Assignment/Coursework Remit

Programme Title	B.Sc. Business Management/ International Business
Module Title	Managing Financial Resources
Module Code	32428
Assignment Title	Management Accounting System
Level	4
Weighting	50%
Hand Out Date	05/03/2024
Deadline Date & Time	25/04/2024		12pm
Feedback Post Date	13/05/2024
Assignment Format	Report
Assignment Length	1000 words
Submission Format	Online	Individual

Assignment:

You are required to write a 1000 words report answering the following sets of questions.

Part 1

You are currently employed as the management accountant of Skip Ltd, which was incorporated on 1 January 2024. The opening statement of financial position (balance sheet) of the business is as follows:

Assets    £     

Cash at bank 100,000

Share capital.  

£1 ordinary shares 100,000 

During January 2024, the business intends to make payments of £50,000 for a leasehold property, £20,000 for equipment and £10,000 for a motor vehicle. The business will also purchase initial trading inventories costing £30,000 on credit.

The business has produced the following estimates:

1. Sales revenue for January will be £10,000 and will increase at the rate of £4,000 a month until April. In May, sales revenue will rise to £25,000 and in subsequent months will be maintained at this figure.

2. The gross profit percentage from goods sold will be 25 per cent.

3. There is a risk that supplies of trading inventories will be interrupted towards the end of the accounting year. The business, therefore, intends to build up its initial level of inventories (£30,000) by purchasing £2,000 of inventories each month in addition to the monthly purchases necessary to satisfy monthly sales requirements. All purchases of inventories (including the initial inventories) will be on one month’s credit.

4. Sales revenue will be divided equally between cash and credit sales. Credit customers are expected to pay two months after the sale is agreed.

5. Wages and salaries will be £1000 a month. Other overheads will be £600 a month for the first four months and £800 thereafter. Both types of expense will be payable when incurred.

6. 80 per cent of sales revenue will be generated by salespeople who will receive 5 per cent commission on sales revenue. The commission is payable one month after the sale is agreed.

7. The business intends to purchase further equipment in June for £8,000 cash.

8. Depreciation will be provided at the rate of 5 per cent a year on property and 20 per cent a year on equipment. (Depreciation has not been included in the overheads mentioned in 5 above.)

Required:

The director of Skip does not have any experience in management accounting and has asked you to write a report explaining clearly.

(a) Discuss why a cash budget is required for a business and explain how it will help in decision-making (include the 3 advantages and 3 disadvantages of the cash budget). (10 marks)

(b) Therefore, to support your discussion from part (a), you are required to prepare a cash budget for Skip Ltd for the six-month period to 30 June 2024. (8 marks)

(c) With help from the information, you have gathered from the cash budgets (part b), explain what Skip Ltd can do to improve its cash flow position. (7 marks)

Total 25 marks

Part 2

In March, the director of Skip Ltd is currently considering two mutually exclusive investment projects. The projects relate to the purchase of a new plant. The following data are available for each project:

	Project 1	Project 2
	£'000	£'000
cost (immediate Outlay)	800	600
Expected annual Operating Profit/(loss)
year 1	290	180
year 2	-10	-20
year 3	20	40
Estimated residual value of the plant after 3 years	80	60

The business has an estimated cost of capital of 10%. It uses the straight-line method of depreciation for all non-current assets when calculating operating profits. Neither project would increase the working capital of the business. The business has sufficient funds to meet all investment expenditure requirements.

The director of Skip ltd has ask you to appraise these projects and report on the following:

a) Explain what information the investment appraisal techniques listed below provides and how it helps decision-making. (9 marks)

b) Calculate for each of the project.

a. The Net Present Value (NPV) (4 marks)

b. The Internal Rate of Return (IRR) (3 marks)

c. The Payback period (PBP) (3 marks)

c) State, with reasons, which, if any of the two investments projects, the director of Skip Ltd should accept and why. (6 marks)

Total 25 marks

Module Learning Outcomes:

LO5	Evaluate the use of management accounting in the operation of business entities;
LO6	Explain how management accounting relates to financial accounting and the relevance for financial markets;
LO7	Apply appropriate accounting techniques to a range of management tasks;
LO8	Demonstrate understanding of the nature of profit and cost, giving attention to cash, cost behaviour, overheads, contribution, opportunity cost;
LO9	Extend the application of management techniques to an analysis of business cases.
L10	Describe the various sources of finance available to business ventures in general and limited companies in particular.

Grading Criteria:

b) The Content and range of knowledge displayed should demonstrate a detailed, systematic, in-depth, theoretically informed knowledge base, with some appreciation of the provisional nature of knowledge.

c) Your Conclusions should be well developed, analytical, use appropriate forms of conceptualisation, and show some originality. They are thoroughly grounded in theory / evidence / literature. They form. an integrated part of the overall argument / discussion.