Business Accounting

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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),
Weighting: 40%
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
information.
 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
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
labour hour
40
Variable production overheads 2 hours per unit £2.5 per direct
labour hour
5
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
consideration.
Required:
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.
Question 1
(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.
Activity
level
(units)
Fixed
Costs (FC)
(£)
Total
Variable
Costs (TVC)
(£)
Total Costs
(TC)
(£)
Sales
Revenue
(SR)
(£)
Total
Contribution
(£)
Total Profit
(£)
0
Breakeven
Budgeted
Maximum
Capacity
5,500
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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
overhead costs.
Question 2
With reference to the analysis you have performed in question 1 above answer the
following questions:
(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
discussion.
(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
loan application
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
product ‘growel’.
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.
Your role:
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
production manager.
Required:
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.
Question 3:
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.

• Direct material usage variance
• Direct material price variance
• Direct labour efficiency variance
• Direct labour rate variance
• Variable overhead expenditure variance
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  General Guidelines:
  A. Task Guidelines:
   The report will be individually assessed based on the above information and then
  scored against the report writing assessment grid – Please see the Module
  Handbook.
   Start with an introduction and end with a conclusion.
   Include subheadings to distinguish between different parts of the discussions.
   Show BE charts relevant to the study in the main report.
   Show calculations in the appendices.
   Include references in the appendices part.
  B. Course work submission requirements:
   Use Coventry reference for both in-text and final reference list.
   Word count is excluded for Overview, headings and introduction of
  the course works.
   Give proper highlights /captions in every paragraph in each answer to make it clear
   keep a cover page and a reference list in your submission. When submitting your
  document, use the following descriptors:
   Assignment Title: module code+Your Name+the name of your assessment title (e.g.
  MPP1JoeBlogsAssignmentTitle)
   Document name: moduleshortcode+AcademicYear+AssessmentType+YourName
  (e.g. MPP12015ReportJoeBlogs)
  C. Important notes regarding the submission:
  You will be allowed to submit your assignment after the submission deadline. Note,
  however, that usual penalties will apply unless you have applied for and received
  concessions.
  D. Submission Guidance in TURNITIN:
   The document will be submitted online via TURNITIN. TURNITIN will be used for two
  purposes as follows:
   Originality/plagiarism checking: you will be allowed to upload your document as
  many times as you like until the submission date to perform your own plagiarism
  check in addition to the checking that will be performed by tutors marking your
  assignment.
   eFeedback which is available via TURNITIN’s Grade mark – this will include intext
  comments and summary comments.
  See https://www.turnitin.com/divisions/higher-education for help on submitting your work
  and interpreting your feedback. This contains an overview of TURNITIN, a guide to using
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  TURNITIN through blackboard and information relating to copyright and data protection
  which you MUST read so that you understand your rights.
  Recommended Resources: Please refer to the Module Handbook.
  Grading Criteria: Refer to module handbook.
  E. SUGGESTED REPORT STRUCTURE/OUTLINE
  A) Title page
  From:
  To:
  Subject:
  Date:
  B) Introduction
   Reference to remit
   Purpose of analysis
   Scope of analysis/report
   Highlights from report
  C) Part One: Information for Planning & Decision-Making
  CVP Analysis:
  Commentary & Discussions:
   Purpose of Break Even Analysis
   Assumptions
   Interpretation or implications of the analysis to management and the bank
   How the theory of cost behaviour has been applied in the analysis (use
  information from the analysis in support).
  Schedule/Table of Costs, Sales, Contributions & Profits
  Breakeven chart
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  Variable Production Cost Budgets (for 3000 units)
  Commentary & Discussions:
   Purposes/uses of a budget
   Assumptions
   Interpretation or implications of the analysis to management
  Budget Summaries (Table/Schedule)
  Charts: bar charts or pie charts
  (NB: percentages may be shown in table and charts)
  Limitations of Analysis
  CVP Analysis
   Limitations – based on relaxing assumptions, etc.
   Implications of limitations for management, bankers, potential suppliers
  Variable Production Cost Analysis
   Limitations – based on assumptions, etc.
   Implications of limitations for management
  D) Part Two: Information for Performance Evaluation & Control
  Actual Variable Production Costs & Variances
  Commentary & Discussions:
   Purposes of Budgetary Control Statements and Variance analysis
   Interpretation (adverse/favourable variances) and implications for
  management
  Budgetary Control Statement
  Schedule/Table of Variances
  Charts – Pie/Bar Chart
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  Investigation and Interpretation of Significant Variances
   Causes of different types of variances, theoretically
   Significant variances in the analysis
   Causes of the significant variances based on the case study information.
   Any useful comment(s).
  E) Conclusions & Recommendations
  F) Appendices
   References
   Workings/calculations