BUSI48901 TIMED ASSESSMENT PAPER PART C

Module Name:                      Management in Organizations (main assessment paper)

Module Code:                       BUSI48901

Examination Date:               Friday 19^th November 2021

Time:                                    Start time: 09:00 (UK time); Duration: 6 hours

Submission Deadline:         Friday 19^th November 2021 15:00 (UK time)

Inclusive Assessment: Online timed assessments have 100% extra time added to enable all reasonable adjustments to be accommodated while working online. If you have a Statement of Access, you should complete the examination in line with the adjustments identified in your statement.

INSTRUCTIONS TO CANDIDATES

Type of Assessment: Open Book Timed Assessment. You may make use of any material that was provided within the module as well as any external academic source. If you use external sources, these need to be referenced. You must not copy and paste material from any source apart from diagrams.

Honesty and Integrity: We expect you to act with integrity in undertaking this Examination in line with the Student Code of Conduct and the Academic Irregularities Policy. All submissions will be submitted to Turnitin for originality checking which includes checking against all other students’ work.

You must NOT:

• Copy and paste material from any source. (Note, unless indicated otherwise in your examination paper, it is permissible to copy and paste diagrams as long as these are correctly cited and absolutely necessary for the purposes of completing your answer).
• Collaborate with others in completing the assessment.
• Share any aspect of your work (e.g. notes, calculations, answers, sources) with other students by screenshare, social media, telephone, or email.

Materials Provided: The following are provided in the Assessment (Online) content unit in the Module Learning Room.  

• Instructions and guidance for the Assessment
• A description of your responsibilities
• A copy of the Assessment Paper
• A copy of your NBS Online Answer Booklet (YOU MUST USE THIS ANSWER BOOKLET TO SUBMIT YOUR ANSWERS)
• The following additional digital items are provided: Present value table and Ratios formula sheet

PLEASE NOTE THAT THERE MAY BE QUESTION SPECIFIC INSTRUCTIONS INCLUDED ON THE PAPER BELOW TO HELP YOU COMPLETE ALL ELEMENTS OF EACH QUESTION ONLINE.

Word Count: The total maximum word count for this Assessment is: 2500 words

The following penalties will be applied (NBS Word Count Policy-Online Examination) if the Assessment word count is exceeded.

• Additional words up to 500 words, the overall grade for the piece of work will be reduced by 1 grade point (e.g. UG 2.1-Mid to 2.1-Low; PG Commendation-Mid to Commendation-Low);
• Additional work exceeds 500 words, the overall grade for the piece of work will be reduced by 3 grade points (e.g. 2.1-Mid to 2.2 Mid; PG Commendation-Mid to Pass-Mid).
• These penalties will be applied even if the reduced grade is below a Pass grade.

All non-narrative elements included in the work that require a written description ARE EXCLUDED from the word count. These include: calculations, tables, charts or diagrams.

Citing and Referencing Requirements:

1. In-text citations are encouraged
2. NO reference list in Harvard style is required.
3. Appendices should NOT be submitted and will NOT be graded.

Submitting your Answer Booklet:

All required assessment answers MUST be typed in your copy of the NBS Online Answer Booklet.

You MUST submit your answer booklet to the required module Dropbox folder by the Submission Deadline stated above.

You should plan to submit with sufficient time to account for circumstances that are outside your control. Should you be prevented from submitting and miss the deadline due to such circumstances, then you should:

• email a description of the problem to Saeed Taheri [email protected] or Caroline Chartres [email protected] (include a screenshot or photograph of the issue) and if possible, include a copy of your Answer Booklet in the email.
• submit your Answer Booklet to the Dropbox folder as soon as you are able to.

Distribution of Marks and Overall Word Count in the Assessment: 

Below you will find, for each section of your Assessment, the distribution of marks and approximate suggested word count. You are advised to use the marks allocated to each question within a section to determine how to use the overall word count.

