DANANG UNIVERSITY OF ECONOMICS

BTEC HND IN BUSINESS (MANAGEMENT)

ASSIGNMENT COVER SHEET
NAME OF STUDENT

REGISTRATION NO.
UNIT TITLE
ASSIGNMENT TITLE
ASSIGNMENT NO
NAME OF ASSESSOR
SUBMISSION DEADLINE

LUU VAN DUC

Unit 2: Managing Financial Resources and Decisions
Financial Performance Analysis and Decision Making

2 of 2
MISS. KHA PHAM
7th July, 2014

I, __________________________ hereby confirm that this assignment is my own work and not
copied or plagiarized from any source. I have referenced the sources from which information is
obtained by me for this assignment.

________________________________
Signature

________7th July 2014_________

Date

----------------------------------------------------------------------------------------------------------------

FOR OFFICIAL USE

Assignment Received By:

MFRD A2 QCF MAY 2014 DUE

Date:

Unit Outcomes
Outcome

Evidence for the

criteria

Feedback

Assessors decision
First

Be able to
make
financial
decisions
based on
financial
information

Analyse budgets
and make
appropriate
decisions

3.1

Explain the
calculation of unit
costs and make
pricing
decisions using
relevant
information

3.2

Assess the
viability of a
project using
investment
appraisal
techniques

3.3

Discuss the main

financial
statements

4.1

Compare
appropriate
formats of
financial
statements for
different types of
business

4.2

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

4.3

Internal
Verification

Re-

LO3

Be able to
evaluate the
financial
performance
of a
business
LO4

Merit grades awarded

M1

M2

M3

Distinction grades awarded

D1

D2

D3

MFRD A2 QCF MAY 2014 DUE

Outcome

Evidence for the

criteria

Feedback

Assessors decision

Internal
Verification

Assignment
( ) Well-structured; Reference is done properly / should be done (if any)
Overall, youve

Areas for improvement:

ASSESSOR SIGNATURE

DATE

DATE

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

(Oral feedback was also provided)

STUDENT SIGNATURE
NAME :..............................................................................
FOR INTERNAL USE ONLY
VERIFIED
YES
NO
DATE
: ...........................................................................
VERIFIED BY : ...........................................................................
NAME
: ...........................................................................

MFRD A2 QCF MAY 2014 DUE

SCENARIO
A

BUDGETING DECISIONS

Holyrood Products Ltd makes DVD recorders. The management accountant has
produced the following summary of the companys trading in the year ended 30 June
Year 3:

Sales: 30,000 recorders

375,000
Deduct:
Direct materials
Direct labour
Works and administration overhead
Selling overhead

128,000
96,000
50,000
20,000
294,000
81,000

Trading profit

The following additional information is available:

a. Works and administration overhead was 64% variable and 36% fixed, the
latter including 2,500 for depreciation of plant surplus to current
requirements.
b. Selling overhead was 75% variable and 25% fixed.
The production manager has made the following estimates for the year to 30 June
Year 4 which show that:
a. The excess plant will be utilised for the production of calculators and digital
watches in quantities of 5,000 and 10,000 respectively. The variable costs are:
Calculators
Watches

Direct materials
15,000
10,000
Direct labour
10,000
25,000
Works and administration overhead
2,500
15,000
Selling overhead
4,500
2,250
b. Production of DVD recorders will be at the same level as that achieved in the
year to 30 June Year 3.
c. Fixed overhead:
DVD recorders
Works and administration No change
Selling
60% increase

MFRD A2 QCF MAY 2014 DUE

Calculators

8,000*
2,250

Watches

13,500*
6,750

d. Materials costs for DVD recorders will be increased by 1 per unit. Other
variable costs will be held at the level attained in the year ended 30 June Year
3.
The marketing director has advised that each product should be priced so as to
achieve a 25% profit on total cost.
Task

Analyse budgets and make appropriate decisions based on given

information above
(3.1)
Hints: You are required to prepare a statement of budgeted profit for the year ended 30
June Year 4.

