Ask Financial Management Expert

Question 1

Three companies manufacture and sell similar products and you have been asked to analyse and interpret the information of each company that was published recently.

                                                Gold plc         Silver plc      Bronze plc

Sales - units                               120000            90000         100000

                                                  £000                           £000              £000

Sales revenue                                 1680                      1620                      1620

Cost of sales                                  1080                        630                      1120

Gross profit                                     600                        990              500

Profit before interest and tax                        280                        590                        140

Profit after tax                                           170                        350                          98

Ratios that were calculated using the attached formulae.

Gross margin                              35.7%             61.1%           30.9%

Profit before interest and tax        16.7%             36.4%             8.8%

Profit after tax                           10.1%             21.6%             6.0%

Return on Capital Employed           28.2%             17.3%           20.0%

Return on Shareholders' Funds        20.0%             12.5%           14.0%

Inventory - days                         50.7                104.3              32.6

Receivable - days                        43.5                  74.4             38.3

Payables - days                          33.8                  52.4             26.1

Gearing                                      14.2%               18.1%          None

Times interest earned                   7 times                        6.5 times       None

REQUIRED

(a) Discuss the performance and financial position of the three companies and in your discussion highlight the possible causes of the differences between the three companies.

(b) Suggested strategies which could be adopted to improve the Return on Capital Employed for each of the companies.

 Question 2

Company XZ manufactures two products in their factory. The details of the products, which use the same production facilities, are as follows:-

                                                               Product X        Product Z

Budgeted sales in 2012/13                            500 units         200 units

Material per unit                                            £200              £300

Labour at £10 per hour in department 1            £120              £180

Labour at £13 per hour in department 2            £  26              £  65

There are also two service departments that are used by both departments and the budgeted overhead costs for the whole company for 2012/13 are:-

                           Department 1  Department 2                   Service A       Service B

                                    £                    £                         £                  £

Salaries                       200000            80000              100000            60000

Depreciation                  30000               6000                12000           20000

Other costs (fixed)          50000            14000                   8000           20000

Usage of Service A           20%               80%

Usage of Service B           40%               60%

Required:-

(a) If each machine is treated as a separate cost centre, calculate the overhead recovery rate for each cost centre.

(b) Calculate the expected full cost of both products in 20012/13.

(c) (i) If Product X sells at £1200 per unit and Product Z at £2180 per unit, what is the expected operating profit for the year?

(ii)  If only 180 units of each of the products were sold at the budgeted selling prices, what would be the effect on the operating profit if all costs were at the budgeted level?

(d) Explain Activity Based Costing (ABC) and discuss the benefits that are claimed for this method of apportioning overhead cost.

Question 3

Mentieth plc manufactures and sells three products and it is expected that the sales revenue, costs and quantity sold of each product will be:-

Product                                      A                B                 C                 D

                                                 £                 £                 £                 £

Selling price per unit                     80                65                30                28

Variable costs per unit                  38                30                15                10

Apportioned fixed costs per unit     25                20                10                 10

Total cost per unit                       63                50                25                 20

Profit per unit                              17                15                  5                  8

Estimated sales - units               2000             3000              4000            5000

Estimated profit - £000                  34                45                   20              40                 

When the budget was prepared, the total fixed costs were estimated to be £200000 and the output was expected to be 20000 direct labour hours. An overhead recovery rate of £10 per Direct Labour Hours was, therefore, used to apportion the fixed costs to each of the products. 

As a result of unforeseen circumstances, the capacity has been reduced to only 14000 direct labour hours but the total overhead cost of £200000 will remain unchanged.

Required

(a)  What products should be produced and sold to maximise the company's profit and what will be the total profit of the company?

(b) As an alternative to turning away orders, it has been suggested that the selling price of all four products should be increased by 10 per cent. It is expected that this will reduce the demand for each product by 30 per cent. This would reduce the required direct labour hours below the 14000 hours that are now available. Would this result in a better outcome than that the one in the original budget for the period?

(c) What is the break-even of the COMPANY if the sales are sold in the ratio of     2A : 3B :1C and 1D.

Question 4

To really understand the accounting information presented in the financial statements, it is essential that the users are familiar with the conventions that are used in the preparation of the financial statements that appear in the Annual Reports of most companies.

(a) Explain each of the following and discuss  the significance of each in the situation described :-

  • Realisation convention in a company that undertakes large construction projects that often take three years to complete.
  • Historical cost as the basis of asset valuation in a company that has a factory and plant that was bought over thirty years ago.
  • The prudence convention in all companies.

(b) Discuss the nature of the accounting information that is provided in a typical Cash Flow Statement that is included in the Annual Report of most companies.

Question 5

(a) Explain the process by which most large companies produce the annual plan that forms the basis of most of the procedures used to exercise control within the organisation.

(b) Discuss the importance of preparing a cash budget and compare and contrast a typical cash budget with a Cash Flow Statement that is included in the Annual Report of most companies.

Question 6

Explain and discuss the usefulness of the following:-

          (i)  The Balanced Scorecard to report the performance of companies

          (i)  Economic Value Added (EVA) to measure the performance of companies.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M91363403

Have any Question?


Related Questions in Financial Management

Assignment problems1 on the day harry was born his parents

Assignment Problems 1. On the day Harry was born, his parents put $1600 into an investment account that promises to pay a fixed interest rate of 5 percent per year. How much money will Harry have in this account when he ...

1 activities of a company that require the spending of cash

1) Activities of a company that require the spending of cash are known as: A) Uses of cash. B) Cash on hand. C) Cash receipts. D) Sources of cash. E) Cash collections. 2) Relationships determined from a firm's financial ...

Module discussion forumto prepare for this discussion

Module : Discussion Forum To prepare for this discussion, review "Basics of Speechwriting" and "Basics of Giving a Speech" in textbook Chapter 15. Then watch this video of Apple founder and CEO Steve Jobs giving the 2005 ...

Launching a new product linefor this portfolio project

Launching a New Product Line For this Portfolio Project Option, you will act as an employee in a large company that develops and distributes men's and women's personal care products. The company has developed a new produ ...

Question 1 discuss valuing bonds and how interest rates

Question : 1) Discuss valuing bonds and how interest rates affect their value. Also consider the importance of the yield-to-maturity (YTM). 2) Discuss common stocks and preferred stocks. Also, which common stock valuatio ...

Introductionlast week you determined the root causes of the

Introduction Last week, you determined the root cause(s) of the problem you are trying to resolve for your final paper. As a reminder, the decision you are working on is the one that you selected in week two. This week, ...

You have owned and operated a successful brick-and-mortar

You have owned and operated a successful brick-and-mortar business for several years. Due to increased competition from other retailers, you have decided to expand your operations to sell your products via the Internet. ...

You will be conducting an interview with a market research

You will be conducting an interview with a market research professional or a company representative. Use the results of your research to make specific recommendations on how market research can be applied to the Marketpl ...

Question 1 what is marketing research what are the two

Question 1: What is marketing research? What are the two primary types of research? Question 2: What factors influence marketing research? Question 3: The role of statistics in business decision-making? Assignment : Sele ...

Chapter 74 for commercial banks what is meant by a managed

Chapter 7 4. For commercial banks, what is meant by a managed liability? What role do liquid assets play on the balance sheet of commercial banks? What role do money market instruments play in the asset and liability man ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As