Title Assignment

: :

System and Prices, Cost Reduction 01 01 and 04

Learning Outcome :
Case AZ LTD AC (1.1 & 1.2):

Unit Cost GC Direct Material Direct Labour Direct Expenses (DE) Prime Cost Variable Cost / Unit Marginal Cost 3500 4500 0 8000 0 8000 EP 8000 7500 0 15500 0 8000

F.O.A.R (W4)

= 10 per hours
GC EP 5000 20500 10250 30750

FC / Unit Absorbtion Cost 50 % Profit Selling Cost

3000 11000 5500 16500

AC (1.3):
Unit Cost Card GC Direct Material Direct Labour Direct Expenses (DE) Prime Cost Variable Cost / Unit Marginal Cost 50 % Profit Selling Price FC / Unit Absorbtion Cost Profit By Marginal Cost System Profit By Marginal Cost System 3500 4500 0 8000 0 8000 4000 12000 3000 11000 1000 5500

AC (4.2):
Unit Cost Card Cost / Visit of Supervisor Cost / Visit of Planner Cost Related to Property 90000 70000 240000 GC Direct Material Direct Labour Direct Expenses (DE) Prime Cost Variable Cost / Unit Marginal Cost Cost of Supervisor Cost of Planner Cost Related to Property Total Cost 50 % Profit 3500 4500 0 8000 0 8000 180 280 1800 10260 15390 / / 500 = 250 = 180 280 6

/ 40000 = EP 8000 7500 0 15500 0 15500 1080 1400 3000 20980 31470

AC (4.1): Recommendations: y y y y y y y y y Inventory Reduction and used latest technology Reducing operating costs using a system energy Develop monitoring system Flexible IT Systems are Required Process Improvement Negotiated Discounts against Material Cost Increases Amplified revenue when use latest Machines for production Reduced manual work and reduced all deficiencies in the product occur during production process Skilled management and labor hiring

Title Assignment

: :

Master Budgets 02 02

Learning Outcome :
Case AZ LTD

AC 2.1:

Three Forecasting techniques y y y Unit Costing Method The Cost of Goods Forecast High low method

. Unit Costing Method This method is exactly like the unit sales forecast, except instead of using price, you use cost per unit. Cost of goods = Number of units sold x Cost per unit Just as in the unit forecast, you must do this for each unit sold. The sum of the cost of goods is then part of the income statement. The Cost of Goods Forecast The cost of goods forecast relates directly to the sales forecast. The cost of producing goods varies directly with the level of sales. To calculate the cost of goods forecast, you may use either the unit costing method or the percentage cost method High Low Method: A cost-accounting technique that uses the highest and lowest total cost as a basis for estimating the fixed and variable elements of a mixed cost. Companies face a variety of costs in the operation of their business. These costs behave in different ways. Fixed costs remain the same throughout the year; variable costs change as the activity level changes. Higher activity levels increase the total variable costs. Mixed costs contain a fixed component and a variable component to the cost. Examples of mixed costs include telephone expenses, which include both a fixed access charge and a usage rate per call. Companies use the high-low method to determine how much of a mixed cost is fixed and how much is variable. Mixed costs are costs that are partially variable and partially fixed. The cost of electricity used in a factory is likely to be a mixed cost since some of the electricity will vary with the number of machine hours, while some of the cost will not vary with machine hours. Forecasted Net Cash Flow

Turn Over Depreciation Cost of Sales Operating Profit Interest Charges Dividevds Taxation Inventory Receivable Trade Payable Net Cash Flow

300 16 (180.40) 149.60 (30) (40) (24) (12) (20) 17 40.60

x M M

1.10

330 M

Total Availabe Fund 80 + 40.60 = 120.60 M Short Fall 180 - 120.60 = 59.40 M

AC2.2: Funding resources of ABZ expansion: y y y y y Foundations(Grants) Angel Investor Government Funding Debentures Loans

Title Assignment Learning Outcome

: : :

Master Budgets 03 03

AC 3.1 Alpha Company LTD should consider the following point when setting the budgetary target y Efficient matters y Rivalry with others y Taxes and government polices (tariffs, subsidies etc) AC 3.2

6 Months Statement to March 6th Month of Sales Sales Less Cost of Sales Gross Profit 33% Fixed Over Heads Advertising & Selling General O/H interest payable Royalities Net Profit 6240.00 ( 4,181 ) 2,059 ( 650 ) ( 493 ) 917 ( 80 ) ( 312 ) 525 Actual Results Sales Less Cost of Sales Gross Profit 33% Fixed Over Heads Advertising & Selling General O/H interest payable Royalities Net Profit 6240.00 ( 4,306 ) 1,934 ( 650 ) ( 493 ) 792 ( 74 ) ( 312 ) 406

AC 3.3
6 Months Statement to Sep Original Budget Sales Less Cost of Sales Gross Profit 33% Fixed Over Heads Advertising & Selling General O/H interest payable Royalities Net Profit 7800.00 (5,226.00) 2,574.00 (750.00) (547.25) 1,276.75 (67.50) (390.00) 819.25 Actual 6240.00 (4,305.60) 1,934.40 (650.00) (492.53) 791.88 (73.75) (312.00) 406.13 Variable 1560.00 -920.40 639.60 -100.00 -54.73 A F A F

413.13

AC 3.4 Recommendations 1. Option of secretarial fault 2. Fall the advertisement expenditure use the Internet 3. Proper using the Resources 4. Provides lessons, high lights significant accomplishment or program potential, and offers recommendations for improvement 5. Explores unintended result 6. Examines implementation process 7. Analyzes why intended results were or were not achieved

Title Assignment Learning Outcome

: : :