COSTING AND PRICING DECISIONS

Holyrood Products Ltd manufactures a product, particulars of which are detailed

below:
Annual Production (Units)
Cost per annum
Material
Other variable cost
Fixed cost
Apportioned Investment ()

40,000
()
100,000
120,000
80,000
300,000

Assume that Holyrood Products Ltd Tax rate is 40% - (a) 20% return on investment;
(b) 6% profit on list sales, when trade discount is 40%.
Task

Explain the calculation of unit costs and make pricing decisions using
relevant information given in the scenario
(3.2)

C. INVESTMENT DECISIONS
Holyrood Products Ltd intends to acquire a new machine costing 50,000 which is
expected to have a life of five years, with a scrap value of 10,000 at the end of that
time. Cash flows arising from operation of the machine are expected to arise on the
last day of each year as follows: (Assume a discount rate of 10 per cent per annum.)

MFRD A2 QCF MAY 2014 DUE

End of year
1
2
3
4
5

10,000
15,000
20,000
25,000
25,000

Task

Assess the viability of a project using investment appraisal techniques

(3.3)
(Hints: Calculate the payback period, the accounting rate of return and the net
present value, explaining the meaning of each answer you produce.)

FINANCIAL PERFORMANCE
Holyrood Products Ltd profit and loss account for the year ended 31 July 2013

Turnover from continuing operations

Cost of sales
Gross profit
Administrative expenses
Operating profit
Net interest payable
Profit on ordinary activities before tax
Tax on profit on ordinary activities
Profit on ordinary activities after tax
Dividends
Retained profit for the year

MFRD A2 QCF MAY 2014 DUE

2013
000
730,913
(621,894)
109,019
(34,036)
74,983
(18,844)
56,139
(19,744)
36,395
(7,434)
28,961

2012
000
601,295
(503,699)
97,596
(27,511)
70,085
(16,517)
53,568
(18,152)
35,416
(6,902)
28,514

Holyrood Products Ltd Balance sheet as on 31 July 2013

Fixed Assets
Tangible assets
Current Assets
Stocks
Debtors due after more than one year
Debtors due after less than one year
Investments
Cash
Creditors due within one year
Net current liabilities
Total assets less current liabilities
Creditors due after one year
Provisions for liabilities and charges
Capital and Reserves
Called-up share capital
Share premium account
Capital redemption reserve
Revaluation reserve
Profit and loss account
Equity shareholders funds

2013
000
773,823
773,823

2012
000
745,041
745,041

9,601
8,448
9,017
301
15,160
42,527
(135,361)
(92,834)
680,989
(299,942)
(62,419)
318,628

8,594
7,682
8,237
203
13,609
38,325
(122,919)
(84,594)
660,447
(292,915)
(57,399)
310,133

4,149
126,739
165
22,439
165,136
318,628

4,292
124,819
23,386
157,636
310,133

Tasks

Discuss the main financial statements (such as income statement, balance

sheet )of Holyrood Products Ltd
(4.1)

Compare appropriate formats of financial statements for different types of

business (income statement and balance sheet for different types of
business such as sole proprietorship, partnership and limited company)
(4.2)

Interpret financial statements using appropriate ratios and comparisons,

both internal and external
(4.3)

MFRD A2 QCF MAY 2014 DUE

GRADING
Pass is achieved by meeting all the requirements defined in the assessment criteria.
(Refer page 2 of the assignment brief)
Merit Identify and apply strategies to find appropriate solutions

(M1)

Characteristics / Possible Evidence Relevant theories and techniques

applied to analyse financial statements against the previous year;
accurate calculation for the unit cost, investment appraisal, and ratios
using the appropriate formulae taking into consideration all the relevant
variables and make financial decisions.
Select and apply appropriate techniques

(M2)

Characteristics / Possible Evidence Apply the relevant theoretical

framework in explaining the differences in the financial statement
formats for different types of business and information needs of
different decision makers; apply range of methods and techniques in
analyze and evaluating the financial performance of the given
businesses as well as comment on the companys performance.
Present and communicate appropriate findings

