Q1)

The Board of Directors has asked you to perform a review of the financial performance and financial position of the business based on the company's 2033 financial statements and key financial ratios and using any other available information which you consider to be relevant.

Key financial ratios to be calculated for 2033:

1.Return on capital employed

2.Operating margin

3.Gross margin

4.Operating expenses to sales

5.Revenue on capital employed

6.Inventory holding period

7.Receivables days

8.Payables days

9.Current ratio

10. Acid test

11. Gearing

12. Interest cover

(team 2 only)

Gross Profit Margin Analysis 2030 Variables 2031 Variables Production quantity 1600 Production quantity 1600 Sales quantity 1479 Sales quantity (max = 321 + production qty) 1500 Retail sales price 5000 Retail sales price 4500 Raw material cost per unit 2300 Raw material cost per unit 2200 Wage rate 10 Wage rate 11 2030 Gross Profit Margin 2031 Gross Profit Margin Total Per Unit Total Per Unit Per Unit W$000 WS W$000 WS Change % Change Revenue 5916 4000 Revenue 5400 3600 -400 104.5% Raw material cost of sales 3402 2300 Raw material cost of sales 3332 2221 79 -20.5% Direct labour cost of sales 1155 781 Direct labour cost of sales 1264 343 -61 16.0% Cost of Sales 4557 3081 Cost of Sales 4596 3064 17 -4.5% Gross profit 1359 919 Gross profit 804 536 -383 100.0% Gross profit margin ratio 23.0% Gross profit margin ratio 14.9% -35.2%Relevant Relevant Workings cost/revenue cost/revenue 2034 2035 W$ W$ 1. Special equipment 2. Raw materials: standard components 3. Raw materials: special components 4. Training 5. Use of factory space 6. Sales person's salary 7. Marketing costs 8. Fixed cost recovery rate Total relevant cost of the order (A) Total relevant revenue arising from the order (B) Surplus or deficit arising from the order (= B - A)Note: The majority of members of the Board of Directors do not have a nance background so your report will need to include clear and appropriate explanations of the methods and concepts you use within your report. COURSEWORK PORTFOLIO REQUIREMENTS (90%) Task 1: Financial Analysis (50% of the coursework portfolio) The Board of Directors has asked you to perform a review of the financial performance and financial position of the business based on the company's 2033 financial statements and key financial ratios and using any other available information which you consider to be relevant. Required: Prepare a report for the Board of Directors in which you analyse the company's financial performance and financial position, and which specifically addresses the company's profitability, efficiency, liquidity and stability. You should provide an appendix to your report in which you provide full workings for the following 12 key financial ratios for your business for 2033 and you should refer to at least 8 of these key financial ratios within the body of your report. Key financial ratios to be calculated for 2033: 1. Return on capital employed 2. Operating margin 3. Gross margin 4. Operating expenses to sales 5. Revenue on capital employed 6. Inventory holding period 7. Receivables days 8. Payables days 9. Current ratio 10. Acid test 11. Gearing 12. Interest cover 14. Staff Training Also, an extra W$ 12,000 as a 'one-off cost' for staff training will be required to ensure that production staff are able to use the special equipment required for this contract. 5. Use of Factory Space The project will require the use of some of the company's factory space which is currently surplus to requirements and would otherwise be sub-let, which would bring in income of W$16,000 in 2034. 6. Sales Staff Time One of your company's sales staff estimates she spent 20% of her working hours in 2033 on this project which included travelling for meetings with 'Big Store Inc.' executives. 7. Marketing Costs 'Big Store Inc.' will run a special advertising campaign in 2034 to support this trial which will cost W$80,000 but requires your company to pay for 50% of these costs. 