FBLT041 Accounting and Financial Management

Question:

Scenario

You are working as a junior accountant for a retail group reporting to the Director of Finance.

The Director of Finance needs to produce a leaflet for new members of the Board as part of an induction pack. They are experts in a range of business fields but have limited financial knowledge.

The Director of Finance has asked you to prepare a first draft of the leaflet for his further consideration. 

Task 1

The leaflet must provide an overview of financial and management accounting systems which:

  1. compares management and financial accounting systems
  2. analyses financial and management techniques used for recording financial information

Merit Task

To achieve a Merit your leaflet must evaluate the benefits of financial and management accounting systems for a specific business organisation

Distinction Task

To achieve a Distinction your leaflet must evaluate how a specific business organisation integrates financial and management accounting systems into their organisational processes.

Task 2

At the next meeting of the Board there is an agenda item titled ‘Discussion of financial statements and their usefulness for stakeholder groups’.

This will be led by the Regional Director of Finance.

You have received an email asking you to produce a draft paper for the Board meeting.  The  draft paper needs to evaluate the usefulness of financial and management accounting statements to stakeholders.

Task 3

Due to a reduction in sales revenue and a fall in group profits the Board of Directors is investigating inventory management, credit control and current liquidity in order to make meaningful comparisons.

Your line manager has asked a few staff in the department to analyse the final accounts of competitors and you have been selected to join this group.

You need to produce a paper for a meeting with your line manager that:

  1. analyses components of working capital
  2. explains how business organisations can effectively manage working capital
  3. uses ratios to measure the performance of a business organisation.

Merit Task

To achieve a Merit your paper must also evaluate the usefulness of ratio analysis when assessing organisational performance

Task 4

Your line manager has been pleased with your work to date and has invited you to a meeting with the Marketing Director. 

The Marketing team has completed research on a number of projects to encourage customers to return to the store. 

Your line manager has asked for your written comments on the financial viability of four projects. 

The costs associated with each project are as follows:

 

Project A

Project B

Project C

Project D

 

£

£

£

£

Initial Cost

750,000

750,000

390,000

570,000

Expected Cash Flow

 

Year 1

30,000

150,000

35,000

50,000

Year 2

85,000

275,000

180,000

195,000

Year 3

155,000

300,000

20,000

50,000

Year 4

2150,000

75,000

10,000

120,000

Year 5

250,000

170,000

160,000

200,000

Table of Discount Factors

 

Rate percent

Year

4.5

5.0

5.5

6.0

1

0.9569378

0.9523810

0.9478673

0.9433962

2

0.9157300

0.9070295

0.8984524

0.8899964

3

0.8762966

0.8638376

0.8516137

0.8396193

4

0.8385613

0.8227025

0.8072167

0.7920937

5

0.8024510

0.7835262

0.7651344

0.7472582

Required:

  1. Using appropriate project appraisal techniques assess and demonstrate the financial viability of each project.
  2. Evaluate the methods of investment appraisal completed in part (a). Recommend the most appropriate project for the business.

Distinction Task

To achieve a Distinction your written work must also evaluate the benefits of management accounting techniques in supporting financial decision making to ensure long term financial stability.

Task 5

The retail group has introduced a new product and uses a standard cost system. Standard costs for 1 000 kilograms of the new product are:

Requirements

Quantity

Price per kilogram

Total Cost

 

Kilograms

£

£

a

1 600

0.50

800

b

400

0.80

320

c

400

0.20

80

Input

2 400

 

600

Output

2 000

 

400

The production of 1 000 kilograms of the new product requires 1 200 kilograms of raw materials. Hence the yield is 1 000 / 1 200 or 5/6 of input. Materials records indicate.

Materials

Opening Inventory

Purchases (units) in April

Closing Inventory

 A

20 000 kilograms

324 000 @ £0.48

30 000 kilograms

 B

24 000 kilograms

60 000 @ £0.84

8 000 kilograms

C

30 000 kilograms

64 000 @ £0.22

22 000 kilograms

To convert 1 200 kilograms of raw materials into 1 000 kilograms of finished product required 25 hours of labour at £8.25 per hour.  Actual direct labour hours and costs are 3,800 hours at £31,350. Factory overhead is applied on a direct labour hour basis at a rate of £9 per hour (£5 fixed, £4 variable).

Factory overhead is £36,000 with 4,000 direct labour hours. Actual overheads are £38,000, Actual finished production is 200,000 new products.

The standard cost per kilogram of the finished product:

Materials

£0.60 per kilogram

Labour

£0.24 per kilogram

Factory overheads

£0.20 per kilogram

The standard selling price per unit 25% mark up on total cost. The actual selling prices 20% mark up on total cost.

Required::

  1. Calculate the total and unit costs of the finished product.
  2. Produce an absorption costing statement showing the marginal cost.
  3. Calculate the materials, labour and overhead variances.
  4. Interpret the variance results considering both financial and non-financial factors.
  5. Evaluate the use of different costing methods for pricing purposes
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