EXAMPLES

 CASH FLOW ANALYSIS

PROBLEM -

SOLUTION -
Step 1: Operating Activities DETERMINE NET CASH PROVIDED/USED BY OPERATING ACTIVITIES BY CONVERTING
NET INCOME FROM AN ACCRUAL BASIS TO A CASH BASIS

DEPRECIATION EXPENSE

LOSS ON DISPOSAL OF PLANT ASSETS

CHANGES TO NONCASH CURRENT ASSET AND CURRENT LIABILITY ACCOUNTS
 CHANGES IN NONCASH CURRENT ASSETS

 CHANGES IN CURRENT LIABILITIES

Step 2: Investing and Financing Activities ANALYZE CHANGES IN NONCURRENT ASSET AND LIABILITY ACCOUNTS
AND RECORD AS INVESTING AND FINANCING ACTIVITIES, OR DISCLOSE AS NONCASH TRANSACTIONS

Step 3: Net Change in Cash COMPARE THE NET CHANGE IN CASH ON THE STATEMENT OF CASH FLOWS WITH
THE CHANGE IN THE CASH ACCOUNT REPORTED ON THE BALANCE SHEET TO MAKE SURE THE AMOUNTS AGREE
 FREE CASH FLOW

PROBLEM –

SOLUTION –

 GROSS PROFIT VARIANCE ANALYSIS

PROBLEM 1 -
A cost analyst of the Memphis Company has prepared a monthly gross profit analysis, comparing actual to budget for its
two products, Alco and Bacco. June actual and budget data show:
Sales Cost of Goods Sold Gross Profit
Units Unit Price Amount Unit Cost Amount Per unit Amount
Budget:
Alco 8,000 $20.00 $160,000 $16.00 $128,000 $4.00 $32,000
Bacco 4,200 14.00 58,800 12.00 50,400 2.00 8,400
———
- ———- ———- ———– ———- ———- ———–
Total budget 12,200 $17.9344* $218,800 $14.6229* $178,400 $3.3115* $40,400
====== ====== ====== ====== ====== ====== ======

Actual:
Alco 7,500 $21.00 $157,500 $16.50 $123,750 $4.50 $33,750
Bacco 4,500 13.50 60,750 11.50 51,750 2.00 9,000
 ———
- ———- ———– ———– ———- ———– ———–
Total actual 12,000 $18.1875* $218,250 $14.625* $175,500 $3.5625* $42750

*Weighted average
Required:
1. Calculate price and volume variances for sales and cost.
2. Calculate sales mix variance and final sales volume variances.

SOLUTION 1 -
Actual sales $218,250
Actual sales at budgeted price:
Alco: 7,500 @ $20 $150,000
Bacco: 4,500 @ 14 63,000 213,000
————–
Favorable sales price variance $5,250
=======
Actual sales at budgeted price 213,000
Budgeted sales 218,800
————–
Unfavorable sales volume variance $5,800
=======
Cost of goods sold actual $175,500
Budgeted costs of actual units sold:

Alco: 7,500 @ $16 $120,000

Bacco: 4,500 @ $12 54,000
————— 174,000
————–
Unfavorable cost price variance $1,500
========
Budgeted costs of actual units sold $174,000
Budgeted costs of budgeted units sold 178,400
—————
Favorable cost volume variance $4,400
========
INTERIM RECAPITULATION:

Favorable sales volume variance $5,250

Less unfavorable volume variance (net)
consisting of:
Unfavorable sales volume variance $5,800
Less favorable cost volume variance 4,400
———- 1,400
——-
$3,850
Less unfavorable cost price variance 1,500
———-
Increase in gross profit $2,350
=======

PROBLEM 2 -

The Steward Company manufactures to products – product A and product B. The budgeted and actual data for the last
month is provided below:

Required: Using the data of Steward Company given above, compute:

1. sales price variance and sales volume variance

2. cost price variance and cost volume variance
3. sales mix variance and final sales volume variance
SOLUTION 2 -

1. Sales price variance and sales volume variance

2. Cost price variance and cost volume variance

Interim recapitulation:
3. Sales mix variance and final sales volume variance

Final recapitulation:
 FINANCIAL RATIO ANALYSIS

PROBLEM 1 -
The following is the Balance Sheet of a company as on 31st March:
PROBLEM 2 -
From the following particulars found in the Trading, Profit and Loss Account of A Company Ltd., work out the
operation ratio of the business concern:

DUPONT MODEL

PROBLEM -

SOLUTION –

ROE = ($2,000/$10,000) x ($10,000/$25,000) x

($25,000/$5,000) = 0.20 x 0.40 x 5 = 0.40 or 40%