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UNIT TITLE Unit 2: Managing Financial Resources and DecisionsASSIGNMENT TITLE Archie’s business – Group assignment (work in pairs)

9ASSIGNMENT NO 2 of 3NAME OF ASSESSOR Marcus Lang & Huu Chi NguyenSUBMISSION DEADLINE 10am, 25th November 2013

We hereby confirm that this assignment is our own work and not copied or plagiarized from any source. We have referenced the sources from which information is obtained by us for this assignment.

NAME OF THE STUDENT

REGISTRATION NUMBER

SIGNATURE

1.2.

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FOR OFFICIAL USE

ASSIGNMENT GRADE

1

NATIONAL ECONOMICS UNIVERSITYBTEC HND IN BUSINESS

Assignment Cover Sheet

Unit Outcomes

Outcome Evidence for the criteria

Feedback Assessor’s decision

Internal Verificatio

n

Understand the

implications of finance

as a resource within a business(Unit 2)

Assess the information needs

of different decisions makers

2.3

Be able to make

financial decisions based on financial

information(Unit 2)

Analyse budgets and make

appropriate decisions

3.1

Analyse and

evaluate the financial

performance of the business

(4)

Interpret financial statements using appropriate ratios and comparisons, both internal and

external

4.3

Merit grades awarded M1 M2 M3

Distinction grades awarded D1 D2

Professor’s additional feedback and comments

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FOR OFFICIAL USE

Comments By Assessor

Assignment

( ) Well-structuredReference is done properly / should be done (if any)

Overall, you’ve

Areas for improvement:

ASSESSOR SIGNATURE DATE / /

NAME:................................................................................

(Oral feedback was also provided)

STUDENT SIGNATURE DATE / /

NAME :...............................................................................

FOR INTERNAL USE ONLY

VERIFIED YES NO

DATE : ...................................................................

VERIFIED BY : .................................................................

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CASE STUDY

ARCHIE’S COMPANY

Business profile

Archie Andrews has been working in the electronic components industry in both marketing and manufacturing for 15 years. He wants to set up his own company and has enlisted four investors to go into business with him. The business will manufacture parts to sell to other companies that will put those parts in their electronic products, so there will be no sales to the general public.

Archie has $50,000 of his own savings to put into the company and each of the investors has $125,000 to invest in the company. Due to Archie’s extensive experience in the industry the other four investors want him to run the company, but they all wish—and Archie agrees with them—to retain control of the company.

It is estimated that the company will require a total of $1,500,000 of financing. Due to Archie’s experience in the manufacturing side of the business and his extensive industry contacts from working in the sales and marketing side, the investors are optimistic about the start-up company’s prospects, provided that the company’s finances are properly managed. Archie has hired you as his financial manager because that is an aspect of business that he hardly knows anything about.

Archie plans to set up his business during the last month of this year to start the business operations on the 1st of January of the coming year 2012.

Task 1

You are required to assess the information needs of the different decision makers in

making decision for Archie’s development phase:

1. Manufacturing manager

2. Sales manager

3. Inventory manager

(Unit 2, 2.3)

Task 2

Assume that Archie’s Company has recently completed the sales forecasts for the year to

31st December, 2014. It expects to sell two electrical products A and B at price of $240

and $280 respectively.

Sales demand is expected to be as follow.

Product A: 20,000 units

Product B: 80,000 units

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Both units of products use the same raw materials and skilled labour but in different

quantities per unit.

Material Unit A Unit B

X 5 kgs 7 kgs

Y 6 kgs 9 kgs

Skilled labour 1 hour 1.5 hours

Some of material X will be already available in store with the book value of $3 per kg as

a result of a previous job that finishes in 2013. In 2014; however, X will not be utilized

for any contract. If material X is not used to make units of products A and B, it will be

disposed at $2/kg.

Meanwhile, material Y will be also available in the business to serve another contract. If

material Y is used to make products A and B, the same amount will be purchased at

current market value for the job, which Y is serving.

