts (c) and (d) you are to use the following formula:
σ = (
Σp x - x )2
Where : σ = standard deviation of the daily cash balance
= square root
p = probability of the actual cash balance

x = actual cash balance
x = arithmetric mean daily cash balance
Calculations are to be to the nearest $1.
Question 17
Describe how the Miller-Orr model attempts to provide an approach to cash management A
(2 marks)
Question 18 A
The Miller-Orr model is based on a 'return point'. State the formula by which the return point is
calculated. (1 mark)
Question 19 A
State the formula for the 'spread' of daily cash (used in the Miller-Orr model). (2 marks)
Question 20 A
Using the logic of Miller-Orr state the formula for the ‘upper limit’ of daily cash. (1 mark)
Question 21
Data is provided for XYZ Company which use the Miller-Orr cash model for treasury purposes. A
- The company's policy is to operate with a minimum cash balance of $8,000.
- The fixed transaction cost for buying and selling securities is $12.
- The opportunity interest rate on short-term securities is 0.028 per cent per day.
- The company’s daily cash variance is $14,393,600, equivalent to a standard deviation of $3,794.
You are required to calculate:
(a) the company's upper limit of daily cash balance; (3 marks)

(b) the cash 'return point‘; (1 mark)
which can then be used as a decision rule by the company's treasury management.
Question 22
Briefly describe the steps necessary to use the Miller-Orr model. (3 marks) A
Question 23 A
A company’s cash forecast shows a serious cash deficit, even though the company has a good profit
forecast. List FIVE ways that plans may be implemented to improve the future cash flow.
(5 marks)
Question 24
Antro Company is thinking of purchasing new plant and machinery. With this new plant and
A
machinery, the company expects sales to increase from $16,000,000 to $20,000,000.
Management know that the company's assets, debtors and accrued expenses vary directly with sales. The
company's after-tax profit margin on sales is 8 percent, and management plans to pay 40 percent of its after-
tax earnings in dividends. The company's current balance sheet is given below.
Balance Sheet
$'000
Current assets 6,000
Non-current assets 24,000
Total assets 30,000
Accounts payable 8,000

Accrued expenses 2,000
Long-term debt 6,000
Ordinary share capital 4,000
Retained earnings 10,000
Total liabilities and net worth 30,000
You are required to prepare an estimated balance sheet for the year after acquiring the new plant
and machinery and to determine the additional funds needed by the company by the end of that year.
(4 marks)
Question 25 A
The following sales budget is given for Saspong Company for the second quarter of 2009.
April May June Total

Sales budget $90,000 $100,000 $120,000 $310,000
Credit sales are collected as follows: 70 percent in month of sale, 20 percent in month following sale, 8
percent in second month following sale, and 2 percent bad debts. The accounts receivable balance at the
beginning of the second quarter is $36,000, of which $7,200 represents uncollected February sales, and
$28,800 represents uncollected March sales.
You are required to:
(a) calculate the total sales for February and March. (3 marks)
(b) calculate the budgeted cash receipts from sales for April, May and June. Without prejudice to
your answer at (a), assume February sales equal $80,000 and March sales equal $100,000.
(4 marks)
Question 26
A
The treasurer of Ernhar Company plans for the company to have a cash balance of $182,000 on
1st June. Sales during June are estimated at $1,800,000. May sales amounted to $1,200,000 and April
sales amounted to $1,000,000. Cash payments for June have been budgeted at $1,160,000. Cash
collections have been estimated as follows: 60 percent of the sales for the month to be collected during the
month, 30 percent of the sales for the preceding month to be collected during the month, and 8 percent of
the sales for the second preceding month to be collected during the month.
The treasurer plans to accelerate collections by allowing a 2 percent discount for prompt payment. With
the discount policy, she expects to collect 70 percent of the current sales and will permit the discount
reduction on these collections. Sales of the preceding month will be collected to the extent of 15 percent
with no discount allowed, and 10 percent of the sales of the second month will be collected with no discount
allowed. This pattern of collection can be expected in subsequent months. During the transitional month
of June, collections may run somewhat higher. However, the treasurer prefers to estimate collections on
the basis of the new patterns so that estimates will be somewhat conservative.
You are required to:
(a) estimate cash collections (receipts) for June and the cash balance at 30th June under the present policy;
(3 marks)
(b) estimate cash collections for June and the cash balance at 30th June according to the new policy
allowing discounts; and (3 marks)
(c) Advise the company whether the discount policy is economically worthwhile. (1 mark)
Question 27 A
Elizabeth Stores wants to estimate cash payments (disbursements) for cash budgeting purposes for the first
3 months of 2011 from the data given below.
(i) Cost of merchandise sold, estimated
2010: December $450,000