8. Fixed Cost Recovery Rate For costing special projects such as this, your company has in the past applied a rate of 10% of net revenues arising when evaluating new orders in order to recover the business' recurring fixed costs (including admin expenses, overheads and direct labour costs). 4Required: Prepare a report for the Board of Directors in which you advise on whether or not the above order should be accepted. You should specifically address the following requirements: a) Explain the principles of relevant cost analysis, including the concept of 'opportunity costs'. b) Calculate the annual total relevant cost and revenues of this order in both 2034 and thereafter using the table below: Relevant Relevant 2034 20:5 W$ - - components - components 4. Training 5. Use of factory space 7. Marketing costs 8. Fixed cost recovery rate Total relevant cost of the order (A) Total relevant revenue arising from the order (B) Surplus or deficit arising from the order (= B A) 0) Explain the reasoning for your treatment of each item (1 8) referred to in the information above as either 'relevant' or 'irrelevant' in your analysis as appropriate. Make clear any assumptions made. d) Discuss two further considerations beyond the relevant cost analysis you have performed which you believe should be taken into account before a final decision is made. 9) Advise management on whether the order should be accepted. Task 2: Evaluation of Big Store Inc. Export Opportunity (25% of the coursework portfolio) Assume today's date is 1 January 2034. The Board of Directors has asked you to evaluate an opportunity to export robots to a potential new overseas retail customer, 'Big Store Inc.'. 'Big Store Inc.' would like to run a trial promotion of your robots. The company would like to buy 100 robots from your company in 2034 at a special net sales price of W$2,500 per robot. If the 2034 trial is successful, the company has indicated it is likely to double the order quantity and would be prepared to match the net price you charge to your home customers in 2035. Further information is provided below: 1. Special Equipment The robots for this contract with 'Big Store lnc.' will require some modications from the standard robot which your company produces and this will involve additional annual fixed production overheads of W$25,000 to cover the cost of hiring the special equipment required for this purpose. 2. Raw Materials: Standard Components The robots manufactured for this order contract will require the same standard raw material components used in your business' regular production process. 3. Raw Materials: Special Components The robots required for this contract will also require some 'special component' materials. The company has a stock of 150 units of these 'special components' in inventory which were purchased some years ago but which have been regarded as surplus to requirements and have been fully 'written off' in the accounts. These 'special components\" originally cost W$500 per unit and they currently cost W$600 per unit to purchase. If not used for this project, the inventory of 'special components' will be sold in 2034 for sales proceeds of W$400 per unit. One 'special component' will be required per robot. Task 3: Critical Reflection (25% of the coursework portfolio) Drawing on specific examples and events arising during the module, paying particular attention to the business simulation exercise, critically reect on two key learnings from the module from the following list: 1. the limitations of accounting information 2. the limitations of a specic management accounting technique of your choice 3. the difference between prot and cash ow performance 4. the difference between prot and value creation 5. the effective presentation and communication of financial information World No. 3 Team 2 Bionic Sciences PLc. Year: 2031 STATEMENT OF PROFIT OR LOSS STATEMENT OF FINANCIAL POSITION W$000 W$000 W$090 W$000 REVENUE 5504 NON-CURRENT ASSETS: Material -2877 Property, plant & equipment 1944 Direct labour -1080 Development costs COST OF SALES -3957 Investments Total Non Current Assets 1944 GROSS PROFIT 1547 OPERATING