HND-财政预算.doc

Preparing Financial ForecastThe report of Preparing Financial Forecasts Name: Class: Date: 2010-6-10IntroductionTricol plc makes a range of furniture and kitchenware and this report demonstrates that the Flexible budget of a product called Zupper of Tricol in part A and give a Project evaluation of Tricol in part B. Part A(i) Flex the budget figures as following.Tricol plc Flexible budgetOriginal budgetFlexed budgetActual resultsVarianceA/F2000 units1600 units1600 unitsDirect material8000064000616002400FDirect labor360002880035200（6400）AVariable production overheads4000320032000Fixed overheadsDepreciation1500150015000Rent and rate2500250025000Administration overheads200020002200（200）AInsurance cost220022002400（200）ATotal fixed overheads820082008600（400）ATotal cost of production104200108600（4400）A(ii) Calculating the variances:1. DIRECT MATERIAL A TOTAL VARIANCE (STANDARD UNTIS OF ACTUAL PRODUCTION*STANDARD PRICE)- (ACTUAL QUANTITY *ACTUAL PRICE)(4kgs * 1,600)* 10 61,600=6,400kgs * 10 61,600=64,000 - 61,600=2,400 (F) 2. DIRECT MATERIAL A PRICE VARIANCEACTUAL QUANTUTY*(STANDARD PRICE-ACTUAL PRICE)5,600kgs * 10-(61,600/5,600kg)=5,600* (10- 11)=5,600*1=5,600(A)3. DIRECT MATERIAL A USAGE VARIANCESTANDARD PRICE*(STANDARD UNITS OF ACTUAL PRODUCTION-ACTUAL UNITS)10*(4kgs * 1,600) - 5,600=10*(6,400-5,600)=10*800=8,000(F)Note: When adding the price and usage variances the result must equal the total variance. Therefore, 5,600(A)(PRICE)+ 8,000(F)(USAGE)= 2,400 (F)(TOTAL).4. DIRECT LABOUR TOTAL VARIANCE(STANDARD HOURS OF ACTUAL PRODUCTION*STANDARD RATE ph)- (ACTUAL HOURS*ACTUAL RATE ph)(2hrs * 1,600)* 9- 3520hrs*(35,200/3,520hrs)= (3,200*9)- 3,5200=28,800-3,5200=6,400(A)5. DIRECT LABOUR RATE VARIANCEACTUAL HOURS*(STANDARD RATE ph- ACTUAL RATE ph)3,520hrs*9-(35,200/3,520hrs)=3,520hrs*(9-10)=3,520hrs*1=3,520(A)6. DIRECT LABOUR EFFECIENCY VARIANCESTANDARD RATE ph*(STANDARD HOURS OF ACTUAL PRODUCTION-ACTUAL HOURS)9*(2hrs*1,600)-3,520hrs=9*(3,200-3,520)=9*320=2,880(A)Note: When adding, rate and efficiency variances the result must equal the total variance. Therefore,3,520(A) (RATE)+2,880(A) (EFFECIENCY)=6,400(A)(TOTAL)7. TOTAL OVERHEAD VARIANCETOTAL STANDARD OVERHEAD FOR ACTRUAL PRIDUCTION-TOTAL ACTUAL OVERHEADS（3,200+2,200+1,500+2,500+2,000）-(3,200+2,400+1,500+2,500+2,200)= 11,400-11,800=400(A)(iii) AnalysisDirect material varianceThe direct material total variance can be analyzed in two aspects which are direct material volume and direct material price. For volume side, as calculated above, the budget volume is 6400kg; the actual volume is 5600kg. So there is 800kg variance which is favorable and each unit variance is 0.5kg. The likely reason causing the variance comes from three aspects. First of all, the company upgraded the production machinery recently, and new machine may use materials efficiently, so it reduced the waste of materials. Secondly, the company switched suppliers and using higher-grade materials can decrease waste of materials too. Finally, the company has concluded a higher-than-expected wage settlement for production operatives, which will maintain employees with higher skills as well as decrease turnover of employees, and it also can increase efficiency in using materials. For price aspect, the budget price is 10 per kg, and the actual price is 11per kg, it is adverse that one pound over the budget price. The company switching suppliers may cause the increase of negotiation cost. There may be a long-term relationship between Tricol plc and its old suppliers, so the suppliers may take lots of discounts to the firm. After changing suppliers, the discount may disappear. Furthermore, higher grade materials increased unit price. Overall, the total material variance is favorable. 