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1、.A financial analysis report for TricolplcOutcome 3and4Class;10E6Name:Ma bodaSCN:125099297Candidate Num:22.IntroductionTo operate betterin financialaspect,the managementof Tricolplc askedme to analyze their financial condition then make recommendations forthem.FindingsPart A( ) Flex budget in line w

2、ith actual activityTricol plc Flexed Budget for JuneOriginalFlexedActualVariancebudgetbudgetresults20001600 units1600F/AunitsunitsDirect material80,00064,00061,6002,400FDirect labor36,00028,80035,2006,400AVariable production4,0003,2003,2000overheadFixed costDepreciation1,5001,5001,5000Rent and rates

3、2,5002,5002,5000Administration overhead2,0002,0002,200200AInsurance costs2,2002,2002,400200ATotal128,200104,200108,6004,400A( ) Variances calculationDirect materialtotalvariance(Standard units of actual production*standard price)(actual.quantity*actual price)(4 kg*1,600* 10) 61,600 = 2,400(F)Rate of

4、 significance: (3.75%)Direct materialusage varianceStandard price*(standardunitsof actualproduction actualquantity) 10* (4kg 1,600) 5,600kg= 8,000 (F) Rate of significance (12.5%)Direct materialpricevarianceActual quantity * (standard price actual price)5,600kg* 10 ( 61,600/ 5,600kg) = (5,600)(A)Rat

5、e of significance: (8.75%)Direct labourtotalvariance(Standard hours of actual production*standard rate ph) - (actual hours*actual rate ph) (2hrs*1,600) *9 35,200= (6,400)(A)Rate of significance: (22.22%)Direct labourefficiencyvarianceStandard rate ph* (standard hours of actual production actual hour

6、s) 9*(2hrs*1,600 3,520hrs)=(2,880) (A) Rate of significance: (10%)Direct labourratevarianceActual hours*(standard rate phactual rate ph)3,520hrs*(9* 35,200/3,520hrs)=(3,520)(A)Rate of significance: (12.22%).Totaloverhead varianceTotalstandardoverhead foractualproduction totalactualoverheads( 18,000/

7、12+ 2,500+ 2,200+ 2,000)- (1,500+ 2,500+ 2,200+ 2,400)= (400) (A) Rate of significance: (3.5%) ( ) Report about variancesDirect 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

8、 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

9、use materialsefficiently, so it reduced the waste of materials. Secondly, the company switched suppliers and using higher-grade materials can decrease wasteof materials too. Finally, the company has concluded a higher-than-expected wage settlement for production operatives, which will maintain emplo

10、yees 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 is10 per kg, and the actual priceis 11per kg, it is adverse that one pound over the budget price. The company switching suppliers may cause the

11、 increase of negotiation cost. There may be a long-term relationship between Tricol plc and its oldsuppliers,so the suppliersmay take lotsof discountsto the firm.After.changing suppliers, the discount maydisappear. Furthermore, higher grade materials increased unit price.Overall, the total material

12、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 hoursare 3,520 hrs. There are more 320hrs needed than the

13、 budget, and each unit is 0.2hrs, which it is obviously adverse. The company upgrading theproduction 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 di

14、rect laour hours rate is 9 per hour, the actual hours rate is 10 per hour. It is adverse that one pound higher than budgeted. Itis 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 r

15、ecruit 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

16、 variances are adverse, so the direct labour total variance is adverse.Overhead varianceAs calculatedabove, totaloverhead varianceis caused by administrationand insurance. Each factor has200 variance, so the total overheadvariance is 400 and it is adverse. During the process of changing supplier, th

17、e 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 aside, the improvement of machinery will need more insurance fees to cover, which also contributes to the increase of ins

18、urance fee of new employees.Part BSelection and application of two investment appraisal techniquesAs the company is keen to recoup the cost of the investment within five years, I will choose Payback period and Net Present Value to help me complete the appraisal.In order to fulfill the appraisal easi

19、ly, there are some assumptions listed below should be considered before the appraisal. All revenue and inflow are assumed cash flow All investment cost incurred in year 0 No uncertainty is considered Do not consider inflation and taxation. Market rate of return is expected rate of return Rate of ret

20、urn is varying along with timeTricol plc Payback period for project distribution armYear Net cash flowCumulative Cash FlowCash FlowYear 0(1,000,000)(1,000,000)Cash InflowYear 1160,000(840,000)Year 2160,000(680,000)Year 3320,000(360,000)Year 4320,000(40,000)Year 5320,000280,000Net Cash BenefitYear 52

21、80.000Note: req uire 40,000/320,000 in year 5= 1/8*year=1.5 moths Payback=4 years 1.5 mothsTricol plc Net Present Value for project distribution armAnnual cash flowPresent value Present Value factors at 10%Year 0(1,000,000)1.000(1,000,000)Year 1160,0000.909145,440Year 2160,0000.826132,160Year 3320,0

22、000.751240,320Year 4320,0000.683218,560Year 5320,0000.621198,720935,200NPV(64,800).Recommendation about investmentAccordingto Payback Period analysis, the investmentcostcan be recoupedin year 4 and 1.5 moths. In other words, the period is under companysexpectation. The project can be executed. Howev

23、er, according to NetPresent Value analysis, in terms of present value, withinfiveyears,whatthe NPV will bring net result is net cash loss but not net cash surplus.In general,the company should consider time valueand otherfactors,sothe project should not be executed.Factors impact on the investment s

24、hould be consideredVarious factors will impact on result of investment. I will outline factors should be considered when the management reviewing my recommendation in financial and non-financial factors.Financial factorAs distribution arm is financial long-term beneficial project, it can be used inl

25、ong-term period and bring benefits continuous. The investment cost is 1,000,000,which can be considereda largeinvestment.So itmore likelyneeds long period payback period. The management should focus on longercash flows for longer period of future. On the other hand, Net PresentValue in year five is(28,000) only take2.8% percentsof the investmentcost, it is morelikely surplusin year six. Anotherfinancial f