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Finance for Managers

 

Table of Contents

Question 1. 3

Question 2. 6

Question 3. 9

Question 4. 10

References. 14

Question 1

Income statement for 31st October  2020
Revenue Amount (£000)
Sales58411
Cost of sales (Working note 2)42774
Gross profit (Working note 1)15637
Operating expense
Depreciation (Working note 3)1420
Administration expenses4789
Distribution expenses (5443 – 45)5398
Non-operating expenses
Interest on loan (1500 * 8% * 6/12)600
Income from continuing operations
Total income3430
Income tax expense970
Net income 2460

(Sheet, 2012)

Balance sheet
as at 31st oct 2020
Liabilities Amount (£000)Assets Amount (£000)
Equity25000Land & building (Working note 4)27752
Profit2460Plant & equipment (Working note 5)4080
Retained earnings (9801 – 1500)8301Inventories7878
Loan15000Trade receivables5436
Trade payable2798Cash (9774 -1500)8274
Accruals (436 + 15)451
53420 53420

(Wu & Lin, 2013)

Working notes:

Working note 1

                                                                           Inventory A/C
Particulars Amount Particulars Amount
To balance b/d9032By sales58411
To purchases41620By balance c/d7878
To gross profit (balancing figure)15637
6628966289

Working note 2

Cost of goods sold = Opening stock of inventory + Purchases – closing stock of inventory

= 9032 + 41620 – 7878

= 42774.

Working note 3

Buildings

(35152 + 15152) * 2% = 400

Plant and equipment

(12500 – 7400) * 20% = 1020

Total = 1420

Working note 4

Land and buildings

= 35152  – 7080 – 400 = 27752

Working note 5

Plant and equipment

12500 – 7400 – 1020 = 4080

(Fraser, et al., 2016).

Question 2

A ) There is the financial ratio available of these two companies Rigby ltd and Rialto ltd.

The difference between both the companies’ ratios explains the ratio and the company marketing valuer. The ratio of the gross profit percentage from 60% to 32% describes the company’s profit level. As we assume the total profit of both the companies is 100% and out of this 60% of the gross profit percentage is of the Rigby ltd company. Therefore Rialto ltd company ratio is 32% and this describes the company having to focus on increasing its gross profit percentage of the company (Chi, and Ziebart,2019).

Operating profit percentage

Rigby ltdRialto ltd
The operating profit percentage of this company is 28% and this is describing the company’s marketing value.

As compared to other companies they have an increase in the percentage level in the operating profit percentage is about 18%.

This increasing percentage describes the difference between both the companies in the operating profit percentage level.

 

Rialto ltd has less operating profit percentage as compared to Rigby ltd. There are the changes in both the companies operating profit percentage is about 18%.

This is describing the importance and they have to make sure to handle the things.

Rialto ltd has to make a better plan for the operating profit percentage.

 

Rigby ltdRialto ltd
In this situation, the change is appearing in both the companies on the larger level. The reason behind this is that assets turnover times are low as compared to Rialto ltd (Chi, and Ziebart,2019).

Rigby has the 0.80 times assets turnover this is describing that this company has a low level of the turnover in the assets section.

Due to this company has faced the risk in the market for the production of the goods and the materials.

 

The assets turnover of this organization is more than 2.2 times as compared to another company that has 0.80 times.

They have an increment in the production of goods and materials.

2.2 times as compared to 0.80 times they have to make sure to maintain the balance.

Assets turnover increased by 0.80 % and this difference between the other business and the marketing strategies of Rialto ltd.

ROCE

The ROCE of the companies is on an equal level as both companies have 22% and in this description, there is tough competition. As compared to both the companies there are changes in appearance in the different sectors and the department of the organization. Therefore they have to make sure to maintain the balance and they have to handle the competition level.

Current ratio

The current ratio of both the companies has a minor level of difference. Rigby ltd has a 2.0 current ratio and the current ratio of the company describes the working capital. As Compared to Rialto ltd has a 1.8  current ratio of the company.

Quick ratio

The quick ratio of the company describes the liquidity of the organization. Liquidity of the company describes the inflows and the outflows of the money and the balance maintained on the company balance sheet. The quick ratio helps the company in that they have to deal with the other issues and maintenance of the balance is needed as Rigby ltd has a 1.2 ratio as compared to a 0.4 ratio. They have to handle the situation in the organization while making maintaining the balance of the liquidity ratio.

Inventory turnover

The difference between both the companies’ turnover ratios there is a huge level of the changes that happen 4.8 times and 10.3 days. The times and the days this is describing the importance of the turnover ratio. The company will explain the manufacturing and production of the goods and the materials in both the companies are done on a different level. Rialto ltd company has taken the days for the inventory turnover and they are at a fast level of production.

