[pic] LEVEL 7 (EDEXCEL) Extended Diploma in Strategic Management and Leadership (EDSML) ASSIGNMENT Unit 13: Managing Financial Principles and Techniques | | |Assessment title: |Tasks One, Two and Three etc | | | | | | |Lecturer: |Andrew Appiah | |Issued date: |14/06/2011 | | | | |Draft Submission date: | | | | | |Final Submission Date: | | | | | | |12/07/2011 | | |To achieve this unit a learner must: | | | | | |LO. 1 Be able to apply cost concepts to the decision-making process. | |Learning Outcomes: |LO. 2 Be able to apply forecasting techniques to obtain information for decision making | | |LO. 3 Be able to participate in the budgetary process of an organisation | | |LO. 4 Be able to recommend cost reduction and management processes for an organisation | | | | | |LO. Be able to use financial appraisal techniques to make strategic investment decisions for an organisation | | | | | |LO. 6 Be able to interpret financial statements for planning and decision making | | |Apply cost concepts to the decision-making process | | |AC1. 1 Explain the importance of costs in the pricing strategy of an organisation | | |AC1. Design a costing system for use within an organisation | | |AC1. 3 Propose improvements to the costing and pricing systems used by an organisation | | |Apply forecasting techniques to obtain information for decision making | | |AC2. 1 Apply forecasting techniques to make cost and revenue decisions in an organisation. | | |AC 2. 2 Assess the sources of funds available to an organisation for specific project. | | | | | | | |Participate in the budgetary process of an organisation. | | |AC 3. 1 Select appropriate budgetary targets for an organisation. | | |AC 3. 2 Participate in the creation of a master budget for an organisation | | |AC 3. 3 Compare actual expenditure and income to the master budget of an organisation | |Criteria Assessed: |AC 3. Evaluate budgetary monitoring processes in an organisation. | | | | | | | | |Recommend cost reduction and management processes for an organisation | | | | | |AC 4. 1 Recommend processes that could manage cost reduction in organisation | | |AC 4. Evaluate the potential for the use of activity-based costing | | | | | |Use financial appraisal techniques to make strategic investment decisions for an organisation | | | | | |AC 5. 1 Apply financial appraisal methods to analyse competing investment projects in the public and private sector | | |AC 5. Make a justified strategic investment decision for an organisation using relevant financial information | | |AC 5. 3 Report on the appropriateness of a strategic investment decision using information from a post audit appraisal | | | | | | | | |Interpret financial statements for planning and decision making | | | | | |AC 6. Analyse financial statements to assess the financial viability of an organisation | | |AC 6. 2 Apply financial ratios to improve the quality of financial information in an organisation’s financial statements | | |AC 6. 3 Make recommendations on the strategic portfolio of an organisation based on its financial information | Task 1 Quantum Limited has estimated the following costs for its product known as the Beta, based on planned production and sales of 46,000 units in the coming period: |Cost per unit |? |Prime costs |5·20 | |Production overhead – all fixed |2·80 | |Non-production overhead: | | |variable costs |0·65 | |Fixed cost |1·70 | |Total cost per unit |10·35 | Actual production and sales in the period were as follows: Production 46,000 units
Sales 45,600 units (at ? 12·00 per unit) There was no finished stock at the beginning of the period. Variable costs per unit and total fixed costs in the period were as planned. Variable non-production overheads vary in total with the number of units sold. Required: a) Prepare a profit statement for the period using both absorption costing and marginal costing techniques. MARGINAL COST = VARIABLE COST DIRECT LABOUR + DIRECT MATERIAL + DIRECT EXPENSE + VARIABLE OVERHEADS b) Using the results from your calculations, Explain the importance of costing method used in the pricing strategy of an organisation (AC1. 1) ) Based on the two costing methods Design and explain which costing system should be used within the organisation in order to improve financial performance (AC1. 2) d) Propose improvements to the costing system and pricing systems used by the organisation (AC1. 3) Task 2 Scenario: Introduction Amber Plc is a manufacturing company producing a product called the ban. The marketing department is investigating the effect of advertising on the sales of the product. The market department has recorded expenditure on advertising and resulting sales for six months as follows: |Month |advertising expenditure |Sales | | |? |? |January |20,000 |170,000 | |February |40,000 |240,000 | |March |50,000 |260,000 | |April |60,000 |300,000 | |May |30,000 |220,000 | |June |40,000 |250,000 | Using regression techniques forecast the sales revenue of the company when advertising expenditure is: a) ? 50,000 b) ? 100,000
Based on the forecasted sales above, make recommendations to the management of the company regarding their attitude towards advertising expenditure (AC 2. 1) c) The management of the company has observed that the company’s cash position is deteriorating and this is going to continue for the next few years. Assess the sources of funds available to this business (you are required to critically discuss short term, medium term and Long term sources of business funds, including their advantages and disadvantages) (AC 2. 2) Task 3 Budgeting is a very important activity for Businesses, especially, manufacturing organisations. Organisations need to set budgetary targets at the beginning of the year.
