Reference no: EM133460051 , Length: word count:2000
Financial analysis
Learning Outcome 1: Demonstrate an understanding of different markets and sources of finance; and the role of budgeting in an organisation.
Learning Outcome 2: Be able to assess budgets based financial data to support organisational objectives (CMI Los 2).
Learning Outcome 3: Analyse the information contained in a company's annual report; and appraise finance and investment decision.
Learning Outcome 4: Demonstrate an understanding of the context within which accounting operates, and the various local and international standards that need to be complied with.
Learning Outcome 5. Effectively apply budgets and investment appraisal techniques.
Learning Outcome 6. Effectively apply key ratios appropriate for analysing the financial performance of the organisation.
Learning Outcome 7. Understand how to evaluate financial proposals for expenditure submitted by others (CMI Los 3).
Your Task:
The London Delight is a company that prepares meals for commuters in its kitchen located next to the busiest train station. Company seen a growth in its sales post Covid19. The current trend that resulted increase in revenue is takeaways, using third party app orders (online). The company's planning and actual budgets for January shown below:
The London Delight
Planning and actual budgets for the month ended January 31st, 2023
|
|
PLANNING
|
ACTUAL
|
|
Regular meals quantity
|
(q)
|
50 000
|
40 000
|
|
Online meals quantity
|
(q)
|
30 000
|
35 000
|
|
Revenues (£6.00q)
|
|
£480 000
|
£450 000
|
|
Expenses:
|
|
|
|
|
Raw material (£3.50q)
|
280 000
|
258 500
|
|
Chef Salary (£10 000+£0.25q)
|
30 000
|
29 000
|
|
Wages and salaries (£35 500+£0.50q)
|
75 500
|
73 500
|
|
Utilities (£1 500 + £0.15q)
|
13 500
|
13 900
|
|
Facility rent
|
6 000
|
6 000
|
|
Insurance
|
3 800
|
3 800
|
|
Fuel
|
18 500
|
17 800
|
|
Delivery charges (£6 500 + £1.50qm)
|
19 250
|
18 950
|
|
Business rates and taxes
|
8 000
|
8 000
|
|
Repairs and maintenance
|
5 000
|
4 500
|
|
Net Operating Income
|
£20 450
|
£16 050
|
qm= quantity in miles (8500 budgeted 8300 Actual miles in January)
Required:
a) i) Prepare a report showing London Delight revenue and spending variance for January 2023?
ii) Outline the objectives of budgeting and explain how London Delight benefits from engaging in robust budgetary processes? (25 marks)
b) London Delight's income statement for the period ending 31 December 20x2 is as follows:
|
Sales (35000q)
|
175,000
|
|
Direct Material
|
70,000
|
|
Direct Wages
|
35,000
|
|
Variable overheads
|
21,875
|
|
Fixed overheads
|
8,750
|
|
Admin Overheads
|
26,250
|
|
Selling & distributing overheads
|
15,300
|
|
|
177,175
|
|
Profit/Loss
|
(2,175)
|
Calculate and comment:
• The contribution per unit and break-even sales
• Profitability ratios
• Evaluate viability of proposal when increase in selling price and wages by 10% will generate profits for upcoming period.
• Explain results and show benefits of Cost volume profit analysis (20 marks)
c) Management of London Delight carried out marketing research and found using modern machinery will improve efficiency and reduce energy consumption. There are two proposals under consideration:
|
|
Proposal 1
|
Proposal 2
|
|
Equipment cost
|
£700,000
|
£900,000
|
|
Useful life
|
5 years
|
5 years
|
|
Cash flow year 1
|
£100,000
|
£50,000
|
|
Year 2
|
£150,000
|
£80,000
|
|
Year 3
|
£225,000
|
£200,000
|
|
Year 4
|
£300,000
|
£400,000
|
|
Year 5
|
£300,000
|
£550,000
|
NB: cost of capital 10% Based on above details:
• Assess and effectively apply investment appraisal techniques (Payback, NPV, ARR, IRR etc) to advise management on above proposals outlining merits of each technique. (25 marks)
d) Explain the terms profitability and sustainability. Suggest management potential sources of finance to fund proposals in part c. Your report should advise the London Delight on the measures they should adopt to ensure the attainment of sustainability. (20 marks)
The word count for this assignment is 2,000 words +/- 10% and will not include the title page, executive summary, contents page or bibliography.
It is important that you show knowledge of key debates within the wider literature. Also, it is strongly advised that you are critical in your writing and ensure a good level of integration and coherence in applying theories. Please work on, and ensure an excellent level of criticality, coherence, and flow of your report. This will require effective discussion and clarity.