2011: January $500,000
February $560,000
March $420,000
The cost of merchandise is to be paid for as follows: 35 percent in the month of sale and 65 percent in
the following month.
(ii) Wages for each month are estimated as follows:
2010: December $46,000

2011: January $52,000
February $62,000
March $50,000
All wages are paid as incurred.
(iii) Other expenses are to be paid every other month at the amount of $640 per month. The first payment
is to be made in February.
(iv) Six months' rent and insurance amounting to a total of $19,400 is to be paid in January.
(v) Corporation tax of $25,000 is to be paid in March.
(vi) Depreciation on equipment has been estimated at $15,000 for the year.
(vii) New equipment costing $100,000 is to be acquired in February, with a down payment of $8,000
required at the date of purchase. The balance is to be paid in April using a 6%, 2-year loan
negotiated with the bank. Repayment is by monthly payments of capital plus interest.
(viii) Other operating expenses have been estimated at $4,500 per month, which are to be paid each
month.
You are required to prepare a cash payments budget for each of the first 3 months of 2011. (7 marks)
Question 28
Companies experience cash flow problems (deficit cash) for various reasons. List FIVE reasons. A
(5 marks)
Question 29
Define the term 'float' (as it relates to cash management practice). (1 mark) A
Question 30 A
Describe THREE reasons why there may be a lengthy float. (3 marks)
Question 31 A
Describe SIX ways the float could be reduced. (6 marks)
- END -
End of the Diagnostic Test

based on ‘Cash management’
ACCA Paper F9
Financial Management
Diagnostic Test:
Cash management
Answer Guides
Answer to Question 1
The work of financial management includes the following. Q
1. The maintenance and production of statutory accounts.
2. The provision of management accounting and management accounting information services.
3. Treasury management and strategic financial decisions.
4. Internal audit (probably reporting to the 'Audit Committee')
Click and bounce