Investment Appraisal 04 05

i: Calculating Payback Period: Option A:

Payback Period = = =

2 2 2

years years years

+ + +

160000 11 11

180000

* 12 Months

Months

Option B: Payback Period = = 3 4 years years + + 50,000 3 / 40,000 Months * 12 Months

ii: Calculating ARR (Average Rate of Return): ARR = Average profit / initial investment Option A: Profit

= 860,000 -

400,000 5 400000

= = =

460,000 92000 23.00%

Average Profit = 460,000 / ARR Option B: Profit = 1,750,000 / / = 92000 /

950,000 5 950000

= = =

800,000 160000 16.84%

Average Profit = 800,000 ARR = 160000

iii: Calculating NPV (Net Present Value):

Year 0 1 2 3 4 5 NPV Cash Flow ( 400 ) 100 140 180 210 230 Discount Factor Present Value 10% x 1 = ( 400 ) x x x x x 0.91 0.83 0.75 0.68 0.62 = = = = = = 90.91 115.70 135.24 143.43 142.81 228.09 Year 0 1 2 3 4 5 NPV Cash Flow ( 950 ) 250 300 350 400 450 Discount Factor Present Value 10% x 1 = ( 950 ) x x x x x 0.91 0.83 0.75 0.68 0.62 = = = = = = 227.27 247.93 262.96 273.21 279.41 340.79

Conclusion: According to the payback period & ARR the option A is best but in Net Present Value (NPV) suggests option B NPV is more reliable method than the ARR & Payback. So I will propose option B according to NPV analysis
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AC (5.1 & 5.2):

Payback Period: Payback period is a capital budgeting concept which refers to period of time which is required for a project to generate a return on investment which will cover the original investment made by a company on the initial project cost. . Advantages The advantage of using payback period is that its ease of use and anybody who is having limited financial knowledge can apply it. It is also beneficial for those companies who are recently established and want to know the time frame in which they would recover their original investment, therefore those companies which do not want to take risk and want quick return on their investments can select those projects which have low payback period and ignore those projects which require long gestation projects.

Disadvantages While disadvantage of payback period is that ignores an important concept which is time value of money and therefore may not present true picture when it comes to evaluating cash flows of a project. It also ignores cash flows beyond the payback period and therefore it does not take into account the complete return which a project can generate and therefore it may reject a project which in the long term may be beneficial for a company.

ARR (Average Rate of Return): Average rate of return (ARR) is a method of comparing the average profits you expect to the amount you need to invest
y

Advantages y Clearly shows the profitability of the investment y Can take account of interest rate changes y Can be used to compare with alternative investment projects to see how rates of return differ Disadvantages y Doesn't take account of the fact that future returns may be less valuable y Ignores qualitative aspects of the decision y Doesn't consider how long it may take to recover initial investment and the costs of finance that may be needed

NPV (Net Present Value):

The advantage of NPV is that is increases the wealth of the share holders.as it gives you money. NPV (Net present Value) is used to determine future stream of benefits and costs converted into equivalent values today.

Advantages y y y Takes account of interest rates Looks at the profitability of the project Allows for the fact the future returns may be less valuable than current returns and so takes account of the 'opportunity cost' of the money

Disadvantages y
y

Ignores qualitative aspects of the decision Expressed in terms of dollars, not as a percentage

AC 5.3: y y y y y y Fiscal funds Deflation velocity Marketplace stipulate History Government Polices, rules, regulations and laws Economic Condition

Foreign exchange market

Title Assignment Learning Outcome AC 6.1 & 6.2 & 6.3: Profitability Ratio:

: : :

Financial Analysis 05 06

1: Gross Profit Margin

2011 Gross Profit Margin = 184642 / 322917 * Gross Profit Margin = 57.179 100 2010 164208 / 304818 * 53.871 100

2: Net Profit Margin

2011 Net Profit Margin Net Profit Margin = = 44677 / 322917 * 13.835 100 2010 36853 / 304818 * 12.09 100

3: R.O.C.E
2011 R.O.C.E R.O.C.E = = 44677 / 84.873 52640 * 100 36853 / 96.064 2010 38363 * 100

4: Asset Turnover
2011 Asset Turnover Asset Turnover = 322917 / = 6.1344 52640 Times 304818 / 7.9456 2010 38363 Times

Liquidity Ratio:
2010 Current Ratio Quick Ratio Stock Days Receivable Days Trade Payable Days 0.6:1 0.3:1 57.2 14.1 195.3 Days Days Days 2011 0.5:1 0.3:1 75.1 12.6 246 Days Days Days

Solvency Ratio:
Gearing Ratio Distribution Cost = = 2010 2674 + 111 / 35578 x 100 7.82787 % 2011 4699 + 332 / 47609 x 100 10.5673 %

Recommendation: y Increases revenue y Proper utilize all resources y Process improvement y Flexible System y Latest technology

References:
y y y y y y y y y y http://www.skymark.com/resources/tools/scatter_plots.asp http://www.stat.yale.edu/Courses/1997-98/101/linreg.htm http://ausweb.scu.edu.au/aw95/education1/mak/aw01-01-2.html http://thesaurus.com/browse/Debentures http://blog.accountingcoach.com/calculate-payback-period/ http://www.businessdictionary.com/definition/accounting-rate-of-return-ARR.html http://www.answers.com/topic/net-present-value http://www.esourcingwiki.com/index.php/Cost_Reduction_and_Avoidance
The High-Low Method in Accounting | eHow.com http://www.ehow.com/info_8154943_highlow-methodaccounting.html#ixzz1f1FE91WY

http://www.bized.co.uk/virtual/bank/business/finance/investment/theories4.htm

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