The expected costs during 2014 when the raw materials are purchased as follows:

Costs for materials in 2014

X $4.60 per kg

Y $6.50 per kg

The skilled labour rate is expected to be $10.00 per hour.

Stocks of raw materials and finished goods on 1st January 2014 are expected to be as follows:

Material X 400 kgs @ $3.9 per kg

Material Y 190 kgs @ $6.8 per kg

Product A 4,000 units @ $150

Product B 9,000 units @ $180

All closing stock including finished goods and raw materials reduced by 45% from their

opening stock by the end of 2014. Stock which is first purchased will be first put into

production (FIFO).

Production overheads costs are expected to be as follows:

Variable overhead $12.00 per skilled labour

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Fixed overhead $900,000 per annum

Notes:

Provision of losses and damages of units of products A and B for sales is 0.5%

Provision of losses and damages for the total materials put in production is 0.3%

Requirements:

1. Analyze budgets and make appropriate decisions for the year to 31 December 2014 to

prepare the following budgets for the business:

a. Raw material purchase budget (in both kg and $)b. Production budget (in units)c. Production cost budget

2. Do the budgets in part (1) have any limitations? If yes, propose solutions to improve the outcomes in part (1)?

(Unit 2, 3.1)

Task 3:

Assume that in 2013 and 2012, Archie’s Company has the following Profit and Loss Account and Balance Sheet.

Archie LtdProfit and loss Account for the year ended 31 December

Notes 2013 2012

$ $

Turnover 1 7,658,796 4,809,567

Operating profit 1 5,506,318 684,900

Interest 2 (27,000) (18,127)

Profit on ordinary activities before taxation 5,479,318 666,773

Taxation on ordinary activities (1,369,830) (166,693)

Profit on ordinary activities after taxation 4,109,489 500,080

Dividend (1,232,847) (150,024)

Retained profit for the year 2,876,642 350,056

Number of ordinary shares 710,000 710,000

Current market value of the share 1.6 1.9

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Archie LtdBalance sheet as at 31 December

Notes 2013 2012

Fixed assets

Tangible fixed assets (net) 1,304,180 656,071

Current assets

Bank and cash 30,029 368,363

Debtors 3 1,528,734 1,194,141

Stock 64,422 90,850

1,623,185 1,653,354

Creditors: amounts falling due within one year 4 1,071,262 962,456

Net current assets 551,923 690,898

Total assets less current liabilities 1,856,103 1,346,969

Creditors: amounts falling due after more than one year

10% first mortgage debenture stock 2016/2011 (200,000) (200,000)

Provision for liabilities and charges

Deferred taxation (230,000) (85,000)

1,426,103 1,061,969

Capital and reserves

Called up share capital 5 710,000 710,000

Share premium account 68,178 68,178

Profit and loss account 647,925 283,791

1,426,103 1,061,969

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NOTES TO THE ACCOUNTS

1) Turnover and profit 2013 2012

$ $

i) Sales 7,658,796 4,809,567

Cost of sales 1,598,709 3,541,780

Gross profit 6,060,087 1,267,787

Less Administration Expenses 553,769 582,887

Operating profits 5,506,318 684,900

ii) Operating profit is stated after charging    

Depreciation 250,087 330,187

Auditors' remuneration 7,500 6,000

Advertising 67,636 56,336

Directors' emoluments 92,494 87,965

2) Interest

Payable on bank overdrafts and other loans 19,874 10,909

Payable on debenture stock 9,000 8,000

28,874 18,909

Receivable on short term deposits (1,874) (782)

Net payable 27,000 18,127

3) Debtors $ $

Amounts falling within one year

Trade debtors 1,348,592 1,120,252

Prepayments and accrued income 99,822 15,729

Advanced corporation tax recoverable 9,200 16,700

1,457,614 1,152,681

Amounts falling due after more than one year

Advance corporation tax recoverable 39,000 17,200

Trade debtors 32,120 24,260

71,120 41,460

Total debtors 1,528,734 1,194,141

4) Creditors: amount falling due within one year    

Trade creditors 762,701 545,340

Accruals and deferred income 98,127 280,464

Corporation tax 128,000 37,200

Other taxes and social security costs 54,434 32,652

Dividend 28,000 66,800

1,071,262 962,456

5) Called up share capital    

Issued and fully paid ordinary shares of 1p each 710,000 710,000

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The average industry’s financial ratios are provided in the following table:

