financial management tools

Case Study Report
This assessment satisfies the following learning outcomes as specified in your module guide.

1 Demonstrate knowledge of financial management tools for raising finance, managing working capital and calculating optimum capital structures, looking at the
relevance and implications to control and decision making requirements of a business.

2 Demonstrate a critical awareness of the development of management accounting control systems, using key numerical interpretation skills in areas of change such
as ABC and Pricing.

3 Diagnose, evaluate and formulate appropriate solutions to business problems, utilising problem solving skills around critical areas such as constraints and how
these can be resolved through linear programming and shadow pricing solutions.

Assignment 2

INDIVIDUAL Case Study Report

Learning Outcome 1

Select a public limited company. Assume that you have been appointed as finance consultant to assist the company.

Extracts details from recent financial statements of the company (Last two years) and analyse the situation by using below guidance:

Required: You have to make report to cover the followings;

(a) Calculate the following ratios for each year and comment on your findings.
(i) Inventory days
(ii) Receivables days
(iii) Payables days

(b) Calculate the length of the cash operating cycle (working capital cycle) for each year and explain its significance.

(c) Discuss the relationship between working capital management and business solvency, and explain the factors that influence the optimum cash level for a business.

(d) A factor has offered to take over sales ledger administration and debt collection for an annual fee of 0.5% of credit sales. A condition of the offer is that the
factor will advance ABC 80% of the face value of its debtors at an interest rate 1% above the current overdraft rate. The factor claims that it would reduce
outstanding debtors by 30% and reduce administration expenses by 2% per year if its offer were accepted.

Required: Evaluate whether the factor’s offer is financially acceptable, basing your answer on the financial information relating to a year.
Learning Outcome 2

Entity Blue makes and sells two products, X and Y.
Data for production and sales each month are as follows:

Product X Product Y
Sales demand 4,000 units 8,000 units
Direct material cost/unit $20 $10
Direct labour hours/unit 0.1 hour 0.2 hours
Direct labour cost/unit $2 $4

Production overheads are $500,000 each month.
These are absorbed on a direct labour hour basis.

An analysis of overhead costs suggests that there are four main activities that cause overhead expenditure.

Activity Total Cost Cost Driver Total Number Product X Product Y
$
Batch Setup 100,000 No. of set-ups 20 10 10
Order Handling 200,000 No. of orders 40 24 16
Machining 120,000 Machine hours 15,000 6,000 9,000
Quality Control 80,000 No. of checks 32 18 14
500,000

Required: Calculate the full production costs for Product X and Product Y, using:
(a) Traditional absorption costing
(b) Activity based costing
(c) Explain the ABC costing importance over the traditional costing in work place

Learning Outcome 3

Mini Case 1

Greentree Kennels, Inc. provides overnight lodging for a variety of pets. A particular feature at Greentree is the quality of care pets receive, including excellent
food. The kennel’s dog food is made by mixing two brand-name products to obtain what the kennel calls the “well balanced dog diet.”

The data for the two dog foods are as follows.

Dog food Cost/Ounce Protein % Fat %
Bark bits 0.06 30 15
Canine Chow 0.05 20 30

Greentree wants to be sure that the dogs receive at least 5 ounces of protein and at least 3 ounces of fat per day.

(a) Formulate a linear program and determine the minimum cost mix of the two dog food products using the graphical method.
(b) Solve this problem in Excel
(c) Identify binding and non-binding constraints and calculate the value of slack/surplus variables of each constraints and interpret it.
(d) Identify and fully interpret the shadow prices of the constraints.
(e) What change in the diet would you make if you wish to cut feed cost by $0.35?

Mini Case 2

The Two-River Oil company near Pittsburgh transports gasoline to its distributors by truck. The company has recently contracted to supply gasoline distributors in
southern Ohio, and it has $600,000 available to spend on the necessary expansion of its fleet of gasoline tank trucks.

Three models of gasoline tank trucks are available.

Truck Model Capacity (Gallons) Purchase Cost Monthly operating cost
Super Tanker 5000 67000 550
Regular Line 2500 55000 425
Econo-Tanker 1000 46000 350
The company estimates that the monthly demand for the region will be 550,000 gallons of gasoline.
Because of the size and speed differences of the trucks, the number of deliveries or round trips possible per month of each truck will vary. Trip capacities are
estimated at 15 trips per month for the super tanker, 20 trips per month for the regular line, and 25 trips per month for the Econo-Tanker.

Based on the maintenance and driver availability, the firm does not want to add more than 15 new vehicles to its fleet. In addition, the company has decided to
purchase at least three of the Econo-Tankers for use on short run, low demand routes. As a final constraint, the company does not want more than half the new models to
be super tankers. The company wishes to satisfy the gasoline demand with minimum monthly operating expense.

Required: Model this problem as a linear programming problem and determine an optimum solution and shadow cost if any. Interpret the answers, sensitivity ranges, and
shadow prices wherever appropriate.
Marking Guidance:

Learning Outcome 1 Total 50 Marks

A – 6 Marks
B – 4 Marks
C – 10 Marks
D – 10 Marks
Evaluation – 10 Marks
Format, Structure, References – 10 Marks

Learning Outcome 2 Total 25 Marks

A – 5 Marks
B – 5 Marks
C – 15 Marks

Learning Outcome 3 Total 25 Marks

Mini Case 1

A – 2 Marks
B – 2 Marks
C – 2 Marks
D – 2 Marks
E – 2 Marks

Mini Case 2

Model – 5 Marks
Solution – 5 Marks
Interpretation – 5 Marks
FOR YOUR ASSIGNMENTS TO BE DONE AT A CHEAPER PRICE PLACE THIS ORDER OR A SIMILAR ORDER WITH US NOW