EXPENSES: CURRENT ASSETS: R & D -300 Inventory 1503 Marketing -110 Receivables 1357 Administration -278 Prepayments Overheads -865 Cash at bank 00000 Total Expenses -1553 Total Current Assets 2864 TOTAL ASSETS 4808 OPERATING PROFIT 6 Investment income CURRENT LIABILITIES: Interest receivable Payables 1058 Interest payable Bank overdraft 398 NET FINANCE COST -88 Accruals Provisions 70 PROFIT BEFORE TAX -94 Total Current Liabilities 1535 TAXATION -0 NON CURRENT LIABILITIES PROFIT FOR THE YEAR -94 Long term loan 1000 Total Non Current Liabilities 1000 TOTAL LIABILITIES 2535 STATEMENT OF CASH FLOWS NET ASSETS 2273 Operating profit -0006 EQUITY: Add: Depreciation +0216 Share capital 120 Add: Amortisation +0000 Share premium Change in working capital: Retained profits 2153 1. Inventory change -0514 2. Receivables change +0102 TOTAL EQUITY 2273 3. Prepayments change 0004 4. Payables change -0105 5. Accruals change +0009 6. Provisions change +0070 PERFORMANCE INDICATORS Total change in working capital -0442 Cash generated from operations -0232 Staff Morale Finance income received +0900 Staff Skills Finance expenses paid -9088 Staff Turnover (X) Tax paid -6000 Product Quality Net cash flow from operations -0320 Consumer Satisfaction Retailer Satisfaction Less: Purchase of PP&E Brand Awareness (X) Less: Purchase of intangible assets -0600 Less: Amount spent on investments 300 Add: Investment income received +0006 Net cash flow from investing +0000 Proceeds from share issue +0000 Draw down (repayment) of loan +000 Dividend paid -0006 Net cash flow from financing +0000 Net Cash Flow -0320Team 2 Bionic Sciences PLc. Year: 2031 KEY FINANCIAL RATIOS & METRICS SUPPLY AND DEMAND Return on Capital Employed (%) -0.2 Sales Volume (units) 1251 Return on Net Assets (X) -4.1 Lost Sales (units) Operating Margin (%) -0.1 Production (units) 1401 Gross Margin (X) 28.2 Total Capacity (units) 1632 Operating Expenses to Sales (*) 28.2 Revenue on Capital Employed (W$) 1.68 Current Ratio 1.87 GROSS PROFIT PER UNIT ANALYSIS (W$) Acid-Test Ratio 0.89 Inventory Days 139 Net sales price 4399 Receivables Days 90 Payables Days 98 Material cost 2306 Direct labour cost 863 Gearing (*) 38.1 Total cost 3163 Interest Cover -0. 1 EBITDA (W$000) 210 Gross profit 1236 Earnings per Share (W$) -0. 78 Share Price (W$) 19 MESSAGES: Auditors report your stock levels are too high. Shareholders are concerned about your current financial performance. Completed R & D: MARKET SUMMARY Team 1 Team 2 Supply: Production (units) 1401 Closing Inventory (units) 471 128 Lost Sales (units) Salaries (W$000 p.p. p.a.) 10.0 Demand : Price 5500 Special Order Price Market Share (%) 15.7 Sales Volume (units) 1251 Special Order Volume N. B. Special Order contracts are excluded from the Sales numbers & Market Share calculations Financials (W$600) : Revenue 5504 Profit After Tax -94 Net Assets 2273 Bank Overdraft 398World No. 3 Team 2 Bionic Sciences PLc. Year: 2032 STATEMENT OF PROFIT OR LOSS STATEMENT OF FINANCIAL POSITION W$000 W$000 W$900 W$000 REVENUE 6838 NON-CURRENT ASSETS: Material -3249 Property, plant & equipment 1750 Direct labour -1483 Development costs 960 COST OF SALES -4732 Investments Total Non Current Assets 2710 GROSS PROFIT 2106 OPERATING EXPENSES: CURRENT ASSETS: R & D -1040 Inventory 948 Marketing -160 Receivables 1686 Administration -305 Prepayments Overheads -860 Cash at bank 00000 Total Expenses -2365 Total Current Assets 2634 TOTAL ASSETS 5344 OPERATING PROFIT -259 Investment income CURRENT LIABILITIES: Interest receivable Payables 965 Interest payable -192 Bank overdraft 657 NET FINANCE COST -192 Accruals Provisions PROFIT BEFORE TAX -451 Total Current Liabilities 1622 TAXATION -0 NON CURRENT LIABILITIES PROFIT FOR THE YEAR 451 Long term loan 1900 Total Non Current Liabilities 1900 TOTAL LIABILITIES 3522 STATEMENT OF CASH FLOWS NET ASSETS 1822 Operating profit -0259 EQUITY: Add: Depreciation +0194 Share capital 120 Add: Amortisation +0240 Share premium Change in working capital: Retained profits 1702 1. Inventory change +0555 2. Receivables change 0329 TOTAL EQUITY 