HND财政预算报告outcome 1

Beijing Institute of Technology SQA HND Assignment
Table of contents
Introduction (3)
Part A (3)
Part B (5)
Conclusion (6)
Reference (6)
Appendix (7)
Introduction
This report is for Tricol plc which makes a range of furniture and kitchenware. One of the most popular products is the Zupper expandable table. It will do some variance analysis in the Part A. It will includes direct material usage, direct material price, direct labor rate direct, labor efficiency and total overhead. Some suggestions will be given following the analysis. In Part B, there will take two methods to analyze the project that is whether to accept. It will discuss the advantages and disadvantages of the two methods, finding out the best methods that is suit for the company. At last, some other factors such as environment, technology, legal, and customers will be discussed for the managers. Furthermore, some needed appendixes will be followed the report.
Part A
Variance analysis and reporting
Once the variances have been calculated, they should be analyzed to find what the problems are. The criterion that the rate of variance needs to be analyzed is more than 3%, and according to the Appendix 3, as a result, it needs to analyze all the variances.
Direct material usage:
According to the Appendix 2, the variance of direct material usage is favorable, which is about ￡8000 and the rate of direct material usage variance reaches 12.5%. This is a high level and it may due to the two reasons such as higher quality materials and higher grade workforce. The company chooses the higher quality materials could reduce the spoilages during the producing. And it could reduce the inferiors in the finish products. To reduce the materials is as a result. Giving the labor higher workforce may reduce the mistakes by labors during the producing that will reduce the rejection rate and save the materials.
Direct material price
According to the Appendix 2, the variance of direct material price is adverse, which is about ￡5600 and at the rate of 8.75%. There may be two reasons for this result. One is higher quality materials. Because of the higher quality, this kind of materials will be more expensive than other low quality materials. It will increase the costs of the materials. Also, the loss of discounts will be another reason to make the material price increase. Tricol may cooperate with a new supplier; company may not get the discounts received because of the low reliance.
Direct labor rate
According to the Appendix 2, the variance of direct labor rate is ￡3520 in adverse, and at the rate of 12.2%. There may be also two reasons for this result. One is salary increase award. Company made the labor rate become ￡10 per hour, which is higher than standard labor rate for ￡1 per hour. This could encourage the staffs to work hard and improve their efficiency and reduce the mistakes. Another reason may be the unplanned overtime. For this situation, company may pay more wages to the staffs for their overtime work.
Direct labor efficiency
According to the Appendix 2, the variance of direct labor efficiency is adverse with ￡2880 in the rate of 10%. There are two reasons for this. One is may be the low morale. Because the company let its labors to work overtime for the unplanned goals and the high workforce will make the staffs unsatisfied. The second reason is that there may be shortage of skilled labor, which results in more labor hours and labors to finish the goals.
Total overhead
According to the Appendix 2, the variance of total overhead is ￡400 in adverse, and at the rate of 3.51%. It may due to the higher insurance, and higher administration. Company may spend too much on the insurance of its staffs. Some wages of the managers may be higher.
Recommendation for the management
The direct material usage is a good sign for the company. Company should continue to reduce the spoilages during its producing. However, the price of the materials are little higher. It is not a good sign. Company may purchase the lower quality materials from the new supplier. And try the best to get some discount received. The price of materials should be lower than before but quality could not be too lower. This action will reduce the costs in the materials and insurance the low rejection rate. According to the labor, company should not raise the employees’wages easily to motivate the staffs and it should not do much the unplanned overtime. Because of the much unplanned overtime, the staffs may against this action and become morale. So, company should reduce the unplanned overtime and use the other ways to encourage its staffs often. However, in order to finish the unplanned overtime, the company may hire some new employees to work. But there is shortage of skilled labor. Company should give them some training to improve their skills. The total overhead is not very good for the company. The insurance and administration may be higher for the company. Company should go to the greatest extent of reducing the costs in the insurance. It may be possible for company get some discount allowed form the
insurance company. And control the spending in the managing.
Part B
Assumption
The premise of payback period methods
Identify all of the costs of initial investment. Assume that they will be paid now. Find the cash inflow for each project. Add up cash flows each year until cost of project covered. Pick the project with the shortest payback period. If the payback period is only one year then it should be compared with an internal figure
The premise of discounted cash flow technique
Uncertainty does not exist. There is no inflation. The appropriate discount rate to use is known, to avoid unnecessary calculations. When undertaking DCF questions, the discount rates have been computed for you, and are given in the discount tables .Unlimited funds can be raised at a competitive rate.
