财政预算OUTCOME2

1、Part1(1) Tricol plc Flexed Budget For JuneOriginal Budgets 2,000 unitsFlexed Budgets 1,600 unitsActual results 1,600 unitsVariance F/A Direct Material 80,00064,000 61,600 2,400 FDirect Labor 36,000 28,800 35,200 6,400 AVariable overheads 4,000 3,200 3,200 0Depreciation 1,500 1,500 1,500 0Rent and Ra

2、tes 2,500 2,500 2,500 0AdministrationOverheads 2,000 2,000 2,200 200 AInsurances 2,200 2,200 2,400 200 ATotal 128,200 104,200 108,600 4,400 A(2) The variances are calculated as followed: DIRECT MATERIAL TOTAL VARIANCE(STANDARD UNITS OF ACTUAL PRODUCTION×STANDARD PRICE) (ACTUAL QUANTITY×ACT

3、UAL PRICE)(4kg×1,600)×1061,600=64,00061,600=2,400 (F)DIRECT MATERIAL PRICE VARIANCEACTUAL QUANTITY×(STANDARD PRICEACTUAL PRICE) 5,600kgs×(1061,600/5,600kgs)=5,600kgs×(1011)= 5,600 (A)DIRECT MATERIAL USAGE VARIANCESTANDADR PRICE×(STANDARD UNITS OF ACTUAL PROCUTIONACTUAL

4、UNITS)10×(4kg×1,600)5,600kgs= 8,000 (F)DIRECT LABOUR TOTAL VARIANCE(STANDARD HOURS OF ACTUAL PRODUCTION×STANDARD RATE ph) (ACTUAL HOURS×ACTUAL RATE ph)(2hours×1,600)×935,200=2,880035,200=6,400 (A)DIRECT LABOUR RATE VARIANCEACTUAL HOURD×(STANDARD RATE p.h. ACTUAL RA

5、TE ph)3,520hrs×(935,200/3,520hrs)=3,520hrs×(910)= 3,520 (A)DIRECT LABOUR EFFICIENCY VARIANCEACTUAL HOURS×(STANDARD HOURS OF ACTUAL PRODUCTIONACTUAL HOURS)9×(2hours×1,600)3,520hrs= 9×320=2,880 (A)OVERHEAD TOTAL VARIANCETotal Standard Overhead for actual productionTotal A

6、ctual Overheads2×1,600+2,000+2,500+1,500+2,200(3,200+2,200+2,500+1,500+2,400)=400 (A)(3) In the first part, we have calculated cost variances for Tricol plc at June. It totally produced 4,400 adverse variance that include 2,400 favorable material variance, 6,400 adverse labor variance and 400 a

7、dverse overheads variance. All these variances have exceeded the rate of significance of 3%. Direct material total variance can be divided into two components: the direct material usage variance and the direct material price variance. Direct material total variance of Tricol plc in June is 2,400 (F)

8、 with the rate of significance of 3.75%( The level of significance of Direct Material Total Variance=400/64,000=3.75%). The direct material usage variance is the favorable variances in 8,000, a rate of significance is 12.5%( The level of significance of Direct Material Usage Variance =8,000/64,000=1

9、2.5%), the possible reasons for this variance may be the company use higher quality raw material and higher grade workforce. the direct material price variance is 5,600 (A), and a rate of significance is 8.75%( The level of significance of Direct Material Price Variance=5,600/64,000=8.75%). The reas

10、on is the company has switched supplier and using higher-grade materials; and because the fluctuations of exchange rate in the international market react on price of the raw materials. Similar with direct material total variance, the Direct Labour Total Variance was made up by the Direct Labour Rate

11、 Variance and Direct Labour Efficiency Variance. It is a adverse variance of Tricol plc in June (6,400) with the rate of significance of 18.18% (The level of significance of Direct Labour Total Variance =6,400/35,200=18.18%). The direct labor efficiency variance is the adverse variance in 2,880, and

12、 a rate of significance is 8.18% (The level of significance of Direct Labour Efficiency Variance =2,880/35,200=8.18%). The reason for this variance may be the company lowers its workforce grade and also the morale. Possibly it is that the company conducts the pay rise which is higher than expected f

13、or production operatives, or it lack qualified and skilled labor to operate the upgraded machinery lead a adverse variance in the direct labor rate, at 3,520 , with a rate of significance as 10% (The level of significance of Direct Labour Rate Variance =3,520/35,200=10%). The overheads total varianc

14、e in June was 400 which was a adverse variance. The level of significance of Overhead=400/12,200=3.3%. There are two factors cause this. First, the insurance fee exceed anticipated budget. Second, there occur extra administration overheads.For all the variance above, there are some recommendations p

15、resented in the follows:All the variances rate of significance are more than 3%, so a detail analysis of all the aspects should be taken, and find out a settlement for this problem, as to eliminate the adverse variances and holding the favorable variances. The company has recently concluded a higher

16、-than-excepted wage, however, the labor efficiency decreased. The management needs to do a farther research.Considering the adverse variance of material price, the purchasing department endeavor to negotiate with the supplier about the extra discount, if it signs a long-term and large purchasing con

17、tract with the supplier; or search for new supplier who can provide the same higher-grade material with relative lower price. Appendix1. Payback Period:Year Annual 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 peri

18、od = 4 years and 1.5 months (40,000/320,000)2. Discounted Cash Flow:Year PV 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 Pre

19、sent Value for the Project = -64,800Part 21. There are some key assumptions should be clearly stated (1) The management should assume that the given market rate of return will not vary. (2) Managers should ignore the impact of taxation and inflation on the above figures. (3) The figures of expect re

20、venue which appear in this report are net cash flow, after paid off all relevant costs.(4) Assuming that the total cost of the project will be payable at the beginning. 2. The calculation and analysis of two investment appraisal technique. (1) Payback Period:YearAnnual Cash FlowCumulative0(1,000,000

21、)(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)Payback as a method of investment appraisal measures the number of years it is expected to take to recover the cost of the original investment. Paybac

22、k period is 4 years and 1.5 months. In the 5th year after the investment, the huge investment will get a complete return, and obtain the net present value of the return at 280,000 from this project. So, the payback is applicable. (2) Discounted Cash Flow:YearPV factor 10%Cash FlowNPVCumulative01.000

23、(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 = -64,800With this technique, the company would not return their investment. The market r

24、ate of return on investment projects is 10%, the Tricol plc will not recover its investment over the next 5 years, the net present value of the return is 935,200, and the net present value for the project is a negative numerical that means a loss of 64,800. So the DCF technique indicted that this investment was not appeared to be profitable. 3. On the basis of the above investment appraisal analysis, the management should be recommended that the planned investment should not go ahead. Because net present value for the Project is -64,800. That is to say the company can not recover the