1822 3. Prepayments change -0004 4. Payables change 0093 5. Accruals change -0009 6. Provisions change -0070 PERFORMANCE INDICATORS Total change in working capital +0058 Cash generated from operations +0233 Staff Morale Finance income received +0900 Staff Skills Finance expenses paid 0192 Staff Turnover (%) Tax paid -0608 Product Quality Net cash flow from operations +0041 Consumer Satisfaction Retailer Satisfaction Less: Purchase of PP&E -0000 Brand Awareness (X) Less: Purchase of intangible assets -1200 Less: Amount spent on investments Add: Investment income received +0000 Net cash flow from investing -1200 Proceeds from share issue +0006 Draw down (repayment) of loan +090 Dividend paid -0000 Net cash flow from financing +0900 Net Cash Flow -0259Team 2 Bionic Sciences PLc. Year: 2032 KEY FINANCIAL RATIOS & METRICS SUPPLY AND DEMAND Return on Capital Employed (*) -7.0 Sales Volume (units) 1554 Return on Net Assets (X) -24.8 Lost Sales (units) Operating Margin (%) -3.8 Production (units) 1401 Gross Margin (X) 30.8 Total Capacity (units) 1644 Operating Expenses to Sales (*) 34.6 Revenue on Capital Employed (W$) 1.84 Current Ratio 1. 62 GROSS PROFIT PER UNIT ANALYSIS (W$) Acid-Test Ratio 1.04 Inventory Days 73 Net sales price 4490 Receivables Days 90 Payables Days 74 Material cost 2091 Direct labour cost 954 Gearing (*) 58.4 Total cost 3045 Interest Cover -1.3 EBITDA (W$000) 175 Gross profit 1355 Earnings per Share (W$) -3.76 Share Price (W$) 9 MESSAGES: Auditors report your stock levels are too high. Shareholders are concerned about your current financial performance. Completed R & D: 4, 16, MARKET SUMMARY Team 2 Supply: Production (units) 1401 Closing Inventory (units) 318 N Lost Sales (units) Salaries (W$000 p.p. p.a. ) 11. 0 Demand : Price 5500 Special Order Price W Market Share (%) 18.4 Sales Volume (units) 1554 Special Order Volume N. B. Special Order contracts are excluded from the Sales numbers & Market Share calculations Financials (W$000) : Revenue 6838 Profit After Tax -451 Net Assets 1822 Bank Overdraft 657 78World No. 3 Team 2 Bionic Sciences PLc. Year: 2033 STATEMENT OF PROFIT OR LOSS STATEMENT OF FINANCIAL POSITION W$000 W$000 W$900 W$090 REVENUE 7773 NON CURRENT ASSETS: Material -3422 Property, plant & equipment 1575 Direct labour -1509 Development costs 912 COST OF SALES -4931 Investments Total Non Current Assets 2487 GROSS PROFIT 2842 OPERATING EXPENSES: CURRENT ASSETS: R & D -448 Inventory 592 Marketing -210 Receivables 1278 Administration -305 Prepayments Overheads -856 Cash at bank 01084 Total Expenses -1819 Total Current Assets 2954 TOTAL ASSETS 5441 OPERATING PROFIT 1023 Investment income CURRENT LIABILITIES: Interest receivable Payables 1075 Interest payable -218 Bank overdraft NET FINANCE COST -218 Accruals Provisions PROFIT BEFORE TAX 805 Total Current Liabilities 1075 TAXATION -0 NON CURRENT LIABILITIES PROFIT FOR THE YEAR 805 Long term loan 1900 Total Non Current Liabilities 1900 TOTAL LIABILITIES 2975 STATEMENT OF CASH FLOWS NET ASSETS 2466 Operating profit +1023 EQUITY: Add: Depreciation +0175 Share capital 120 Add: Amortisation +0288 Share premium Change in working capital: Retained profits 2346 1. Inventory change +0356 2. Receivables change +0408 TOTAL EQUITY 2466 3. Prepayments change 10900 4. Payables change +0110 5. Accruals change +000 6. Provisions change +0000 PERFORMANCE INDICATORS Total change in working capital +0874 Cash generated from operations +2360 Staff Morale Finance income received +0000 Staff Skills Finance expenses paid 0218 Staff Turnover (%) Tax paid -0600 Product Quality Net cash flow from operations +2142 Consumer Satisfaction Retailer Satisfaction Less: Purchase of PP&E -0006 Brand Awareness (X) 21 Less: Purchase of intangible assets -0240 Less: Amount spent on investments 300 Add: Investment income received +0600 Net cash flow from investing -0240 Proceeds from share issue +0000 Draw down (repayment) of loan Dividend paid -0161 Net cash flow from financing -0161 Net Cash Flow +1741Team 2 Bionic Sciences PLc. Year : 2033 KEY FINANCIAL RATIOS & METRICS SUPPLY AND DEMAND