Trade receivables collection and payables payment period

The trading system and the trade receivables and the collection from the 41 days and to 3 days there is a huge level of the changes happing in the organization. The trading system and the producing the goods and manufacturing them is the better thing for the company.

Gearing

The level and the percentage level of the gearing from compared to Rigby ltd and the Rialto ltd from 50% to 33%. There is a huge level of difference in both the companies gearing percentages describing the 33% and the 50% is expanding the business is required (Kanapickienė, 2015).

Interest cover

Rigby ltdRialto ltd
The interest cover ate of this organization is 16 times as compared to another company which has 5 times.

The difference between both the companies covering the turnover ratio is explained by the company.

This huge level of difference between both the companies in covering the interest from 16 to 5 times.

This is explaining the difference between both the companies and this will describe that Rigby ltd has a large level of production and manufacturing the goods and the material on the large scale.

The analysis of both the companies and their changes appearance in both the ltd companies. As compared to the data and their turnover prices and the ratio percentage describe the company value. This is the analysis according to the ratio and the indication of each business. They have to make sure to increase the amount of their working capital and the other lit companies’ settlement.

B ) Supermarket and jeweler shops are both business that supplies some goods on the credit. According to the other business the jeweler shops and provide the goods and the details on the long-standing and credit. The reason behind this is that they have to make the dealings with the credit and gold is the that which people can buy. After buying the gold pieces of jewelry and the materials that are related to the gold. The bank will provide them with a loan and credit card access so that they can pay it on an easy EMI basis.

The reason behind this credit and the long-standing customers is because in the supermarket they will buy the goods and the materials in bulk orders.

Question 3

1 FIFO first in first out method is the oldest method that is used for cost flow assumption. The purpose of the cost of the goods sold and their calculation is to describe the assumptions of the method. The importance of this method in the company is to assume the company inventory that has been sold first. This will describe the cost which has been being paid for the production of the oldest products. Quantity of the company goods in November 11,700 and 8,200. Therefore the date of the nov -28 and the quantity amount is 6,480 and the total will describe the 6,560. This method will help the organization to identify the purpose and the cost of the goods manufactured that are old in the companies. Calculation of the production amount of the old company goods. They have to reduce the depreciation amount from the good manufacturing cost to find out the FIFO of the goods (Olafsson, 2018).

Formula

Manufacturing cost of goods – deprecation of the goods = value of the old goods at current

This is the calculating method that helps the organization to find out the FIFO cost of the company goods.

  1. B) Inventory that needs to be rotated and will help the organization to ensure that earlier receipts are issued before the later receipts. According to the store, the ledger card and the amount that is given in this ledger describe the cost of the quantity. They have to make sure to do the inventory of the quantity and based on this value is $9,135. The receipt that issues the quantity and the goods and therefore the issue amount is 23,000 and 11,250 (Morales-Díaz, et al., 2017).

Based on these data and the receipts and the issue before the later receipts calculation also, the data that are present in the store ledger card. This will describe what the company has to do with the inventory and the changes in the value of the inventory. Therefore they have to rotate the ensure the inventory of the goods and the materials of the organization.

Question 4

A )

ForecastBAD4Total
Contribution per unit (£)6915
Contribution per kg (£)8100810016,200
Ranking

 

123
Total material available

(kg)

 

225022504,500
Material allocated (kg)

 

13509002250
Number of units produced

 

600030009000
Total contribution earned

(£)

 

360002700063000
Less: fixed costs (£)

 

100001000020000
Forecast profit/loss made260001700043,000

Contribution per unit (£) = 36000/6000=6

27000/3000=9

Contribution per kg (£)= 6(2250/3750*2250)

6*1350=8100 kg

9(1500/3750*2250)

9*900=8100 kg

Total contribution earned

(£)= 36000-10000=26000

27000-10000=17000

The calculation above and the details that are mentioned below explain the difference between both the contracts. These data analysis and the forecast on the profit and the loss on both the contracts. This will explain the difference between both the contracts and for this they have to make sure to handle the things. In both the contract, the contribution per unit and the contribution of the unit as per kg are different. They have to identify the issue in the company and based on the data they will have to select the contract. The forecast of both the contracts identifies the quantity and the contribution of the unit and also, the manufacturing of the unit per kg (Morales-Díaz, et al., 2017).

B4D4
According to the data analysis and the contribution of the goods and the unit. The B4 contract has the rank increment as compared to contract D4 (Giuliani, et al, 2020).

Contribution per unit (£) = 36000/6000=6

Contribution per kg (£)= 6(2250/3750*2250)

6*1350=8100 kg

Total contribution earned

(£)= 36000-10000=26000

 

D4contract has the details of the company and the materials of the organization. The non-profit operation of both the contracted has the difference huge level.