Part	Number of questions to be answered	Marks available for this section	Typical word count for this section
A	Answer All Questions	30	N/A
B	Answer 1 question from a choice of 2	35	1250
C	Answer 1 question from a choice of 2	35	1250
		Total marks 100 marks	2500 Maximum words

END OF INSTRUCTIONS

Part C – Financial Management

Answer one from two questions (35 marks in total)

Question 1: Budgets and CVP analysis  (35 marks)

Trent Components Limited manufacture specialist components to the electronics industry which are used in laptop computers and mobile phones. Whilst they have a good reputation for both quality and price, they do have several competitors. The recent Covid-19 pandemic, whilst not affecting their customers, has seen some supply issues as well as shortages of skilled labour.

The company feels that, under these circumstances, it has performed quite well over the past 12 months. However, actual sales are down on budget which has led to an overall significant under performance in the business. You have been approached by the CEO, James Johnson, to provide a flexed budget to identify which areas of the business under performed and to provide advice on what improvements could be made.

The results for the year ended 30 September 2021 are as follows:

	Budget	Actual
Sales units (Components)	150,000 units	142,500 units
Average Selling price per unit	£25	£26
	£	£
Sales revenue	3,750,000	3,705,000
Direct materials	(1,150,000)	(1,279,000)
Direct labour	(500,000)	(514,500)
Variable production costs	(125,000)	(161,600)
Fixed production overhead	(417,500)	(500,000)
Depreciation	(175,000)	(132,500)
Sales & admin overhead	(932,500)	(788,900)
Total Costs	(3,300,000)	(3,376,500)
Profit	450,000	328,500

Having made some enquiries, the following information has been obtained.

• The usual supplier of microchips had some manufacturing issues, so some of the shortfall had to be procured from alternative sources.
• The planned recruitment drive for additional skilled factory labour during the period had not been very successful which led to an increased amount of overtime payments and also the use of subcontract workers. This was caused partly by sickness due to the pandemic and partly because some workers left the UK following Brexit.
• Variable production costs include costs such as packaging and semi-skilled labour.
• Fixed production overhead includes the salaries of the factory manager and supervisors as well as machine maintenance.
• Depreciation covers all capital equipment such as machinery, fixtures and fittings and office equipment.
• Sales and admin overhead includes marketing, finance and management costs. Some departments have seen staff leave and not replaced due to the difficulties in recruiting during the pandemic. Several office staff have also been working from home during the year.

Next year the company is considering introducing a new component, the X-Fit, which it thinks could be sold in TV’s and Computer monitors.

The estimated costs relating to this component are as follows:

	£
Materials	12.50	Per unit
Direct labour	5.25	Per unit
Electricity	1.50	Per unit
Fixed electricity cost	25,000	Per annum
Depreciation	50,000	Per annum
Marketing and admin salaries	35,000	Per annum
General admin overheads	20,000	Per annum
Selling price	28.50	Per unit

All the above costs will be in addition to the existing costs and overheads of the business.

Required:

1. Calculate a flexed budget for the year ended 30 September 2021 together with the variances to the flexed budget.                                          (9 marks)
2. Using the information provided in the question, together with the results of the variances calculated in part a), suggest to the CEO potential causes of each variance, and what improvements could be made for each line of the flexed budget.       (14 marks)
3. How many of the X-Fit would the company need to sell in order to:

• Break even and
• achieve a target profit of £125,000?             (6 marks)                                                                  

1. Critically discuss cost-volume-profit (‘CVP’) analysis (sometimes termed ‘Breakeven analysis’), highlighting the benefits and downsides of this methodology which Trent Components Limited should consider when applying it to the new X-Fit component.                                          (6 marks)

(Total: 35 marks)

Question 2: Ratio analysis (35 marks)

Ratio Analysis (35 marks)

Kitmeals Ltd. is an owner managed supplier of home meal kits to UK based household consumers.  The primary business activity is the design of recipes for customers to prepare at home from a pack of fresh ingredients supplied by Kitmeals Ltd. The recipe packs are delivered to customers using outsourced delivery companies who have been increasing their prices recently. Customers subscribe to the service and chose the recipes using an app maintained by Kitmeals Ltd. During recent lockdowns the company has grown significantly and even managed to increase selling prices slightly. Customers can vary the number of meals they get delivered each week. The company is owned by the Managing Director, Mary Ferry.