back to the question
screen
Bouncing cheque!
Answer to Question 2 Q
1. How funds should be invested.
2. How to obtain such funds.
3. Dividend policy.
1. Cash budgeting; daily, weekly, monthly, quarterly, annually and possibly longer term.
Q
2. Cashier's duties of making transactions payments to suppliers and paying wages, etc.
3. Banking receipts.
4. The management of short-term marketable securities (e.g. investing short-term surplus funds).
5. Advising senior management of forecast cash deficit balances and advising on ways to deal
with this problem.
Liquidity = Cash + Current account + Sight deposits + Short-term securities
Q
(cheque account)
1. Material inputs
Q
2. Labour wages
3. Direct expenses
4. Overhead expenses
When the going gets tough, the tough get going.
Kennedy family motto
1. Transactions motive. Q
2. Finance motive - repay loans, finance acquisition of assets.
3. Precautionary motive - a cushion to meet unplanned spending.
4. Speculation motive - to take advantage of short-term investment opportunities.
1. Decide the budget period. Q
2. Forecast sales for the budget period (usually month by month).
3. Estimate ALL cash receipts (time lag to convert receivables to cash, and other cash receipts).
4. Estimate ALL cash payments (supplies of raw materials, and other purchases and payments).
5. Compute net cash flow per period within the budget period (often monthly).
6. Develop a cash summary.
1. Over funding. Q
2. A reduction in operating assets (the sale of assets).
3. A surplus of retained earnings over the increase in net assets employed.
Factors to consider are:
1. the amount of funds available;
2. the period for which funds are available;
3. alternative yields that can be obtained;
4. expectation of future interest rates;
5. risk that unexpected liquidity will be required;
6. tax considerations (different investment have different tax implications);
7. risk and return from the investment; and
8. does the company have outstanding borrowings that could be repaid early
(from the cash available).
1. Risk.
2. Term.
3. Marketability (or realisability)
Note:
The lower the risk, the lower the yield (and vice versa).
The longer the term, the higher the yield (and vice versa).
Investments which cannot be realised (sold) quickly offer higher yields than those which can.
1. Reduce its bank overdraft. Q
2. Invest in deposit account(s) (retail bank or investment [merchant] bank).
3. Invest in term deposit(s), probably linked to 'Certificate of Deposit'.
4. Buy government or local authority loans/securities, such as Treasury bills (TBs).
5. Invest in other money-market instruments, such as Certificates of deposit (CDs).
Every path has its puddle.
English proverb
Four factors which influence the decision are:
1. the rate of interest earned from short-term investments (a higher rate will mean a greater cost of
keeping money in a current account);
2. the cost of transferring money between the short-term investments and the current account (a higher
cost will mean that more money should be kept in the current account so that less frequent transfers
are required);
3. the uncertainty of cash requirement (if there is a great volatility in daily cash flows then more money
will be needed in the current account);
4. the consequence of running out of liquid resources (if these are serious then more liquid
cash should be held).
Q
2 x P x T
Q =
i
Q
(a) Optimum transaction size
2 x $2,000,000 x $200
Q = * = 0.45/100 = 0.0045
0.0045*
= $421,637
(b) Average cash balance

$421,637/2 = $210,819
(c) Number of transactions

$2,000,000/$421,637 = 5
The following formula should be used:
2 x P x T
Q =
i
(i) D Company's optimal transaction size
2 x $800,000 x $100
Q =
0.08
= $44,722
(ii) Number of transactions made each year
No of T = P/Q = $800,000/44,722 = approx. 18 transactions

Total transaction cost = 18 x $100 = $1,800
(iii) Revised optimal cash balance: interest rate at 10%
2 x $800,000 x $100
Q =
0.1
= $40,000
 $800,000 
Cost of transactions :   x $100
 $40,000 
= $2,000
(iv) Revised optimal cash balance: transaction cost at $150
2 x $800,000 x $150
Q =
0.08
= $54,773
 $800,000 
Cost of transactions :   x $150
 $54,773 
= $2,191
To a certain extent, a little blindness is necessary when you undertake a risk.
Bill Gates
Microsoft founder
(a) The probability distribution is as follows:
$ p
12,000 0.10* (i.e. 5/50) * 5/50 = 0.1
14,000 0.20 (i.e. 10/50)
18,000 0.40 (i.e. 20/50)
22,000 0.16 (i.e. 8/50)
24,000 0.14 (i.e. 7/50)
1.00
Workings for (b), (c) and (d):
x p xp (x − x ) (x − x )
2
p x−x( )2
-
12,000 0.10 1,200 (6,080) 36,966,400 3,696,640
14,000 0.20 2,800 (4,080) 16,646,400 3,329,280
18,000 0.40 7,200 ( 80) 6,400 2,560
22,000 0.16 3,520 3,920 15,366,400 2,458,624
24,000 0.14 3,360 5,920 35,046,400 4,906,496
1.00 x = 18,080 Daily variance = 14,393,600
(b) The 'expected' cash balance for any day is $18,080.
(c) The daily variance of cash flows is $14,393,600.
(d) The standard deviation of cash per day is:
σ = Variance = $14,393,600 = $3,793.8898, say $3,794
Note: The standard deviation (σ) is not required in the Miller-Orr model, but it is worth remembering that the
variance is σ2 (i.e. in this case $3,7942 = $14,393,600) if the examiner gets you to calculate it this way.
If you need help

HELP understanding what a
variance is then click here.
Slow and steady wins the race.
Aesop, c. 620 – 560 B.C.

