Read the Semester Case Study and answer the question below. Julie Welk, Head of Finance calls you into her office and says: I have just been talking to Ben Thakar, Sales and Marketing Director, about the S- Pencil. In the first few months after the launch sales volumes were a little lower than budgeted. As a result of this, three months ago two things happened: firstly, Ben authorised a special promotional price for the S-Pencil on our website for sales direct to the public and secondly, he tasked his sales teams to secure new retail customers and gave them authority to offer small discounts and extended credit terms to any new retail customers. Ben has asked me to look in detail at the impact of his actions three months ago on our actual profit compared to budget and the recoverability of our retail customer receivables. I have so far created a schedule which shows sales variances for the S- Pencil for the last three months as well as the aged receivables information for the S- Pencil customer. I would like you to prepare commentary to go with this schedule which explains: 1) Explain what the sales price, mix and quantity variances mean and the reasons for their occurrence. Please also comment on whether you think that Ben's two actions have been successful, with reference to each of the customer groups. [52 marks] (CLO2 & 3) 4. During the three-month period there was a change in the profile of S-Pencil customers as shown in the aged receivables comparison below. AGED RECEIVABLES COMPARISON: S-PENCIL CUSTOMERS 3 months ago Type of customer Large retailers Small retailers Number of customers Total amount due 3 711 64 367 Due within payment terms Up to 30 days overdue Over 60 days overdue 612 320 78 21 42 Now Type of customer Large retailers Number of customers 100 Total amount due Due within payment terms Up to 30 days overdue Over 60 days overdue 665 697 498 108 59 510 97 90 Small retailers Notes: Standard credit terms for credit customers is 30 days. The three large retailer customers are the same customers. Required Write the briefing paper requested by Julie Welk. 2) Analyse how the profile of aged receivables has changed over the last three months, reasons for these changes and the potential implication of these changes. Please also include two measures that we could take to manage these implications. [48 marks] (CLO2 & 3) Julie Welk then hands you her schedule. SALES VARIANCES FOR THE S-PENCIL FOR THE LAST THREE MONTHS Large retailers Small retailers Website Variance Total Sales price G$ 0 G$ G$ G$ 135,000 A 84,000 A 219,000 A Sales mix 256,500 A 247 438 F 143,437 F 134 375 F Sales quantity 121,500 F 76,313 F 47,812 F 245,625 F Notes: 1. A = adverse, F= favourable. 2. These variances are for our sales to large retailers, small retailers and directly to consumers through our website. 3. The sales mix and quantity variances are calculated using the individual units method and budgeted gross profit. The budgeted gross profits are as follows: Large retailers Small retailers Website Variance G$ Budgeted gross profit 6.75 G$ G$ 9.25 12.75 Steps in answering the case study questions 2. Read the questions/requirements of the case study. Highlight the key words of the questions and its requirements. Summarised the requirement. 3. Read the case study again and gather the relevant key facts which are required to answer the questions/requirements. Highlight and cross reference the relevant key facts to the questions/requirements of the case study. Steps in answering the case study questions 4. Plan the layout of the answer as per the requirement of the question. Follow the instruction given by the question, for example a report/proposal/briefing paper to the management/board of director, an email or memo to CEO/management on financial proposal etc. 5. You may use the related theoretical concepts to support and write your answer, for instance relevance costing concepts, ROI, SWOT analysis etc. Course Assignment 1 Based on Case Study - Lottie Graphite Requirement: - Write the commentary as requested by Julie Welk per question (1) & (2) Course Assignment 1 Key take-away points on the facts provided in the question *Sales volume of S-Pencil is little lower than budget in the first few months after the launch Actions taken by Sales & Marketing Director 1. Sales on website -Special promotional price 2. New retail customers - small discounts and extended credit terms Question 1 - 52 marks Prerequisite knowledge - Sales Variance (Course material Unit 3.1 page 13 - 17) Two requirements: Explain what the sales price, mix, quantity variances mean and the reasons for their occurrence. Comments on whether Ben's two actions have been successful with reference to each of the customer groups. Question 1 - 52 marks Explain what the sales price, mix, quantity variances mean and the reasons for their occurrence. Useful definitions: Sales price variance - The difference between the actual selling price and the budgeted selling price multiplied by the actual units sold. Question 1 - 52 marks Suggested Guidance : Sales mix variance Explain the variance for each group of customer i.e Large Retailer, Small Retailers and Website. Explain on the overall mix variance and comment on what it means. Provide the main reasons why the mix of sales to customers has changed. Question 1 - 52 marks Comments on whether Ben's two actions have been successful with reference to each of the customer groups Suggested Guidance : Comment on the overall impact of Ben's two actions or the actual profit of three months compared to budget. Highlight key take-away points for the attention of the management. Question 2 - 48 marks Elaborate how the profile of aged receivables has changed over the last three months, reasons for the occurrence and potential implications of these changes Suggested guidance Highlight the main changes of the profile of aged receivables - on the number of customer by group, movement on the amount overdue etc with its reasons for occurrence. - Potential implications of these changes e.g. cash flow, irrecoverable of receivables etc Question 248 marks Two measures that the management could take to manage these implications Suggested guidance Propose two suggestions of how to manage the implication To explore Trade Financing Solutions To explore offering discount on prompt payment