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Pathway: International Year 1 – Business
Module title: Business Accounting
Assessment 1 – 2019/2020
Module Aims: Aims to focus on
Basic financial statements: from interpretation to analysis
The usefulness of these statements to aid management decisions
Techniques used for costing and pricing decisions
Assessment method: Individual Report (From the given Case Study),
Word length: 1500 words
Issue Date: 09/12/2019
Submission Deadline: 20/02/2020
Learning outcomes being assessed:
Critically examine the needs of different users (internal & external) of accounting
Display critical understanding of the role of budgeting within a business.
Calculate business costs by applying the theory of cost behaviour and break even
analysis and evidence this by writing a business report.
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Assignment Brief for Assessment 1 – Business Accounting
This assessment is in two parts. Part one is assessing the use of financial information for
planning and decision-making. Part two looks at the use of financial information for control
purposes. You are required to present your work in a report format. A suggested
structure/outline is included at the end of the assessment paper.
PART ONE: Information for Planning and Decision-Making
SuperWell Limited is a very successful company that has its headquarters in England, UK,
and specialises in the manufacture and sale of health products. It has developed a new
product called ‘growel’. At the beginning of the year 2019 the management of the company
approached its bankers, HSBC International, for a loan facility to enable them to buy the
equipment that will be used to produce the new product in larger quantities. The bank is
interested in how the company can control the costs associated with the new product as
well as generate enough sales revenue in order to make decent profit.
The bank has accordingly asked the company to submit its sales revenue and production
costs budgets over a three-month period together with a breakeven analysis for study. The
bank requires a margin of safety percentage minimum of 20% to be met by the company in
order to progress the loan application.
SuperWell Limited reliably budgets to produce and sell 3,000 units of the new product in the
first three months of its introduction, and has estimated its variable production cost per unit
in much detail shown in the standard cost card below. The company plans to sell each unit
of the product for £130. It estimates that the product’s specific fixed cost within the
relevant range will be £70,000.00.
Standard variable production cost per unit of product ‘growel’:
Cost elements Quantity/Hours Price/Rate
Cost per unit
Direct material 10 kg per unit £5 per kilogram 50
Direct labour 2 hours per unit £20 per direct
Variable production overheads 2 hours per unit £2.5 per direct
Variable production cost per unit 95
Contribution per unit 35
Selling price 130
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The equipment to be purchased has the capacity to produce 5,000 units of the product
every quarter (three months). Beyond this level of activity there will be the need to expand
capacity and the specific fixed cost will increase by £30,000.
Your role in SuperWell Limited:
You are a newly employed management accountant of SuperWell. The finance director of
the company, Mrs Jessica Wang, has assigned you all tasks relating to the application for the
required loan, and has accordingly asked you to perform the relevant analysis and to
compile the necessary reports that will be forwarded to HSBC International for
You are to prepare a draft report addressed to the finance director, Mrs Jessica Wang, for
review. An outline of the required report has been suggested as an appendix to this brief if
you may want to use it, but you are free to use any report structure that you deem
appropriate. There are two parts of the main report, part one and part two. Use your
answers in questions 1 and 2 below to complete Part One of the main report.
(a) Using information in part one of the case study as above, perform the necessary
calculations and use your answers to complete the following CVP analysis table.
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(b) Calculate the margin of safety percentage
(c) Prepare a Breakeven chart using data you have provided in (a) above
(d) Prepare a budget for variable production costs to show the budgeted cost for (i)
direct materials, (ii) direct labour, and (iii) variable production overheads.
(e) Include a pie chart or bar chart to show the values and percentages of budgeted
direct material costs, budgeted direct labour costs and budgeted variable production
With reference to the analysis you have performed in question 1 above answer the
(a) State the assumptions underlying the breakeven (CVP) analysis.
(b) Explain how the theory of cost classifications and cost behaviour has been applied in
your calculations/analysis shown in the table in Question 1 (a).
(c) Explain how the management of SuperWell Limited can use the results of your
analysis (both CVP analysis and the variable production cost budgets) in planning and
decision-making. Use information from the case and your analysis to support your
(d) Explain how reliable the result of your CVP analysis is for users of the information,
including (i) the management of SuperWell Limited, (ii) the company’s bankers (HSBC
International), and (iii) potential suppliers.
PART TWO: Information for Performance Evaluation and Control – six months after the
Assume we are now in January 2020. The company, SuperWell’s application for a loan was
successful, and it started its operations four (4) months ago. Below are the actual results for
the first three months (October, November and December, 2019) of producing and selling
Actual information (October, November and December, 2019):
Production/Sales 3,500 units
Direct material usage 11 kilogrammes per unit of product
Direct material price £5.5 per kilogramme of direct material
Direct labour hours 2 hours per unit of product
Direct labour rate £17 per direct labour hour
Variable production overhead £2.40 per direct labour hour
Market report compiled shows that a competitor of SuperWell Limited called ‘BigMovers’
also introduced a similar product into the market. The competitor’s product uses the same
material that SuperWell uses to produce growel. The production manager of SuperWell in
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charge of growel received intelligence suggesting that the material used in producing growel
would be in short supply in the near future, but thought that he could use an alternative
cheaper material. The managing director, however, rejected the idea of a cheaper material.
Instead, she approached the suppliers of the required material and entered into an
agreement with them to make SuperWell Limited the buyer of choice. This means that the
supplier would always, firstly, meet the orders of SuperWell Limited before any other orders
could be met. In this regard SuperWell Limited agreed to pay £0.50p more for each
kilogramme of the required material.
A slowdown in other sectors of the economy caused a lot of workers to be made redundant,
making job search very competitive. This resulted in many job seekers offering to accept a
reduced rate of pay, which the production manager duly took advantage of by offering to
pay a lower rate per hour.
The finance director has asked you to prepare a budgetary control statement to show any
variances arising from activities in respect of product growel, and to investigate the causes
of any significant variances. The investigation requires that your variance analysis is much
detailed to be able to identify control points for management action. The investigation
should reveal what variances can be attributed to the decisions and actions of the
You are required to prepare a part two to the draft report to be addressed to the finance
director. Use your answers in question 3 below to complete this part of the report.
Use information in part two of the case study to perform the following:
(a) Prepare a budgetary control statement to show direct material cost variance, direct
labour cost variance, variable production overheads cost variance, and total variable
production cost variance.
(b) Calculate the following detailed variances that can be used to investigate/explain the
sources of the variances you have calculated in the budgetary control statement and
comment on them.
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