Analyzing payback period method
According to the payback period method, the original capital that the company invest is ￡1,000,000 and there are 5 years for the company to get the return that is the budgeted payback period. According to the program, 4 years and 1.5 months that the company will get its all investments. At the last year, company will get the return about ￡280,000. As a result, based on the period method, the project will be profitable and is worth to invest.
Analyzing discounted cash flow technique
If the company uses the discounted cash flow technique, according to the peogram, the investment is ￡1,000,000, and the net present value is 10%. The budgeted payback period is 5 years. After 5 years, the NPV for the project will be ￡-64,800. It shows that the return is less than the investment. It will be the loss of ￡64,800 to invest this project. So this project will not be profitable and is not worth to invest.
Recommendation
According to the two methods, it is not difficult to find that the company would better to choose the payback period method. The company chooses payback period method could get the profit of ￡280,000 and less 5 years could get the all investment. And for the discounted cash flow technique, it will cost 5 years and loss ￡64,800 at last of the project. So, based on the profit, the company would better to choose the
payback period method.
Consideration of other factors
First, the environment is one factor that the managers should to consider. Tricol makes a range of furniture and kitchenware. It may make pollute during the producing. If the company does not pay attention to the environment, it may get some fine.
Technology is one factor that the managers should to consider about. If the company uses the new technology and equipment in the project, it could improve its productivity. And improve its profitability.
The company should also think about the legal. The company should insure that the project is not against the legal. If not, company may be punished by the government and even be banded.
At last, company should consider its customers. It should consider that its products, making by the project, will be attracted by the customers. If no customers like it, they may get little profit for the project.
Conclusion
As an advisor for the company, this report can help the company make the flex budget and variances and use the two methods to analysis the investment and help the company choose the best method. This will help company make much profit. Reference
SQA, preparing Financial Forecast (version 3),China Modern Economic Publishing House, 2004.
/definition/direct-labor-efficiency-variance.html
/wiki/Payback_period
/terms/d/dcf.asp
The calculation of the variances would be:
1.Direct material total variance
(standard units of actual production × standard price) – (actual quantity × actual price)
[(4kg × 1600) ×￡10]–￡61600
=￡64000–￡61600
=￡2400 ( F )
2.Direct material usage variance
standard price × (standard units of actual production－actual units)
=￡10 × (4kg × 1600－5600kg)
=￡10 × 800kg
=￡8000 (F)
3.Direct material price variance
actual quantity × (standard price－actual price)
=5600kg × (￡10－￡11)
=5600kg ×￡1
=￡5600 (A)
4.Direct labor total variance
(standard hours of actual production × standard rate ph)－(actual hours × actual rate ph)
[(2h×1600) ×￡9]－(3520h ×￡10)
=(3200h ×￡9)－￡35200
=￡28800－￡35200
=￡6400(A)
5.Direct labor rate variance
actual hours × (standard rate ph－actual rate ph)
3520h × (￡9－￡10)
=3520h ×￡1
=￡3520(A)
6.Direct labor efficiency variance
standard rate ph × (standard hours of actual production－actual hours)
￡9×[2h×1600－3520h]
=￡9×(3200h－3520h)
=￡9×320h
=￡2880(A)
7.Total overhead variance
（budgeted variable overhead + budgeted fixed overhead－(actual variable overhead + actual fixed overhead)
(￡3200+￡8200)+(￡3200+￡8600)
=￡11400(A)－￡11800(A)
=￡400(A)
Appendix 3
Variance ratio:
The rate for direct material total variances is £ 2400/£ 64000×100%=3.75% The rate of direct material usage variance is £ 8000/£ 64000×100%=12.5% The rate of direct material price variance is £ 5600/£ 64000×100%=8.75% The rate of direct labor variance is 6400/28800×100%=22.2%
The rate of direct labor rate variance is £ 3520/£ 28800×100%=12.2%
The rate of direct labor efficiency variance is £ 2880/£ 28000×100%=10% The rate of total overhead variance is £ 400/(£ 3200+8600)×100%=3.51%
Payback Period:
Discounted Cash Flow:。