ACC1057-N - Business Finance Assignment - Teesside University

Assignment Task

Part A information

You have observed that the Board of Directors allocates budgets on an annual basis using an incremental approach, adjusting for known inflationary pressures and then applying a 2% cost efficiency reduction.

The factory is divided into production lines for each range of cars, with each production line having an allocated operational manager who has responsibility for managing the budget.

The Budgets reports are produced by the Management Accounts department after the end of each month and presented and discussed 3 weeks later in monthly performance meetings involving the Budget Manager, the Director of Operations and the Director of Finance. Reports are not distributed before the meeting.

In January’s budget meeting the budget manager complained that he doesn’t understand how the December report can show an adverse position, as he feels he is running the department efficiently, as he has a good handle on securing cheap supplies and managing staff performance. He feels his performance is judged on costs that he cannot control, in particular, line management wages, production line depreciation and headquarters overheads.

1. Discuss different approaches to budget setting, critiquing the approach taken by MPM.

2. Recommend improvements to the budget monitoring process, producing an improved revised budget report for December 2022 that more effectively measures the performance of the budget manager in the areas they can control.

Choose and answer either Part B or Part C

Part B) COSTING

1. Critique different approaches to

Series 1 and Series 2 are both produced in the same factory. Selling prices are calculated by adding a 40% mark-up on unit production costs.

2. Using a traditional business wide rate for all overheads based on labour hours calculate the unit costs, mark-up and selling prices of the MPM Series 1 and Series 2 cars.

3. Using an Activity Based Costing approach calculate the unit costs, mark-up and selling prices of the MPM Series 1 and Series 2.

Part C) Capital Investment Appraisal 

MPM Ltd is considering whether to increase its borrowing and invest in expansion into the new market of Electric cars to increase returns to the business. There is already a Project Team in place, which has begun assessing the opportunity and would deliver the development if it receives board approval. Costs of the team to date are £900,000.

Capital planning has already priced up the new the machinery and the Product Development team have given an estimate of the costs of bringing products to market.

The Sales manager has given a forecast of potential sales and a member of the management accounts team has provided costings. Production line machines have a 6-year lifespan. Details are as follows;

1. Critique different available approaches to capital investment appraisal.

2. Analyse the proposed electric cars development, calculating the payback period as accurately as possible and the Net Present Value, making a recommendation whether or not to proceed with the investment considering risks and financial and non-financial factors

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