Cork Institute of Technology Autumn 2008 Management The Business by st1nk778


									                      Cork Institute of Technology

       Bachelor of Science (Honours) in Computer Services
                      Management - Award

                                 Autumn 2008
        Management & The Business Environment
                               (Time: 3 Hours)

Instructions: Answer five questions               Examiners:        Ms. R. Vance
All questions carry equal marks                                     Mr. J. Greenslade
                                                                    Mr. J. Walsh

Q1.    What role does IT control play in the power relationship? How can
       organisations manage political behaviour in order to create a knowledge-based
                                                                            20 marks

Q2.    Various organisational structures can lead to decentralisation of the decision-
       making process and divisional managers may have a lot of autonomy. Discuss
       matrix structures and geographical structures and highlight the benefits and
       drawbacks for an organization using these structures.
                                                                            20 marks

Q3.    From your recent interviews with a manager of your choice what methods
       have you determined to be in use for evaluating and justifying IT investments?
       Critically evaluate these methods commenting on both financial and multi-
       criteria methods.
                                                                            20 marks
Q4.      The current average weekly trading results for a small Cork Deli are shown

                                €             €
Turnover                                      2800
Operating Costs
Materials                       1540
Power                            280
Staff                            340
Building Occupancy Costs         460          2620
Profit                                         180

   •     The average selling price of each meal is €4.
   •     Materials and power may be regarded as a variable cost varying with the
         number of meals provided.
   •     Staff costs are semi-variable with a fixed element of €200 per week
   •     The building occupancy costs are all fixed.


   (a)      What is the deli’s breakeven point in units and in value?
   (b)      Calculate the number of meals required to be sold in order to earn a profit
            of €300 per week.
   (c)      The owner proposes to install new equipment to improve productivity. If
            this is done, fixed costs will increase by €200 per week and variable costs
            will reduce by €0.30 per meal. What is the new break-even point in units?
   (d)      What is the primary benefit of CVP Analysis?
   (e)      Define “Margin of Safety”.
   (f)      What assumptions should anyone preparing or interpreting cost volume
            profit analysis be aware of?                                       20 marks
Q5.     James Banda has been working as a Transport Manager for GDC Ltd and has
        retired. He intends to start up in business on his own account, using €150, 000
        which he has invested at New Building Society. James maintains an account
        with National Bank with a minimal balance but intends to approach the bank
        for the necessary additional finance.

James asks you for advice and provides the following additional information.

     1. Arrangements have been made to purchase fixed assets costing €80,000. These
        will be paid for at the end of September and are expected to have a five year
        life, at the end of which they will possess a nil residual value.
     2. Stocks costing €50,000 will be acquired on 28 September and subsequently
        monthly purchases will be at a level sufficient to replace forecast sales for the
     3. Forecast monthly sales are €30,000 for October, €60,000 for November and
        December, and €105,000 from January 2009 on wards.
     4. Selling price is fixed at the cost of stocks plus 50%.
     5. Two month’s credit will be allowed to customers but one month’s credit will
        be received from suppliers of stock.
     6. Running expenses, including rent but excluding depreciation of fixed assets
        are estimated at €16,000 per month.
     7. James intends to make monthly cash drawings of €10,000.


a)    Prepare a cash budget for six months to 31 March 2009.
b)    Suggest remedies for overcoming cash flow problems identified by the cash
      budget prepared in a).
c)    Critically evaluate budgeting as a control tool                         20 marks
Q6.    Buchan Enterprises is considering investing in a new machine at a cost of
       €50,000. The respective cash flows are as follows:

                     Year 1        18,000
                     Year 2        16,000
                     Year 3        40,000
                     Year 4        45,000
                     Year 5        35,000

         The company’s cost of capital is 12%.

1.    Show calculations of:
         (a)   the payback period for the project;
         (b)   the net present value; and
         (c)   the internal rate of return.
2.    Discuss the payback method as an appropriate technique for Investment
      Appraisal.                                                          20 marks
Q7      Lead Ltd manufactures 30,000 rolls of lead each year for use in its pencil
        production line. At this level of activity, the cost per roll of lead is as follows:
Direct Materials                €3.60
Direct Labour                   €10.00
Variable Overhead               €2.40
Fixed Overhead                  €9.00
Total cost per roll             €25.00
An outside supplier has offered to sell 30,000 rolls of lead each year to Lead Ltd for
€21 per roll. If Lead Ltd accepts this offer, the facilities now being used could be
rented to another company at an annual rental of €80,000. However, Lead Ltd. has
determined that two thirds of the fixed overhead being applied to lead refills would
continue even the refill rolls were purchased from the outside supplier.


     1. Prepare computations to show the net advantage or disadvantage of accepting
        the outside supplier’s offer.

     2. Briefly explain the terms relevant cost, sunk cost and opportunity cost. In each
        case, support your explanation with an example                           20 marks

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