The Hare and the Tortoise
The Miller-Orr model is a stochastic model for cash management where uncertainty exists for cash
payments and receipts. In other words there is irregularity of cash payments. The Miller-Orr model places
an upper and lower limit for cash balances. When the upper limit is reached a transfer of cash to
marketable securities or other suitable investments is made. When the lower limit is reached a transfer
from securities to cash occurs. In both cases the investment/withdrawal will bring the cash balance to a
'return point'. A transaction will not occur as long as the cash balance falls between the upper and lower
limits.
Q
Return point = Minimum limit + ⅓Spread
(Stated in the ‘Formulae Sheet’ which is issued in the exam.)
 1
 transaction cost x daily variance of cash flows  3
Spread = 3  0.75 x  
 daily interest  
 
Note: For ease of using your calculator treat ⅓ as 0.3333…(recurring).
(This formula is stated in the ‘Formula Sheet’ which is issued in the exam.
Upper limit = Minimum limit + Spread
 1
 transaction cost x daily variance of cash flows  3 
(a) Spread = 3  0.75 x  
 daily interest  
 
 1 
 $12 x $14,393,600  3 
= 3  0.75 x   * 0.028/100 = 0.00028
 0.00028*  
 
= $23,203
Hence:
Upper limit = $8,000 + $23,203
= $31,203
(b) Return point = $8,000 + 1/3($23,203)

= $15,734
Q
The steps involves in using the Miller-Orr model are as follows.
1. The minimum level of cash is set, as a policy. This may be zero, or it may be set at some safety
margin above zero.
2. The variance of cash flows is estimated. This can be calculated by using sample observations for a
number of days past.
3. Estimate/determine both the opportunity interest rate and the fixed transaction cost for each sale or
purchase of securities.
4. Compute the 'spread' between the upper and minimum levels and use it to calculate the 'return point'
and the upper level.
5. Implement the limits strategy. When the upper limit is reached invest enough funds in short-term
securities to bring the cash level to the 'return point'. When the minimum level is reached draw
sufficient funds from short-term securities to bring the cash balance to the 'return point'.
Q
1. Delay selected payments.
2. Reduce or cancel selected discretionary purchase payments.
3. Fund forecast capital purchases from other sources, such as leases where applicable.
4. Liquidate short-term marketable securities or other short-term assets.
5. Reduce working capital investment (shorten the working capital cycle).
Q
Antro Company
Estimated Balance Sheet (at end of first year)
Present level % of sales Projected level

(based on sales of $20m)
$m $m
Non-current assets 24 150.0 30.0
Current assets: 6 37.5 7.5
Current liabilities:
accounts payable (8) 50.0 (10.0)
accrued expenses (2) 12.5 ( 2.5)
Net assets employed 20 25.0
Continued on the
next screen
Answer to Question 24 (continued)

Q
Antro Company
Estimated Balance Sheet (at end of first year) (continued)
Present level % of sales Projected level