8,000 5,600=2,400.Direct labour varianceThe direct labour total variance is composed of direct labour efficiency variance and direct labour rate variance. The budget direct labour hours are 3,200hrs and the actual labour hours are 3,520 hrs. There are more 320hrs needed than the budget, and each unit is 0.2hrs, which it is obviously adverse. The company upgrading the production machinery may need time for employees to adopt it. Also, employees need training time. The rebuild process of machinery consumed time too. In a word, the chargeable hours have increased. The budget direct laour hours rate is 9 per hour, the actual hours rate is 10 per hour. It is adverse that one pound higher than budgeted. It is possible caused by both internal and external factors. Higher-than-expected wage settlement may be internal reason for the variance, and new machinery may be needed to recruit new employees to operate the machinery, which also can increase the expense. For external factors, the changing of labour market may increase labour cost; the government legislation also can increase the labour cost, for example minimum pay. Both direct labour efficiency and direct labour rate variances are adverse, so the direct labour total variance is adverse.Overhead varianceAs calculated above, total overhead variance is caused by administration and insurance. Each factor has 200 variance, so the total overhead variance is 400 and it is adverse. During the process of changing supplier, the company needed more expense on public relationship or negotiation, in addition, in order to maintain the new machinery, administration cost will be increased too. For insurance aspect, the improvement of machinery will need more insurance fees to cover, which also contributes to the increase of insurance fee of new employees. RecommendationIn this situation, for the management, First, all variance need to carry on the strict investigation, good aspect must maintain, bad aspect must avoid occurring once more; Second, the labour variance which produces to the enterprise must further investigate, because the wage rate rose, and it is possible continue to rise, but the productivity instead dropped. Therefore the advice for the management may as follow: 1. To find a cheaper material but must ensure the quality.2. Provide staffs a training program so that improve their work efficiency.3. Discuss with current suppliers and try for a discount in price of material. 4. Provide staffs a training program in order to have a higher skill in operating the higher-grade material.5. For some projects that dont need the higher-grade labour, so the company may think about the lower-grade labour in a lower labour rate.6. To establish a policy to control the administration cost.7. To let the workers to be more responsible, so that makes the machinery to be used for a longer time.Part BAssumptionThere are some assumptions made in the use of these figures. First of all, its that the impact of taxation and inflation has been ignored. Second, the given market rate of return will not vary. And then, the cash flows after initial outflow has been met, and the time value of money has been also ignored, no allowance is made for interest on the initial capital investment. Last, the expected revenue is from the investment, in here is means comes from Net cash flow after deduction of all relevant costs.Analysis methodsPayback: This method of investment and project appraisal measures the number of years it is expected to take to recover the cost of the original investment. The usual decision rule is to accept the project with the shortest payback period.The payback period would be:YearAnnual Cash FlowCumulative0(1,000,000)(1,000,000)1160,000(840,000)2160,000(680,000)3320,000(360,000)4320,000(40,000)5320,000280,000Payback period = 4 years and 1.5 months(40,000/320,000)Net Present Value (NPV): The NPV method calculates the present values of cash inflows and outflows and establishes whether, in total, the present value of cash inflows is greater than the present value of cash outflows.YearPV factor-10%Cash FlowNPVCumulative01.000(1,000,000)(1,000,000)(1,000,000)10.909160,000145,440(854,560)20.826160,000132,160(722,400)30.751320,000240,320(482,080)40.683320,000218,560(263,520)50.621320,000198,720(64,800)Net Present Value for the Project = -64,800Analyse and RecommendationIn the first kind, payback is 4 year 1.5 month, finally, the profit is 280,000, therefore is feasible. The second kind, the NVP adding together is equal to 935,200, compared to the initial cost, meant invests 1,000,000, five years later still lost money, the gain does not equal the loss, cannot take. So, as showed by the above two tables, If use the way of NPV,