Contribution per unit (£) = 27000/3000=9

Contribution per kg (£)=9(1500/3750*2250)

9*900=8100 kg

Total contribution earned

(£)=27000-10000=17000

 

The calculation above of the calculating the difference of the contracts amount and the other details will explain the company measurement. Due to this, they have to finalize the one contract out of these two to make sure the company will earn a profit rather than face a loss in the organization. According to the contract, they have divided the quantity in both contracts on an equal level (Giuliani, et al, 2020).

Contribution per unit (£) = 36000/6000=6

Contribution per kg (£)= 6(2250/3750*2250)

6*1350=8100 kg

This describes that the company has to choose contract B4 as compared to contract D4 and the reason behind this is that (Kozarezenko, et al., 2018).

Contribution per unit (£) = 27000/3000=9

Contribution per kg (£)=9(1500/3750*2250)

9*900=8100 kg

Also, the total contribution that is earned by both contracts is defined as the better option for the organization’s development.

Total contribution earned

(£)= 36000-10000=26000

27000-10000=17000

The B4 earn the total contribution is 26000 and therefore the D4 contract around the 17000 and this is describing the difference between both thee contracts units. Due to a comparison of both the contract the B4 contract is providing benefits to the organization. This will help the company to expand its business and earn more profit in the market for the better settlement of the organization (Shi, and Li, 2021).

 

 

References

Chi, Y. and Ziebart, D.A., 2019. Evidence regarding management’s choice of forecast precision and financial statement irregularities. Journal of Forensic and Investigative Accounting11(2), pp.261-282. Does the choice of forecast precision (com.s3.amazonaws.com)

Fraser, L.M., Ormiston, A. and Fraser, L.M., 2016. Understanding financial statements. New York: Pearson. http://students.aiu.edu/submissions/profiles/resources/onlineBook/r7N3R9_Understanding_Financial_Statements_10th.pdf

Giuliani, M., Crochemore, L., Pechlivanidis, I. and Castelletti, A., 2020. From skill to value: isolating the influence of end user behavior on seasonal forecast assessment. Hydrology and Earth System Sciences24(12), pp.5891-5902. HESS – From skill to value: isolating the influence of end user behavior on seasonal forecast assessment (copernicus.org)

Kanapickienė, R. and Grundienė, Ž., 2015. The model of fraud detection in financial statements by means of financial ratios. Procedia-Social and Behavioral Sciences213, pp.321-327. The Model of Fraud Detection in Financial Statements by Means of Financial Ratios (sciencedirectassets.com)

Kozarezenko, L., Petrushenko, Y.M. and Tulai, O., 2018. Innovation in Public Finance Management of Sustainable Human Development. Microsoft Word – MMI_А127-2018_Тулай.docx (sumdu.edu.ua)

Krajewski, L.J., Malhotra, M., Malhotra, N., Ritzman, L. and Krajewski, L., 2015. Operations management. Pearson Education, Limited. Operations Management: Processes and Supply Chains, 13e, Global Edition (pdfuni.com)

Morales-Díaz, J. and Zamora-Ramírez, C., 2018. The impact of IFRS 16 on key financial ratios: A new methodological approach. Accounting in Europe15(1), pp.105-133. The Impact of IFRS 16 on Key Financial Ratios: A New Methodological Approach (researchgate.net)

Olafsson, A. and Pagel, M., 2018. The liquid hand-to-mouth: Evidence from personal finance management software. The Review of Financial Studies31(11), pp.4398-4446. 058_Pagel_TheLiquidHand-to-Mouth….pdf (consumerfinance.gov)

Rao, P.M., 2021. Financial statement analysis and reporting. PHI Learning Pvt. Ltd.. https://books.google.co.in/books?hl=en&lr=&id=iWtnEAAAQBAJ&oi=fnd&pg=PP1&dq=format+of+balance+sheet+and+income+statement&ots=gBf_aXDAcs&sig=o-BTA_MtZ90IxkygzXP9JnTDG1Y&redir_esc=y#v=onepage&q=format%20of%20balance%20sheet%20and%20income%20statement&f=false

Sheet, B., 2012. Income statement. Balance Sheet531(3.3), pp.24-1. http://www.portville-ny.com/files/2010-TOP-GL-20100101-to-20101231-v20110102.pdf

Shi, X. and Li, X., 2021. Operations Design of Modular Vehicles on an Oversaturated Corridor with First-in, First-out Passenger Queueing. Transportation Science55(5), pp.1187-1205. Operations-Design-of-Modular-Vehicles-on-an-Oversaturated-Corridor-with-First-in-first-out-Passenger-Queueing.pdf (researchgate.net)

Wu, J.C. and Lin, C., 2013. A balance sheet for knowledge evaluation and reporting. Management, Knowledge and Learning, pp.341-348. http://www.toknowpress.net/ISBN/978-961-6914-02-4/papers/ML13-264.pdf

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