The company has a year-end of 30^th September and has seen its revenues grow significantly over the last 18 months but there have been issues with cost control coupled with a shortage of cashflow. Suppliers have failed to deliver on time resulting in higher costs and Mary has instructed her operational managers to maintain higher levels of inventory to compensate for delayed shipments and to try and source some product from overseas. Kitmeals Ltd is considering paying suppliers more quickly in order to maintain better supplier relationships.

The financial results for the 2021 and 2020 years are shown below:

Income Statement for year-ended
	30/09/2021		30/09/2020
Sales	13,862,500		7,192,500
Cost of sales	(9,200,000)		(4,597,500)
Gross profit	4,662,500		2,595,000
Distribution costs	(979,200)		(490,500)
Administration costs	(2,981,200)		(1,497,500)
Operating Profit	702,100		607,000
Interest expense	(287,100)		(162,500)
Profit before tax	415,000		444,500
Tax expense	(75,000)		(88,900)
Net Profit	340,000		355,600

 

Statement of Financial Position
	30/09/2021		30/09/2020
Non-current assets
Property, plant and equipment	8,350,000		5,750,000
Current assets
Inventories	698,000		254,000
Trade Receivables	0		0
Cash and bank	45,000		196,000
Total current assets	743,000		450,000
Total Assets	9,093,000		6,200,000
Equity
Share capital	1,800,000		1,800,000
Retained Profits	713,000		373,000
Total Equity	2,513,000		2,173,000
Non-current liabilities
Long Term Bank Loans	5,000,000		3,250,000
Current liabilities
Trade payables	1,259,000		552,000
Accruals and other payables	246,000		136,100
Tax payable	75,000		88,900
Total current liabilities	1,580,000		777,000
Total Equity and liabilities	9,093,000		6,200,000

Mary has reviewed her financial results for 2020/21, is happy with the sales growth the company has achieved, but is concerned that the net profits are dropping.  She thinks the company is managing working capital quite well, although they have taken out significant loans during the year to purchase a new warehouse and finance the additional levels of inventory. 

Mary believes that, as restaurants reopen following the pandemic, demand for her home recipe kits may decline. She is thinking of offering her kits to supermarkets in order to maintain sales growth but this will mean reducing selling prices for these customers. These sales will need to be on a credit basis unlike sales to their existing customers which are paid for in advance.

The Finance Manager at Kitmeals Ltd has already correctly calculated the following ratios, but Mary is unsure how to interpret them, and would also like to see some additional ratios for her company.

	2021		2020
Profitability ratios
Gross profit margin	33.6%		36.1%
Operating margin	5.1%		8.4%
Return on capital employed (ROCE)	9.35%		11.19%

Required:

2021. Calculate the following ratios for both 2020 and 2021. Please show your workings.

• Inventories Turnover Period (Inventory Days)
• Current Ratio
• Capital Gearing Ratio
• Interest cover

(8 marks)

1. Based on your calculations for the 4 ratios in part (a) and the 3 profitability ratios which the Finance Manager has calculated, state for each of the 7 ratios what the ratio shows you about the performance of the company. You must indicate the possible causes of the changes in each ratio, and any potential implications of these changes for the company.

