Assignment Task: Business Decision Making for the Hospitality Industry
Problem 1: Discuss the usefulness of the statement of profit and loss and statement of financial position when making a decision. Explain the information that the following ratios provide:
a) Gross, operating and earnings margins
b) Return on capital employed and return to equity
c) Acid Test
d) Financial gearing and interest cover
Problem 2: What are the costs of holding inventory? What is the economic order quantity and what would that number is given the information below?
- Annual demand 40,000 units
- Ordering costs €178 per order
- Holding costs per unit €1.25
Problem 3: Explain the concept of net present value, payback period and internal rate of return. Using the data below, provide calculations for these three items. Please present your data on a spreadsheet using formulas whenever possible.
Initial investment is €280,000 Project life is 5 years
Cost of capital is 8% Cash flows are as follows:
|
Year
|
Cash flows
|
|
0
|
-260,000
|
|
1
|
55,500
|
|
2
|
65,780
|
|
3
|
75,900
|
|
4
|
88,630
|
|
5
|
95,450
|
Should the project be invested in based upon the data above? What other factors should we consider when making an investment decision?
Problem 4: Discuss the usefulness of the concepts of break-even point and margin of safety to a business. Provide spreadsheet calculations for both breakeven point and margin of safety from the following data:
|
Planned level of activity is
|
140,000 units
|
|
Total planned sales revenue is €
|
1680000
|
|
Direct material
|
700000
|
|
Direct labour
|
€2 per unit
|
|
Total fixed costs
|
250000
|
Problem 5: Discuss the role of budgeting within a business.
You have the following information available to you
|
|
10,000 units of production
|
20,000 units of production
|
|
Sales revenue
|
325000
|
650000
|
|
Direct materials
|
50000
|
100000
|
|
Direct labour
|
30000
|
60000
|
|
Production overhead *
|
35000
|
55000
|
|
Administration overhead
|
80000
|
80000
|
|
Profit
|
130000
|
355000
|
*Production overhead includes both fixed and variable cost elements
Prepare a budget for the planned level of production of 27,000 units.
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Attachment:- Business Decision Making for Hospitality Industry.rar