(based on sales of $20m)
$m $m
Capital represented by:
Long term debt 6 n.a. 6.0
Ordinary share capital:
issued capital 4 n.a. 4.0
retained earnings 10 n.a. 10.96 (note 1)
Total funds provided 20 20.96
Additional funds required 4.04
Total funds required 25.00
Note 1
Retained earnings
$m
Profit for the period ($20m x 0.08) 1.60
Less dividends, this period ($1.6m x 0.4) 0.64
To retained earnings 0.96
Add brought forward retained earnings 10.00
Retained earnings balance 10.96
CONCLUSION: The additional funds required are $4,040,000.
(a) February March April
February sales (100% - 70% - 20%) = 10% (of sales) = $7,200
$7,200
February sales = = $72,000
10%
March April
March sales (100% - 70%) = 30% (of sales) = $28,800
$28,800
March sales = = $96,000
30%
(b) Cash collections
April May June
$ $ $
February ($80,000 x 0.08) 6,400
March ($100,000 x 0.2) 20,000
($100,000 x 0.08) 8,000
April ($90,000 x 0.7) 63,000
($90,000 x 0.2) 18,000
($90,000 x 0.08) 7,200
May ($100,000 x 0.7) 70,000
($100,000 x 0.2) 20,000
June ($120,000 x 0.7) 84,000
89,400 96,000 111,200
(a) and (b) (a) (b)
Cash collection Cash collection
under the present policy under the discount policy
$ $
Opening balance at 1st June 182,000 182,000
Collections:
from June sales 1,080,000 ($1,800,000 x 0.6) 1,234,800 (note 1)
from May sales 360,000 ($1,200,000 x 0.3) 180,000 ($1,200,000 x 0.15)
from April sales 80,000 ($1,000,000 x 0.08) 100,000 ($1,000,000 x 0.10)
Total cash available 1,702,000 1,696,800
Less cash payments 1,160,000 1,160,000
Balance at 30th June 542,000 536,800
Note 1
$1,800,000 x 0.7 x 0.98 = $1,234,800
(c) No, the policy is not economically worthwhile, since, under the discount policy, the 30th June cash
balance will be smaller. It seems that the discount will not increase the level of sales and will
cause an increase in bad debts from 2% to 5%.
Q
Elizabeth Stores
Cash Payments Budget
for 3 months January - March 2011
January February March Total
$'000 $'000 $'000 $'000
Payments for variable materials:
35% current month 175.0 196.00 147.0 518.00
65% preceding month 292.5 325.00 364.0 981.50
Total payments for variable materials 467.5 521.00 511.0 1,499.50
Wages 52.0 62.00 50.0 164.00
Other expenses 0.64 0.64
Rent and insurance 19.4 19.40
Corporation tax 25.0 25.00
Equipment, down payment 8.00 8.00
Other operating expenses 4.5 4.50 4.5 13.50
Total payments 543.4 596.14 590.5 1,730.04
Notes: 1. Depreciation does not affect cash flow.

2. The bank loan is not taken out until April 2011.
If you need help following

the payment pattern for
HELP variable materials then
click here.
Companies experience cash flow problems for the following reasons.
1. The company is continually trading at a loss.

2. Because the company is growing and needs to increase its working capital and acquire more fixed
assets.
3. When a business has seasonal or cyclical sales, and for example needs to build inventory for a period
before a sales period.
4. In a period of inflation the company will need ever-increasing amounts of cash to replace used-up and
worn-out assets.
5. When the company needs to spend money on one-off items of expenditure, such as the redemption of
a loan.
Float describes the amount of money tied up (usually in the form of cheques) between the time when
Q
a payment is initiated (for example when a debtor posts a cheque) and the time when the funds become
available for use in the recipient's bank account. It includes the amount of transactions (cheques, etc.) in
transit between banks and not yet credited.
Reasons why there may be a lengthy float include: Q
1. The time taken by a bank to clear a cheque (clearance delay).