(14 marks)

1. Comment on 3 possible solutions to the reduced levels of cashflow in the year and explain the advantages and disadvantages of your solutions.                                                                                                         (6 marks)
2. Advise Mary, the Managing Director, of at least 4 risks of offering credit to the supermarket customers next year.                                                                                                                                                (4 marks)
3. Mary proposes to formulate an action plan based on your ratio analysis. What advice would you give her regarding the limitations of financial statement analysis using ratios?

(3 marks)                                                                                                         

 (Total: 35 marks)

END OF ASSESSMENT PAPER

 PRESENT VALUE TABLE

Present value of  1  ie (1 + r)^-n   Where   r  =  discount rate,   n  =  number of periods until payment.

Periods
(n)	1%	2%	3%	4%	5%	6%	7%	8%	9%	10%
1	0.990	0.980	0.971	0.962	0.952	0.943	0.935	0.926	0.917	0.909
2	0.980	0.961	0.943	0.925	0.907	0.890	0.873	0.857	0.842	0.826
3	0.971	0.942	0.915	0.889	0.864	0.840	0.816	0.794	0.772	0.751
4	0.961	0.924	0.888	0.855	0.823	0.792	0.763	0.735	0.708	0.683
5	0.951	0.906	0.863	0.822	0.784	0.747	0.713	0.681	0.650	0.621
6	0.942	0.888	0.837	0.790	0.746	0.705	0.666	0.630	0.596	0.564
7	0.933	0.871	0.813	0.760	0.711	0.665	0.623	0.583	0.547	0.513
8	0.923	0.853	0.789	0.731	0.677	0.627	0.582	0.540	0.502	0.467
9	0.941	0.837	0.766	0.703	0.645	0.592	0.544	0.500	0.460	0.424
10	0.905	0.820	0.744	0.676	0.614	0.558	0.508	0.463	0.422	0.386
11	0.896	0.804	0.722	0.650	0.585	0.527	0.475	0.429	0.388	0.350
12	0.887	0.788	0.701	0.625	0.557	0.497	0.444	0.397	0.356	0.319
13	0.879	0.773	0.681	0.601	0.530	0.469	0.415	0.368	0.326	0.290
14	0.870	0.758	0.661	0.577	0.505	0.442	0.388	0.340	0.299	0.263
15	0.861	0.743	0.642	0.555	0.481	0.417	0.362	0.315	0.275	0.239
	11%	12%	13%	14%	15%	16%	17%	18%	19%	20%
1	0.901	0.893	0.885	0.877	0.870	0.862	0.855	0.847	0.840	0.833
2	0.812	0.797	0.783	0.769	0.756	0.743	0.731	0.718	0.706	0.694
3	0.731	0.712	0.693	0.675	0.658	0.641	0.624	0.609	0.593	0.579
4	0.659	0.636	0.613	0.592	0.572	0.552	0.534	0.516	0.499	0.482
5	0.593	0.567	0.543	0.519	0.497	0.476	0.456	0.437	0.419	0.402
6	0.535	0.507	0.480	0.456	0.432	0.410	0.390	0.370	0.352	0.335
7	0.482	0.452	0.425	0.400	0.376	0.354	0.333	0.314	0.296	0.279
8	0.434	0.404	0.376	0.351	0.327	0.305	0.285	0.266	0.249	0.233
9	0.391	0.361	0.333	0.308	0.284	0.263	0.243	0.225	0.209	0.194
10	0.352	0.322	0.295	0.270	0.247	0.227	0.208	0.191	0.176	0.162
11	0.317	0.287	0.261	0.237	0.215	0.195	0.178	0.162	0.148	0.135
12	0.286	0.257	0.231	0.208	0.187	0.169	0.152	0.137	0.124	0.112
13	0.258	0.229	0.204	0.182	0.163	0.145	0.130	0.116	0.104	0.093
14	0.232	0.205	0.181	0.160	0.141	0.125	0.111	0.099	0.088	0.078
15	0.209	0.183	0.160	0.140	0.123	0.108	0.095	0.084	0.074	0.065

Discount rates ( r )