Project - FINANCE AND ACCOUNTING IN PROJECT MANAGEMENT
Project Introduction:
As a project management analyst or consultant, you will be required to employ financial and managerial accounting information for project-related decisions. In this project, you will be able to use and showcase similar skills of using financial information for decision making. In Part 1 of the project, you will help a heavy machinery industry make a business decision involving the selection of a supplier. In Part 2, you will recommend business strategies for a hospitality business and prepare a cash budget for the company's new line of business.
Course Learning Objectives Covered:
- Analyze the role of accounting and finance in project management decision making.
- Analyze financial statements.
- Create operating and financial budgets.
- Calculate the impact of interest rates and the time value of money on the return of a project.
Project Part 1 - Title: Financial Accounting Skills
You are considering Joints and Fixes Limited as a prospective supplier for your company, H. M. Industries. Joints and Fixes Limited manufactures nuts and bolts, which are sold to industrial users. The financial statements for years 2011 and 2012 are in attached file:
Dividends were paid on ordinary shares of $70,000 and $72,000 for the years 2011 and 2012, respectively.
Use the given information to:
Calculate the following financial ratios for both 2011 and 2012 (using year-end figures for statement of financial position items):
- Return in capital employed
- Operating profit margin
- Settlement period for trade receivables
- Settlement period for trade payables
- Inventory turnover period
Comment on the performance of Joints and Fixes Limited from the viewpoint of considering supplying a substantial amount of goods to Joints and Fixes Limited on usual trade credit terms.
Project Part 2 - Title: Management Accounting Skills
You have been hired as project consultant by a hotel group, Viago Group. The group prepares financial statements on a quarterly basis. You are required to provide consultancy to Viago on two accounts, resulting in two tasks for you:
Task 1 - You have been asked to review the performance of the group's hotel in Scotland. You have in front of you the results for this year (based on some actual results and some forecasts to the end of this year):
|
Quarter
|
Sales Revenue ($)
|
Profit/Loss ($)
|
|
1
|
400
|
(280)
|
|
2
|
1,200
|
360
|
|
3
|
1,600
|
680
|
|
4
|
800
|
40
|
|
Total
|
4,000
|
800
|
Additional Information:
- The total estimated number of guests (guest nights) for this year is 50,000, with each guest night being charged at the same rate.
- The results follow a regular pattern; there are no unexpected cost fluctuations beyond the seasonal trading pattern.
For next year, an increase in unit variable cost of 10 percent and a profit target for the hotel of $1 million is anticipated. These need to be incorporated into the hotel's plans.
Help the management at Viago by:
Calculating the total variable and total fixed cost of the hotel for this year. Show the provisional annual results for this year in total, showing the variable and fixed costs separately. Also, show the revenue and cost per guest.
Determining:
- The required revenue rate per guest to meet the profit target, if there is no increase in guests for the next year.
- The number of guests required to meet the profit target, if the required revenue rate per guest is not raised above this year's level.
Task 2 - Viago is also planning to launch a memorabilia chain by the name Memories Unlimited. The new business will start production on 1 April, but sales will not start until 1 May. Planned sales for the next nine months are as follows:
|
Months
|
Sales Units
|
|
May
|
500
|
|
June
|
600
|
|
July
|
700
|
|
August
|
800
|
|
September
|
900
|
|
October
|
900
|
|
November
|
900
|
|
December
|
800
|
|
January
|
700
|
The additional information available includes:
- The selling price of a unit will be a consistent $100 and all sales will be made on one month's credit.
- It is planned that sufficient finished goods inventories for each month's sales should be available at the end of the previous month.
- Raw materials purchases will be such that there will be sufficient raw materials inventories available at the end of each month to meet precisely the following month's planned production. This planned policy will operate from the end of April.
- Purchases of raw materials will be on one month's credit.
- The cost of raw material is $40 a unit of finished product.
- The direct labor cost, which is variable with the level of production, is planned to be $20 a unit of finished production.
- Production overheads are planned to be $20,000 each month, including $3,000 for depreciation.
- Nonproduction overheads are planned to be $11,000 a month, of which $1,000 will be depreciation.
- Various noncurrent (fixed) assets costing $250,000 will be bought and paid for during April.
- Except where specified, assume that all payments take place in the same month as the cost is incurred.
- The business will raise $300,000 in cash from a share issue in April.
Based on the given data, draw the cash budget for Memories Unlimited.
Task 3 - A subsidiary of Viago, Lip Smackers Ltd., deals in baked goods. In recent months, the business has been under pressure from its suppliers to reduce the average credit period taken from three months to one month. As a result, the directors approached the Oscar bank to ask for an increase in the existing overdraft for one year, to be able to comply with the suppliers' demands. The most recent financial statements of the business are in attached file.
Additional information:
- The loan notes are secured by personal guarantees from the directors.
- The current overdraft bears an interest rate of 12 percent a year.
Answer the following questions for Lip Smackers:
Identify and state the major factors that a bank would take into account before deciding whether to grant an increase in the overdraft of a business.
In your opinion, should the bank grant the required increase in the overdraft for Lip Smackers Ltd.?
Attachment:- Assignment File.rar