Share Price (W$) 21 Sales Volume (units) 1711 Lost Sales (units) Production (units) 1609 Total Capacity (units) 1640 GROSS PROFIT PER UNIT ANALYSIS (W$ ) Net sales price 4542 Material cost 2000 Direct labour cost 882 Total cost 2882 Gross profit 1660 MESSAGES: Completed R & D: 3, 4, 16, MARKET SUMMARY Team 2 Supply : Production (units) 1600 Closing Inventory (units) 207 Lost Sales (units) Salaries (W$000 p.p. p.a. ) 1 11.0 Demand : Price 5900 Special Order Price Market Share (%) 20.3 Sales Volume (units) 1711 1060 Special Order Volume N.B. Special Order contracts are excluded from the Sales numbers & Market Share calculations Financials (W$000) : Revenue 7773 Profit After Tax 805 903 Net Assets 2466 Bank OverdraftWorld No. 3 Team 2 STATEMENT OF PROFIT OR LOSS N$000 REVENUE Materials -3184 Direct labour -1326 COST OF SALES GROSS PROFIT OPERATING EXPENSES: R & D -1288 Marketing -210 Administration 369 Overheads :2gg Total Expenses OPERATING PROFIT Investment income 6 Interest receivable 54 Interest payable ;;g NET FINANCE COST PROFIT BEFORE TAX TAXATION PROFIT FOR THE YEAR STATEMENT OF CASH FLOWS Operating profit Add: Depreciation Add: Amortisation Change in working capital: . Inventory change . Receivables change . Prepayments change . Payables change . Accruals change . Provisions change To a1 change in working capital Cash generated from operations Finance income received Finance expenses paid Tax paid Net cash flow from operations mthJNH Less: Purchase of PP&E Less: Purchase of intangible assets Less: Amount spent on investments Add: Investment income received Net cash flow from investing Proceeds from share issue Draw down (repayment) of loan Dividend paid Net cash flow from financing Net Cash Flow Bionic Sciences PLc. N$000 7601 -4510 3091 2753 338 240 -58 182 Year: 2634 STATEMENT OF FINANCIAL POSITION W$666 NON-CURRENT ASSETS: Property, plant & equipment 2167 Development costs 624 Investments 2 Total Non Current Assets CURRENT ASSETS: Inventory 1666 Receivables 1249 Prepayments 6 Cash at bank 66637 Total Current Assets TOTAL ASSETS CURRENT LIABILITIES: Payables 1165 Bank overdraft 6 Accruals 6 Provisions 9 Total Current Liabilities NON CURRENT LIABILITIES Long term loan 1966 Total Non Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY: Share capital Share premium Retained profits TOTAL EQUITY PERFORMANCE INDICATORS Staff Morale Staff Skills Staff Turnover (%) Product Quality Consumer Satisfaction Retailer Satisfaction 16 Brand Awareness (%) 16 OOOOONOO'J \"$000 2791 2886 5677 1165 1906 3065 2612 120 2492 2612 Team 2 Bionic Sciences PLc. Year: 2634 KEY FINANCIAL RATIOS & METRICS SUPPLY AND DEMAND Return on Capital Employed (%) 7.5 Sales Volume (units) 1565 Return on Net Assets (%) 7.6 Lost Sales (units) 6 Operating Margin (%) 4.4 Production (units) 1836 Gross Margin (%) 46.7 Total Capacity (units) 1836 Operating Expenses to Sales (%) 36.2 Revenue on Capital Employed (N$) 1.69 Current Ratio 2.48 GROSS PROFIT PER UNIT ANALYSIS (\"1 AciduTest Ratio 1.62 Inventory Days 81 Net sales price 4565 Receivables Days 66 Payables Days 94 Material cost 1912 Direct labour cost 226 Gearing (%) 42.1 Total cost 2268 Interest Cover 3.5 EBITDA (\"$666) 784 Gross profit 1857 Earnings per Share (NS) 1.52 Share Price (W$) 21 MESSAGES: Auditors report your stock levels are too high. Auditors report your expenses are too high Shareholders are concerned about your current nancial performance. Economists predict a slow down in the economy, but the government denies there will be a recession One of your robots malfunctions and injures its owner, they are suing you for W$1mi||ion. Completed R & D: 3, 4, 16, 18, MARKET SUMMARY - _Team 2 _ Supply: Production (units) 1836 Closing Inventory (units) 372 m Lost Sales (units) 6 Salaries (M666 p.p. p.a.) 11.6 ~ Demand: Price 6166 Special Order Price 2566 Market Share (%) 17.2 Sales Volume (units) 1565 Special Order Volume 166 N.B. Special Order contracts are excluded from the Sa es num ers & Market Share calculations Financials w 666 : Revenue 7661 Profit After Tax 182 Net Assets 2612 Bank Overdraft