Assignment Task
Task 1
Applying cost concepts to the decision-making process
You should choose a good or a service, which is generated by an organisation in Hong Kong with which you are familiar. You should then:-
a) Explain the importance of costs in the pricing strategy of your chosen organisation.
b) Design a costing system for use within your organisation.
c) Propose improvements to the costing and pricing systems used by your organisation.
Task 2
Applying forecasting techniques to obtain information for decision making
a) Apply forecasting techniques
Suppose your chosen organisation also manufactures a product which has recently increased in its sales. The sales revenue figures for the last 9 months have been prepared as follows:-
Sales revenue $ (HKD)
April 667,810
May 738,159
June 795,121
July 849,120
August 1,017,167
September 1,098,040
October 1,150,192
November 1,277,204
December 1,302,351
Moving averages can be used to forecast future performance. Explain what is meant by the term moving average and calculate a three month moving average for the sales figures above. Use that calculation as the basis of forecasting sales revenue for the next two months i.e. January and February. Explain the methodology you have used, making particular references to any assumptions you have made within that methodology.
b) The company now wants to expand its business to China and would need a capital investment of HKD 1,000 million. Assess 3 possible sources of funds available to the organisation for this project. Discuss the advantages and disadvantages of each source.
Task 3
Participating in the budgetary process of an organisation
a) (i) Discuss what can be considered to be good practice in the construction of a master budget by your chosen organisation.
(ii) Suppose the chosen organisation has recently formed a new manufacturing unit, Forward Ltd and the following information is given. Participate in the creation of a master budget for Forward Ltd.
The following information has been produced to illustrate the manufacturing and other budgets required to support the initial months of trading from June 2014. Firstly the production budget:
|
Forward Ltd
|
|
June
|
July
|
August
|
September
|
|
|
|
2017
|
2017
|
2017
|
2017
|
|
Production Budgets (Units)
|
|
|
|
|
|
|
Sales Quantities
|
|
0
|
2,000
|
2,500
|
2,600
|
|
Add Closing stock of finished goods required
|
|
2,000
|
2,500
|
2,600
|
2,700
|
|
|
|
2,000
|
4,500
|
5,100
|
5,300
|
|
|
|
|
|
|
|
|
Deduct Opening Stock of finished goods
|
|
0
|
(2,000)
|
(2,500)
|
(2,600)
|
|
Production Required (Units)
|
|
2,000
|
2,500
|
2,600
|
2,700
|
Each item of production requires 1 item of raw material costing $49 per item. Prepare the raw materials budget as shown below:
|
Forward Ltd
|
|
June
|
July
|
August
|
September
|
|
|
|
2017
|
2017
|
2017
|
2017
|
|
Raw Materials Budgets (Units)
|
|
|
|
|
|
|
Required for Production
|
|
2,000
|
2,500
|
2,600
|
2,700
|
|
Stock of raw materials (units) required at end of month (1 month)
|
|
2,500
|
2,600
|
2,700
|
2,800
|
|
|
|
4,500
|
5,100
|
5,300
|
5,500
|
|
|
|
|
|
|
|
|
Deduct Opening Stock of raw materials
|
|
(2,000)
|
(2,500)
|
(2,600)
|
(2,700)
|
|
Purchase (Units)
|
|
2,500
|
2,600
|
?
|
?
|
|
|
|
|
|
|
|
|
Raw Material Purchase Required ($)
|
|
122,500
|
?
|
?
|
?
|
Labour production costs are $45 for each item manufactured. Prepare the Labour budget is as follows:
|
Forward Ltd
|
|
June
|
July
|
August
|
September
|
|
|
|
2017
|
2017
|
2017
|
2017
|
|
Labour Budgets ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production required
|
|
2,000
|
?
|
?
|
?
|
|
Labour cost per unit ($)
|
|
?
|
?
|
?
|
?
|
|
|
|
|
|
|
|
|
Production Labour Cost Required ($)
|
|
90,000
|
?
|
?
|
?
|
The following additional information is also relevant:
- All raw materials (other than the initial 2,000 units of opening stock which had already been paid for) will be purchased on credit with suppliers being paid one month after the month of purchase. The purchase of 2,500 units of raw materials in June 2017, therefore, which would cost $122,500, would be paid for in July 2017.
- Labour costs are paid for as incurred. The labour cost of producing 2,000 units in June 2017, therefore, $90,000, would be paid for in that month.
- There is $300,000 of cash available in June 2017, which, after paying the labour costs of $90,000 in that month, would leave a balance of $210,000 at the bank to start the month of July 2017.
