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:

a.Using appropriate project appraisal techniques assess and demonstrate the financial viability of each project.

b. Evaluate the methods of investment appraisal completed in part (a). Recommend the most appropriate project for the business.

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:

1. 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:

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