Complete the following activities:
Project Task:
Part A:
Case study:
BHP is an Australian registered multinational company with subsidiaries in 33 countries in Europe, Asia and Africa and the US. The subsidiaries have traditionally been allowed a large amount of autonomy, but BHP is now proposing to centralise most of the group treasury management operations for cost efficiency, and improve latent capacity, explore new application and reduce risk.
Required:
Acting as a consultant to BHP prepare a report suitable for distribution to Group Finance Directors and other Senior Managers of each of the subsidiaries explaining:
- a) The potential benefits of treasury centralisation; and
- b) How the company proposes to minimise any potential problems for the subsidiaries that might arise because of treasury centralisation?
Part B:
In 2014, the current management team of Toyota, a manufacturer of car and motorcycle parts, bought the company from its conglomerate parent company in a management buyout deal. Six years on, the managers are considering the possibility of obtaining a listing for the company's shares on the stock market. The following information is available.
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TOYOTA
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INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2020
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$m
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Turnover
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36.5
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Cost of sales
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(31.6)
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Profit before interest and taxation
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4.9
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Interest
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(1.3)
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Profit before taxation
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3.6
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Taxation
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(0.5)
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Profit attributable to ordinary shareholders
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3.1
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Dividends paid were $300,000
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TOYOTA
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STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020
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|
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Non-current assets (at cost less accumulated depreciation)
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$m
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$m
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Land and buildings
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3.6
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Plant and machinery
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9.9
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13.5
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Current assets
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Inventories
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4.4
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Accounts receivable
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4.7
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Cash at bank
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1.0
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10.1
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23.6
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Ordinary $1 shares
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$m
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$m
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Voting
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1.8
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‘A’ share (non-voting)
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0.9
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Reserves
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9.7
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Accounts payable due after more than one year: 12% Debenture 20X8
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2.2
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Current liabilities
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Trade accounts payable
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7.0
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Bank overdraft
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2.0
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9.0
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23.6
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Average performance ratios for the industry sector in which Toyota operates are given below.
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Industry sector ratios
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Return before interest and tax on long-term capital employed
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24%
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Return after tax on equity
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16%
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Operating profit as a percentage of sales
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11%
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Current ratio
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1.6:1
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Quick (acid test) ratio
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1.0:1
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Total debt: equity (gearing)
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24%
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Dividend cover
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4.0
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Interest cover
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4.5
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Price/earnings ratio
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10.0
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Required:
- Evaluate the financial state and performance of Toyota by comparing it with that of its industry sector.
Analyse information using Template Financial State and Performanceand provide individual explanation
- Why a company requires to consider stock exchange listing
Part C:
Penny manufactures a single product, the Darcy. Budgeted results and actual results for May are as follows.
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Budget
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Actual
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Variance
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Production and sales of Darcy (units)
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7,500
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8,200
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Sales revenue
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75,000
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81,000
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6,000 (F)
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Direct materials
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22,500
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23,500
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1,000 (A)
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Direct labour
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15,000
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15,500
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500 (A)
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Production overhead
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22,500
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22,800
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300 (A)
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Administration overhead
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10,000
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11,000
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1,000 (A)
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Total Overheads
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70,000
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72,800
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2,800 (A)
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Profit
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5,000
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8,200
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3,200 (F)
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F (Favourable), A (Adverse)
In this example, the variances are meaningless for the purposes of control. All costs were higher than budgeted but the volume of output was also higher; it is to be expected that actual variable costs would be greater than those included in the fixed budget. However, it is not possible to tell how much of the increase is due to poor cost control and how much is due to the increase in activity.
Similarly, it is not possible to tell how much of the increase in sales revenue is due to the increase in activity. Some of the difference may be due to a difference between budgeted and actual selling price but we are unable to tell from the analysis above.
For control purposes, answer the following questions;
Instead of comparing actual results with a fixed budget which is based on a different level of activity to that actually achieved, the correct approach to budgetary control is to compare actual results with a budget which has been flexed to the actual activity level achieved.
Suppose that we have the following estimates of the behaviour of Penny's costs.
- Direct materials and direct labour are variable costs.
- Production overhead is a semi-variable cost, the budgeted cost for an activity level of 10,000 units being $25,000
- Administration overhead is a fixed cost.
- Selling prices are constant at all levels of sales.
Required:
- Perform a Budgetary Control Analysis by flexing the original budget. All working to be shown separately in an excel spreadsheet (Use Budgetary Control Analysis). Then answer the following;
a) Were actual costs higher than they should have been to produce and sell 8,200 Darcy’s?
b) Was actual revenue satisfactory from the sale of 8,200 Darcy’s?
c)Reason for the difference in profit between actual profit and budgeted profit