Required. a) Explain the factors considered by organisations when selecting appropriate budgetary targets for: • sales volume, • production units and • Labour costs. (AC 3. 1) b) Alpha Limited produces three different types of chocolates. -milky bar -egg chocolate -bendy bar For the coming accounting period, budgets are to be prepared using the following information: Budgeted sales: -milky bar 2,000 units at ? 100 each -egg chocolate 4,000 units at ? 130 each -bendy bar 3,000 units at ? 150 each The three products use the same raw materials. The standard usage of the raw materials is as follows: |Sugar (per kg) |Chocolate paste (per kg) | |Product | | | |milky bar |5 |2 | |egg chocolate |3 |2 | |bendy bar |2 |1 | |Standard cost of raw material |? 8 |? 4 | Inventory of finished goods are as follows: | |milky bar |egg chocolate |bendy bar | |Opening inventory 500 units |800 units |700 units | |Closing inventory |600 units |1,000 units |800 units | Inventory of raw materials are as follows: | |Sugar (kg) |Chocolate paste ( kg) | |Opening inventory |21,000 |10,000 | |Closing inventory |18,000 |9,000 | Labour: each labour hour is paid at the rate of ? 6 per hour |milky bar |egg chocolate |bendy bar | |Standard hours per unit |4 |6 |8 | Prepare the following budgets as a way of participating in the creation of a master budget in a manufacturing organisation. (AC 3. 2) 1) Sales budgets (quantity) 2) Sales budgets (total revenue) 3) Production budgets (units) 4) Material usage budget (quantity) 5) Material purchases budget (quantity and total cost) 6) Labour budget (total hours and total cost) Task 4 Omega plc manufactures wooden toys. It uses a standard costing system to control costs. The cutting department cuts the shapes, which are sold as toy animals.
The process is very labour intensive and requires highly skilled labour to minimise the wastage of the expensive hardwood used. The standard cost card for a set of toy animals is given below. ? Hardwood 0·1 cubic metres at ? 160 per cubic metre 16·00 Direct labour 30 minutes at ? 9 per hour 4·50 Fixed overhead 30 minutes at ? 4 per direct labour hour 2·00 –––––– Total cost 22·50 –––––– Fixed overhead absorption rates are based upon budgeted monthly fixed overheads of ? 26,000 and a budgeted monthly output of 13,000 sets of animals. All stocks are recorded at standard cost.
In the most recent month 14,000 sets of animals were made using 1,600 cubic metres of hardwood. Purchases for the period were 1,800 cubic metres of hardwood at ? 150 per cubic metre. 8,000 direct labour hours were worked and paid at ? 9·25 per hour. Actual fixed overheads were ? 23,000 for the month. Required: (a) Compare the actual expenditure and income to the master budget of the Organisation and calculate the following variances from standard cost for the most recent month: (AC 3. 3) (i) Raw material price (ii) Raw material usage (iii) Labour rate (iv) Labour efficiency (v) Fixed overhead expenditure (vi) Fixed overhead volume (vii) Fixed overhead capacity (viii) Fixed overhead efficiency ) Explain how variances can be used to evaluate budgetary monitoring processes in an organisation. (AC 3. 4) You are required to explain how variances can be used to monitor and achieve the budgetary targets set by the organisation. . Task 5 For this part of the assignment, choose an organisation in the manufacturing sector. Using this organisation: a) explain how Value analysis (value engineering) could be implemented as a cost reduction process in the organisation (AC 4. 1) b) Evaluate the potential for the use of activity-based costing in that organisation (AC 4. 2) In order to meet outcomes 4. 1 and 4. 2: • You are required to describe the processes Explain how they work • And explain what steps must be taken before they can be implemented in a manufacturing organisation. Task 6 Scenario: Introduction Amat PLC is a manufacturing company which make a product called XL. The company is appraising two investment proposals (project A and project B). Project A involves a contract to supply its product to a leading supermarket chain while project B involves a contract to supply to an organisation in the public sector. The product has performed well in test marketing trials conducted by the research and development department. The data below shows information relating to the two contracts: PROJECT A: Initial investment |? 2 million | |Selling price (current price terms) |? 20 per unit) | |Expected selling price inflation |3% per annum | |Variable operating costs (current price terms) |? 8 per unit | |Fixed operating costs (current price terms) |? 170,000 per annum | |Expected operating cost inflation(fixed and variable costs) |4% per annum |
The research and development department has prepared the following demand forecast as a result of its test marketing trials: |Year |1 |2 |3 |4 | |Demand(units) |60,000 |70,000 |120,000 |45,000 | It is expected that all the units produced will be sold, in line with the company’s policy of not keeping any inventory of finished goods. The scrap value of the machinery is expected to be ? 200,000 at the end of the four years when the production of product XL is planned to end.