(M3)

Characteristics / Possible Evidence The work is presented in a

professionally-written report with appropriate structure and timely
submission of work.
Distinction Use critical reflection to evaluate own work and justify valid conclusions
(D1)
Characteristics / Possible Evidence Evaluate and synthesize relevant theories and
techniques to generate and justify valid conclusions based on financial information
and comment on business performance, and interpretation of financial statements
with suitable comparison.
Take responsibility for managing and organising activities

(D2)

Characteristics / Possible Evidence Based on given financial

information make financial decisions using of various techniques to
evaluate business performance are sufficiently discussed by examining
their pros and cons.
Demonstrate convergent, lateral and creative thinking

(D3)

Characteristics / Possible Evidence Detailed and in-depth evaluation

of the company; uses of financial information to make decisions
relating to pricing, investment, budgeting as well as evaluation of
financial performance by linking theory with the scenario.

PRESENTATION
MFRD A2 QCF MAY 2014 DUE

1. The assignment should have a cover page that includes the assignment title,
assignment number, course title, module title, Lecturer/tutor name and students
name. Attach all the pages of assignment brief/cover sheet with your report and
leave them blank for official use.
2. Ensure that authenticity declaration has been signed.
3. This is an individual assignment.
4. Content sheet with a list of all headings and page numbers.
5. A fully typed up professionally presented report document. Use 12 point Arial or
Times New Roman script.
6. Your assignment should be word-processed and should not exceed 3,000 words
in length. A CD should be included with references and accompanying
notes.
7. Use the Harvard referencing system.
8. Exhibits/appendices are outside this limit.
9. The assignment should contain a list of any references used in the report.
NOTES TO STUDENTS FOR SUMMISSION

Check carefully the submission date and the instructions given with the
assignment. 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 peoples work or ideas in your
assignment, you properly reference them in your text and any bibliography.

NOTE: If you are caught plagiarizing, the University policies and

procedures will apply.

MFRD A2 QCF MAY 2014 DUE

3.1 Analyse budgets and make appropriate decisions based on given information above
Budget is the process of mapping out the sources and uses of funds for upcoming periods for
the business. Budgeting requires both economic analysis (including forecasting) and
accounting information (Drake & Fabozzi, 2010). Creating the budgets makes the manager
encourage examining clearly the relationship between the things had done and the things
which can be done in the future. This includes making a constant comparison between the
actual results and the budgeted results, and then taking any necessary corrective action
(Dyson, 2010).
In the case of Holyrood Products Ltd, the company has given information about the cost and
sales for three products: DVD recorders, calculators and watches. While a statement of
budgeted profit for the year ended 30 June Year 4 is required, the relevant information in the
case reflects the companys trading in the year 3 for the DVD recorders and manufacturing
costs for the calculators and watches.
In the Year 4, the sales of DVD recorders could be the same as the total units are sold in the
Year 3. The revenue budget of DVD recorders is prepared while the selling price can be
determined by dividing total revenues and units.
Revenues Budget
For the Year Ended 30 June Year 4.
Units
DVD recorders

30,000

Selling price

Total revenue

12,5

Total

375,000
375,000

Figure 1: The revenue budget of DVD recorders in Year 4.

Source: Taken from the case study.
The revenue budget in Holyroods case for DVD recorders estimates the strategy of company
to remain the constant sales turnover by producing the same level as the previous year. The
revenue earned by the firm has to cover the costs of materials, labour and overhead. As
figured out in the case study, the fixed and variable costs of DVD recorders had changed.
According to McLaney & Atrill (2008), the fixed cost remains at the same level even the
volume of output or activities grows. In contrast, variable cost is constantly influenced by the
outputs; an increase in the sale of products can lead the variable costs to go up. In application
of the companys products, the fixed and variable expenses budget is given in the following
figure.

Fixed and variable expenses

MFRD A2 QCF MAY 2014 DUE

10

For the Year Ended 30 June Year 4.