RatiosIndustry Average

(2013)

ROCE 20%Profit margin 15.80%Asset turn over 3.6 timesGross profit margin 26%Net profit margin 8.30%Liabilities ratio 50%Gearing ratio 18%Debt/Equity ratio 25%

Interest cover 25.7 times

Current ratio 120%

Quick ratio (Acid ratio) 90%

Debtor days ratio 55 days

Stock turnover period 13.8 daysCredit turnover 90 days

Earning per share (EPS) $0.45 per shareDividend per share $0.1 per share Dividend cover 4 timesP/E ratio 3 times

Dividend yield 14%

You are required to analyze financial statements using appropriate ratios and comparisons, both internal and external on financial performance of Archie’s Company based on four criteria:

1. Profitability and return on capital2. Borrowings3. Liquidity and working capital4. Shareholders’ investment

(Unit 2, 4.3)

GRADING CRITERIA

PASS

A pass grade is achieved by meeting all the requirements defined in the assessment

criteria for each outcome.

MERIT

M1: Identify and apply strategies to find appropriate solutions

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Characteristics / Possible Evidence –Budgets are well-prepared with appropriate

comments and analysis based on the given information; and adequate information needs

for different decisions makers.

M2: Select/design and apply appropriate methods/techniques

Characteristics / Possible Evidence – Apply the relevant theoretical framework in

calculating financial ratios. Provide adequate analysis the financial performance of the

company in comparison with the industry benchmark.

M3: Present and communicate appropriate findings

Characteristics / Possible Evidence – The work is presented in a professionally-written

report with appropriate structure and timely submission of work.

DISTINCTION

D1: Use critical reflection to evaluate own work and justify valid conclusions

Characteristics / Possible Evidence - Well written report showing deep understanding

and knowledge of budget analysis and appropriate decision making; in-depth analysis and

critical suggestions about financial performance of the company based on ratios

calculated. Appropriate Harvard-style citation and reference where necessary.

D2: Take responsibility for managing and organizing activities

Characteristics / Possible Evidence – Well written report showing deep understanding

and knowledge about budgets, financial decisions and financial performance. Various

issues had been adequately discussed and analyzed with appropriate assumptions and

referencing. Appropriate Harvard-style citation and reference where necessary.

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PRESENTATION

1. The assignment should have a cover page that includes the assignment title, assignment number, course title, module title, tutor name, class, and student’s name. Attach page 1-4 of assignment brief/cover sheet with your report and leave them blank for official use.

2. Ensure that authenticity declaration has been signed.

3. Content sheet with a list of all headings and page numbers.

4. A fully typed up professionally presented report document. Use 12 point Arial or Times New Roman script.

5. Produce a report (approximately 2,500 words) which covers the above tasks.

6. Use the Harvard referencing system.

7. Exhibits/appendices are outside this limit.

8. The assignment should not contain a bibliography – but should contain a list of any references used in the assignment.

NOTES TO STUDENTS

Check carefully the submission date and the instructions given with the assignment. Then submit your assignment on the website Turnitin.com. Late assignments will not be accepted.

Ensure that you give yourself enough time to complete the assignment by the due date.

Do not leave things such as printing to the last minute – excuses of this nature will not be accepted for failure to hand-in the work on time.

You must take responsibility for managing your own time effectively.

If you are unable to hand in your assignment on time and have valid reasons such as illness, you may apply (in writing) for an extension.

Failure to achieve a PASS grade will results in a REFERRAL grade being given.

Take great care that if you use other people’s work or ideas in your assignment, you properly reference them in your text and any bibliography.

NOTE: If you are caught plagiarizing, you could have your grade reduced to zero, or at worst, you could be excluded from the course.

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