[Solution]Module Title: Performance Management

You have been appointed as a management accountant for a new division of a manufacturing company. The new division will buy parts from within the…

You
have been appointed as a management accountant for a new division of a
manufacturing company. The new division will buy parts from within the
organization at agreed transfer prices and will assemble products before
selling them to retail businesses.

You
are required to put together a cash flow forecast for the first twelve months
of operation, based on the following information.

The first month of operation will be April 2020.

Head Office will transfer £50,000 per month for
eight months (starting in April) into the bank account of the new division,
after which it will expect the new division to start repaying Head Office at a
rate of £50,000 per month.

The sales forecast for the first 6 months (in units):

       Apr         May        June       July        August   September          

         0           1000      2000      3000     
4000       
5000  

       From October onwards the provisional sales forecast is a
minimum of 5000 units per month.

40% of forecast sales units will be produced one month in advance. The
remaining 60% will be produced in the month of sale.

Selling price is expected to be an average of £200 per unit.

All customers will be offered 30 days’ credit subject
to credit rating.  Based on estimates and
company policy the expected payment pattern is as follows; 15% of customers
will pay cash on the day of sale, 80% of customers will pay one month after the
date of sale and 4% 2 months after. 1% of total sales should be provided as a
provision for doubtful debts.

7.     Production costs per unit are expected to
be:

                     £

Direct Labour                        10

Direct Material  (parts)          75

Direct Expenses                    20

8.    Direct Labour will be paid for in the month
the units are produced and Direct Expenses one month after purchase.

9.    Direct Materials (parts for assembly) will
be paid for in the month following purchase. 
Supplies will be made on a Just in Time basis.

10. Fixed overheads are
expected to amount to £1.35 million per annum which will be incurred equally
over the year. This figure excludes depreciation.  50% of overheads will be paid for in the
month incurred and 50% one month later.

11.  The following non–current assets will be
purchased:

Machinery:  £1,250,000 paid for in 12 equal monthly instalments
starting in April. This machinery will be depreciated at a rate of 20% per
annum using the straight line method.

Vehicles:     £200,000 paid
for in 4 equal quarterly instalments starting in April. Vehicles will be depreciated
at a rate of 25% using the straight line method.

Staff
training will be taking place over the first three months of operation costing
£25,000 per month. This is to be paid one month in arrears.

Required:

(a)   On a spreadsheet, produce a cash budget for
the first 12 months of operation (starting in April).                                       

(b)   Produce an Income Statement for the first 12
months of operation on a separate page of the same spreadsheet. All figures on
the income statement must be formulae. (No figures may be directly input into
this page.)                                             

(c)
Produce a Statement of Financial Position as at 30March 2021 on a    separate page of the same spreadsheet. All
figures on the SOFP must be formulae. (No figures may be directly input into
this page.)                                                                                   

 Save this version of your work for submission.

Following
review by Head Office you are required to produce a new version of your budget with
the following amendments;

Head Office will transfer £40,000 per month for
seven months (starting in April) into the bank account of the new division,
after which it will expect the new division to start repaying Head Office at a
rate of £60,000 per month.

Selling price is expected to be an average of £210 per unit.

Production costs per unit are expected to be:

                     £

Direct Labour                        9

Direct Material  (parts)          73

Direct Expenses                    18

Direct materials are expected to increase in
cost by 2% from June onwards due to changes in exchange rates.

Fixed overheads are expected to amount to £1.15
million per annum. This figure excludes depreciation.  40% of overheads will be paid for in the
month incurred and 60% one month later.

Staff training will be taking place over the
first three months of operation costing £20,000 per month. This is to be paid
one month in arrears.

Update your
cash budget, income statement and statement of financial

position to
reflect the changes outlined above.

Marks
will be awarded as follows;

Cash
budget   29 marks

Income
statement    21 marks

Statement
of financial position    25 marks

All
figures on the income statement and statement of financial position must be
formulae. (No figures may be directly input into these pages.)

Write a 500 word
reflection on your experience of constructing a budget on a spreadsheet.
Comment on the use of spreadsheets for sensitivity analysis based your own
experience of amending your original budget following the instructions from ‘Head
Office’.

                                                25 marks
The post Module Title: Performance Management

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