Note

DVD recorder

Calculators

Watches

Variable costs
- Direct materials

158,000

15,000

10,000

- Direct labour
- Works and administration overhead

2
3

96,000
32,000

10,000
2,500

25,000
15,000

- Selling overhead

15,000
301,000

4,500
32,000

2,250
52,250

Fixed costs
- Works and administration

18,000

8,000

13,500

- Selling

8,000
26,000
327,000

2,250
10,250
42,250

6,750
20,250
72,500

Total expenses

441,750

Figure 2: The fixed and variable expenses of Holyrood in the Year 4.

Source: Taken from the case study.

Note 1: As the scenario gives information, the direct materials cost for the DVD recorders in
the year 4 increases by 1 per unit. This indicates the addition of 30,000 to the year 3s
material usage in pound.
Year 3
Sales (units)
Direct materials

Year 4
30,000

30,000

128,000

158,000

Figure 3: The direct material usage during 2 years.

Source: Taken from the case study.
Note 2: The direct labour cost of DVD recorder remains the same level in year 3 while the
manufacturing labour cost of calculators and watches is figured out in the scenario.
Note 3, 4, 5& 6: Apart from the DVD recorders material cost, the other variable costs have
no change in the year 4. Due to the information in the case study, each cost has the different
proportions of fixed and variable. In the case of selling cost, there is an increase by 60% in
the 25% fixed percentage. The costs incurred in DVD recorders production are computed in
the figure 4. For the calculators and watches, the costs have been estimated in the scenario.

MFRD A2 QCF MAY 2014 DUE

11

Proportion

Variable

Works and administration

50,000

Selling

20,000

Fixed

64%

36%

32,000

15,000

75%

25%

18,000

5,000
3,000

60% increased

8,000

Figure 4: Works and administration and selling costs of DVD recorder in Year 4.
Source: Taken from the case study.

In terms of expenses, the DVD recorders use the highest costs due to the high number of units
produced in comparison with calculators (5,000 units) and watches (10,000). For each
expense used by the company to make and sell the products can have the proportion in its
profit.
The profit which the company will generate in the Year 4 takes the 25% of the total cost; the
figure 5 indicates the profit and percentage of each products cost contributed in the expenses.
The profit of the three products is determined by using the expenses percentage.
Year 4

Total cost
- DVD recorder
- Calculators
- Watches
Profit (25% of total cost)
- DVD recorder
- Calculators
- Watches

441,750
327,000
42,250
72,500
110,438
81,723
10,602
39,317

100%
74%
9,6%
16,4%

Figure 5: The total cost and profit of Holyrood company in the Year 4.
Source: Taken from the case study.
After calculating the total cost and profit, the revenue is prepared for the budgeted income
statement. In other words, the turnover is the surplus of total cost and profit. The following
figure 6 lists the loss and profit of the company in the upcoming year.

Sale revenue

MFRD A2 QCF MAY 2014 DUE

Calculators

Watches

52,852

91,567

12

Expenses

42,250

52,250

Profit

10,602

39,317

Units produced

5,000

10,000

Selling price

10.6

9.2

Figure 6: The selling price of calculators and watches in the Year 4.

Source: Taken from the case study.
Budgeted Income Statement for Holyrood
Products Ltd.
For the Year Ended 30 June Year 4.

Revenue

552,188

Less: Variable cost of sales

Less: Fixed production overhead
Cost of good sold
Gross margin
Budgeted net profit

385,250
56,500
441,750
110,438
110,438

Figure 7: The Budgeted Income Statement for Holyrood Products Ltd in the Year 4.
Source: Taken from the case study.
In the budget below, the cost of good sold indicates the expense for manufacturing the certain
amount of products in the Holyrood. As an aspect of the costs, the variable cost including the
direct materials, labour, work and selling expenses takes the higher proportion than the fixed
cost. The figure has shown that in the year 4, 110,438 is the amount of profit before tax the
company will have. For this profit, the company can use it for tax payment, dividend and
retained earnings.

MFRD A2 QCF MAY 2014 DUE

13