The company’s cost of capital is 10% and has a target accounting rate of return (ARR) of 30% per annum. The company pays tax at the rate of 30% and has capital allowance at the rate of 25% . The Company requires all projects to payback within 3 years. PROJECT B: All the information remains the same except the following: 1) Initial investment cost ? 1million and the scrap value will be ? 100,000 2) The selling price will be ? 15 per unit |Year |1 |2 |3 |4 | |Demand(units) |50,000 |60,000 |110,000 |40,000 | 3)
Required: a) Calculate the following values for the investment project A and project B and apply them to assess the viability of the project (AC 5. 1) i) Net present value (NPV) ii) Internal rate of return (IRR) iii) Accounting rate of return (ARR) based on the average investment cost; and iv) Discounted payback period Other information • The company requires an Accounting rate of return (ARR) of 12% and a payback period of 2 years b) Based on the results of the calculations in 5. 1 above make a justified strategic investment decision for the organisation. Based on each method, make a decision on the financial viability of each project (AC 5. 2) ) report on the appropriateness of a strategic investment decision using information from a post audit appraisal In this part of the assignment you are required to write a report and give an overall decision on which project should be caaepted. Explain The basis of your decision (AC 5. 3) Task 7 The users of the Financial accounting information include: • Shareholders • Potential investors • Finance providers and • The general public. All the users of the Financial accounting information need information about the financial performance of the company. The management, for example, are always eager to know how the company is performing financially.
This enables them to make important strategic decisions. Shareholders can also decide whether to sell their shares or to buy more shares in a particular company. Again, finance providers (e. g. banks) can decide whether or not to lend to the company. Assume that you are a financial consultant and have been approached by the management who have requested you to compare the financial performance of Tesco Plc for the 2009 and 2010 financial years. Required Write a report to the management assessing the financial performance of Tesco Plc for the two financial years in the following areas: 1. Profitability 2. Liquidity 3. Gearing 4. Investor ratios
Your report should seek to achieve the following: a) Analyse the financial statements of the company to assess its financial viability for the 2009 and 2010 financial years (AC 6. 1) b) Apply the financial ratios to improve the quality of financial information in the organisation’s financial statements (AC 6. 2) In this part of the assignment you are required to assess the ratios and comment on which year the company is performing better. c) Make recommendations on the strategic portfolio of the organisation based on its financial information (AC 6. 3) You are required to explain in which year the management have performed better in terms of strategic choices and decisions. | |Guidelines | | | |Ensure that font style should be Arial or Times New Roman and font size should be 12 in all Assignments. | | | |Ensure that (in paragraph) line spacing should be 1. 5 and alignment should be Justify. | | | |Ensure that all work has been proof-read and checked prior to submission. | | |Ensure that the layout of your documents is in a professional format. | | | |Ensure that all references are quoted at the end of any question/document submitted (Preferred: Harvard Referencing). | | | |Ensure that there is an accompanying front cover sheet with your details, the unit details and your lecturer’s name. | | | |The college will retain your assessment copy so it is advisable for you to keep a copy for your own record. | | |Structure and Format for Report Writing | |You are advised to use the following format | |Title page — The details of author, circulation, purpose of submission and date. | | | |Acknowledgements — To those who assisted the author in the production of the report. | | | |Contents — With page numbers. | | | |Introduction — The background, the issue and the aim of the investigation. | | |Major sections — As many as necessary, usually covering the concepts used, the information collected and the evaluation. | | | |Conclusions — Overall findings of the investigation: the overall picture that has emerged and the implications. | |Recommendations — Actions that should be taken, based on the conclusions. | |References — Identification of literature and other sources used and referred to in the text. | | | |Plagiarism / Collusion | |Any act of plagiarism or collusion will be seriously dealt with according to the regulations. |In this context the definition and scope of plagiarism are presented below: | |Plagiarism is presenting somebody else’s work as your own, It includes copying information directly from the Web or books without referencing the material;| |submitting joint coursework as an individual effort; copying another student’s coursework; stealing coursework from another student and submitting it as | |your own work. | |Collusion is working collaboratively with another learner to produce work that is submitted as the individual learners work. | |Suspected acts of plagiarism or collusion will be investigated and if found to have occurred will be dealt with according to the college procedure. |