financial management AND control

Anonymous
timer Asked: Jan 1st, 2019
account_balance_wallet $30

Question description

Part C (Southland plc)


Total for Part C(40%)


Southland plc is specialised in producing and selling of washing machines. In 2017, the manufacturing cost per unit included:

£

Direct material200

Direct labour (30 minutes per unit)90/hour

Variable manufacturing overhead30

Variable selling expenses50

Variable administrative expenses10


Fixed costs for the year ended 31 December 2017 were:

£’000

Fixed manufacturing1,500

Fixed selling and distribution1,700

Fixed administrative800

The company produced and sold 275,000 units at £400 per unit.

In 2018, management has decided to increase the selling price by 15% and to maintain the same contribution margin ratio as last year. This increase in price is to meet an increase of £2,440,000 in fixed costs in 2018. The company has produced and sold the same quantity in 2018 as last year.

Required

Total for part C: 25%

Notes:

  • To obtain a high mark, you should:
  • A Harvard standard reference is required for the report

Tutor Answer

Robert__F
School: UIUC

this s a continuation to https://www.studypool.com/discuss/10496046/financi...

Financial Management and Control
Name
Tutor’s name
Course
Date

Financial Management and Control
Part A: Longi Plc
Description of the scenario
The present analysis describes the use of financial ratios for the evaluation of the financial
performance of a company. This analysis is a critical assessment to both accounting managers and
investors considering how the computed financial ratios will illustrate the company’s financial health and
provide a mean to the comparison with other companies in both the same and other industrial sectors.
Provided financial results of the company
Income statement for the year ended 31 December
2017
£000
Revenue
Cost of sales:
Opening inventory
Manufacturing costs
Closing inventory
Gross profit
Selling and distribution expenses
Administrative expenses
Bad debts written off
Operating profit before interest and tax
Interest payable
Profit before tax
Income tax
Profit after tax
Dividends paid
Retained profit for the year

2016
£000
16,200

800
7,950
925

£000

£000
15,000

650
7,000
800
7,825
8,375

3,200
2,775
890

6,850
8,150
2,875
1,890
520

6,865
1,510
850
660
220
440
190
250

5,285
2,865
540
2,325
1,115
1,210
170
1,040

Running head: FINANCIAL MANAGEMENT AND CONTROL

3

Statement of Financial Position as at 31 December
2017
£000
Property, plant, and equipment (net)
Land and building
Equipment
Motor vehicles
Current assets
Cash
Inventory
Trade receivables
Current liabilities
Trade payables
Other payables (including taxation)
Bank overdraft
Net current assets
Non-current liabilities
Loan capital
Equity
Ordinary shares of £1 each
Retained profit

2016
£000

£000

6,890
1,450
1,075
9,415

£000
5,570
1,145
890
7,605

-0925
3,750

460
800
2,495

2,150
90
185

2,070
185
-02,250
11,665

1,500
9,105

4,450
7,215

4,075
5,030

6,165
1,050
7,215

4,230
800
5,030

FINANCIAL MANAGEMENT AND CONTROL

4

Relevant ratio calculations
The table below summarizes the most commonly used financial ratios for the
measurement of the financial health of the company (Kaplan et al., 2014).
Financial ratio
Gross margin (%)

Formula
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
∗ 100
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

2017
51.70

2016
54.33

Net profit margin

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
∗ 100
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

1.54

6.93

Working capital

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠
− 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
∗ 365
𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑝𝑎𝑦𝑎𝑏𝑙𝑒
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑
∗ 365
𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛
𝑝𝑒𝑟𝑖𝑜𝑑 – 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 𝑝𝑒𝑟𝑖𝑜𝑑
𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐸𝑞𝑢𝑖𝑡𝑦
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
∗ 100
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

2,250

1,500

1.93

1.67

88.49 days

60.71 days

100.28 days

110.29 days

11.79 days

49.58 days

0.72

0.96

2.66

13.67

Current ratio
Receivables collection
Payables collection
ratio
Working capital cycle
Debt to equity ratio
Return on assets

As observed from this table, the company’s gross margin has decreased slightly between
2016 and 2017. In this regard, the computed gross margin decreased from 54.33% to 51.70% in
2017. An analysis of the provided financial statements illustrates how both the revenue and the
gross profit have increased from 2016 to 2017. However, since the increase in the gross profit
was considerably lower than that of the revenue, the resulting gross profit margin decreased,
indicating that the company was less efficient in controlling the costs in 2017 as compared to

FINANCIAL MANAGEMENT AND CONTROL

5

2016. A similar conclusion derives from the analysis of the net profit margin ratio, where the net
profit margin has decreased from 6.93% in 2016 to only 1.54% in 2017.
On the other hand, a comparison of the liquidity ratios indicates an increase in the
liquidit...

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Review

Anonymous
10/10 would recommend. Responsive and helpful.

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