- The selling price of the product is $100 and sales are all on credit. Customers are given 2 months in which to pay, so the 2,000 items planned for sale in July 2017, value $200,000, will be paid for in September 2017.
You are also required, for Forward Ltd., to prepare your version of debtors, creditors and cash budgets (or provide the budgeting information in a format of your own choosing). Attach these tables to your answer. Selective figures have been provided for guidance.
|
Forward Ltd
|
|
June
|
July
|
August
|
September
|
|
|
|
2017
|
2017
|
2017
|
2017
|
|
Debtors Budgets ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening Balance
|
|
|
0
|
200,000
|
?
|
|
Sales in Month
|
|
|
200,000
|
?
|
?
|
|
|
|
|
200,000
|
?
|
?
|
|
|
|
|
|
|
|
|
Receipts from Debtors in Month
|
|
|
0
|
?
|
?
|
|
Closing Balances
|
|
|
200,000
|
?
|
510,000
|
|
Forward Ltd
|
|
June
|
July
|
August
|
September
|
|
|
|
2017
|
2017
|
2017
|
2017
|
|
Creditors Budgets ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening Balance
|
|
0
|
122,500
|
?
|
?
|
|
Raw Materials Purchases in Month
|
|
122,500
|
?
|
?
|
?
|
|
|
|
122,500
|
?
|
?
|
?
|
|
|
|
|
|
|
|
|
Payment to Creditors in Month
|
|
0
|
?
|
?
|
?
|
|
Closing Balances ($)
|
|
122,500
|
?
|
?
|
137,200
|
|
Forward Ltd
|
|
June
|
July
|
August
|
September
|
|
|
|
2017
|
2017
|
2017
|
2017
|
|
Cash Budgets ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening Balance
|
|
300,000
|
210,000
|
?
|
?
|
|
Receipt from Debtors
|
|
|
?
|
?
|
?
|
|
|
|
300,000
|
?
|
?
|
?
|
|
|
|
|
|
|
|
|
Payments to Creditors
|
|
0
|
?
|
?
|
?
|
|
Payments to Labour
|
|
(90,000)
|
?
|
?
|
?
|
|
Total Payment
|
|
(90,000)
|
?
|
?
|
?
|
|
Closing Balance ($)
|
|
210,000
|
?
|
?
|
(323,200)
|
Comment on the closing balances in hand or overdrawn in the cash budget and indicate how the position might be improved.
b) You should select and set some budgeted target figures in your chosen organisation. Justify your selection.
c) Compare the actual expenditure and income to the master budget of an organisation for the chosen organisation. Identify the variances between these two sets of figures, discuss how significant you think the variances might be considered to be and their possible causes.
d) Evaluate budgetary monitoring processes in the chosen organisation.
Task 4
Recommending cost reduction and management processes for an organisation
a) Recommend processes that could manage cost reduction in your chosen organisation. Explain with reference to relevant theory and concepts.
b) Evaluate the potential for the use of activity-based costing in your chosen organisation.
Task 5 Using financial appraisal techniques to make strategic investment decisions for an organisation
Suppose your chosen organisation has HKD$20,000,000 to invest and is considering two possible investment projects. Below is the anticipated cash flows for each project.
Year Project A Project B
$000 $000
0 (20,000) (20,000)
1 1,090 1,020
2 2,600 2,700
3 9,090 5,600
4 7,980 11,590
5 8,470 6,470
Other relevant information is
- the company discounts its investment projects using a 4% discount rate;
- the company depreciates its capital assets on a straight-line basis; for the above project you should assume that the equipment has no scrap value at the end of the 5 year period.
a)
(i) For each of the above projects you are required to calculate their
- Payback;
- Accounting rate of return.
(ii) Discuss the strengths and weaknesses of each of the investment appraisal techniques above.
(iii) Describe one other investment appraisal technique the company might have used and discuss why.
(iv) Discuss the main differences between investment appraisal in the public sector and the private sector.
b) Based upon the calculations in (ai), recommend which project the company should adopt if any. Give reasons for your decision.
c) Discuss how a post- appraisal audit may help one improve on the effectiveness of investment decision making.
Task 6 Interpreting financial statements for planning and decision making
a) Based upon the published financial accounts of your chosen company, apply financial ratios and assess the profitability and liquidity of the company over the last two financial years. Assess the financial viability of the chosen organisation. You should attach the accounts in the Appendix.
b) Discuss how the organization might respond to your discussion in 6a) and if necessary, improve its profitability. How could the quality of financial information be improved?
c) Based on the financial information of your chosen organisation, make recommendations on the strategic portfolio of an organisation.