2. Transmission delay (such as the period of time the money is held in the postal system, which is
longer for overseas post.)
3. Delay in the recipient banking the payments received (lodgement delay).
There are several measures that could be taken to reduce the float.
1. The recipient could ensure that the lodgement delay is kept to a minimum. (For example by
presenting cheques to the bank on day of receipt.)
2. For regular payment, standing orders or direct debits might be used.
3. In certain circumstances bank cards or credit cards may be used to receive payments.
4. BACS (Bankers' Automated Clearing Services Company) is a banking service which provides for
the computerised transfer of funds between banks (e.g. the payer's bank and the recipient's bank).
The payer (customer) is required to supply a disk to BACS, which contains details of payments, and
payment will then be made in two days.
5. CHAPS (Clearing House Automated Payments System) is a computerised service for banks to make
same-day clearances between each other. Each member bank of CHAPS can allow its corporate
customers to make immediate transfer of funds through CHAPS. However, there is a large
minimum size of payment using CHAPS.
6. The recipient might, in some cases, arrange to collect cheques from the payer's premises.
This is only practicable if the payer is local.
- END -
Score sheet:
Diagnostic Test: Cash management
Question Marks Score Question Marks Score
number available number available
1 4 Total score b/fwd
2 3 21 4
3 5 22 3
4 1 23 5
5 4 24 4
6 4 25 7
7 6 26 7
8 3 27 7
9 8 28 5
10 3 29 1
11 5 30 3
12 4 31 6
13 2 Total
128
score
14 4
15 7 Percentage (%)
16 7
17 2
18 1
19 2
20 1
Total score c/fwd
91 – 128 marks 65 – 90marks 0 – 64 marks
Measure of dispersion: VARIANCE
The extent of dispersion of a given value is reflected in the extent of its deviation from the average (mean)
value of all the items. Take the following two examples:
Example 1 Example 2
Value Deviation Deviation2 Value Deviation Deviation2
from average from average
4 -1 1 11 +6 36
6 +1 1 3 -2 4
5 0 0 1 -4 16
15 2/2 = 1 15 56/2 = 28
Variance = 1 Variance = 28
The average is 5 (15/3) The average is also 5 (15/3)
The averages are the same but the dispersions are different. By virtue of the definition of the mean the sum of
the deviations will be zero (e.g. in Example 1, - 1 + +1), but if we square the deviations (as shown in the third
column of each example), because all the squared items will be positive, the sum will be non-zero. If this sum
is divided by one less than the number of items, i.e. 2 in both examples (the reason for this is not discussed
here) a representative measure of dispersion is obtained. This is known as the variance and its square root is
known as the standard deviation. Although not strictly the full picture, it does give us as idea of what a
variance is. The calculations are slightly different when probabilities are involved, as in the case of XYZ
Company. It is worth remembering that variances can have very high values.
Return
If two line on a graph cross, it must be important.
Ernest F.Cooke
University of Baltimore
Remark to a student, February 1985
Payments for variable materials.
Let’s produce a matrix to see the pattern of payments:
Month that variable material

(merchandise) is used Cost of materials Month of payment
January February March
$’000 $’000 $’000 $’000
December 450 (x 0.65) 292.5

January 500 (x 0.35) 175.0 (x 0.65) 325
February 560 (x 0.35) 196 (x 0.65) 364
March 420 (x 0.35) 147
467.5 521 511
Return
How often have I said to you that when you have eliminated the
impossible, whatever remains, however improbable, must be the truth.
Sherlock Holmes
Arthur Conan Doyle, 1859 - 1930
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Diagnostic Tests - Questions and Answers ACCA Paper F9: Financial Management

CLICK AND LINK MAP ICON PV AN SYMB F

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CLICK AND LINK MAP ICON PV AN SYMB F

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CLICK AND LINK MAP ICON PV AN SYMB F

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CLICK AND LINK MAP ICON PV AN SYMB F

CLICK AND LINK MAP ICON PV AN SYMB F

CLICK AND LINK MAP ICON PV AN SYMB F

Calculate, by using the Baumol model:

(a) the optimal transaction size (withdrawal lot size) (Q);

(c) the number of transactions which the company should

(i) Calculate D Company's optimum transaction size (in $s). (2 marks)

The following formula should be used:

CLICK AND LINK MAP ICON PV AN SYMB F

You are required to calculate:

(c) the daily variance of cash flows. (2 marks)

(d) the standard deviation of cash per day. (1 mark)

p = probability of the actual cash balance

Calculations are to be to the nearest $1.

CLICK AND LINK MAP ICON PV AN SYMB F

You are required to calculate:

(a) the company's upper limit of daily cash balance; (3 marks)

Accounts payable 8,000

CLICK AND LINK MAP ICON PV AN SYMB F

April May June Total

You are required to:

You are required to:

CLICK AND LINK MAP ICON PV AN SYMB F

(i) Cost of merchandise sold, estimated

2010: December $450,000

(ii) Wages for each month are estimated as follows:

2010: December $46,000

All wages are paid as incurred.

(v) Corporation tax of $25,000 is to be paid in March.

CLICK AND LINK MAP ICON PV AN SYMB F

End of the Diagnostic Test

CLICK AND LINK MAP ICON PV AN SYMB F

CLICK AND LINK MAP ICON PV AN SYMB F

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