1、DE3J 35 Outcome 3&4 - 1 -Contents1.0 Introduction .- 2 -2.0 The flexed budget - 2 -3.0 Calculate the Materials variances, Labour variances and the Total overhead.- 2 -3.1 Direct the materials variances , labour variances and the total overhead- 2 -3.2 Variance analysis.- 3 -4.0 The recommendations f
2、or management (variances)- 4 -5.0 Using four different methods to evaluate the financial. - 5 -5.1 Identify the accounting rate of return. - 5 -5.2 Identify the payback. - 5 -5.3 Identify the Net present value.- 5 -5.4 Identify the Internal rate of return. .- 6 -6.0 Recommendations for investment de
3、cision.- 6 -7.0 Conclusion .- 7 -8.0 Appendices - 7 -DE3J 35 Outcome 3&4 - 2 -1.0 IntroductionThis report will divided into two parts. Part A and Part B. In Part A,First of all, I will prepare a flexed budget in line with actual activity. Second, this will including the Materials variances, Labour v
4、ariances and total overhead. At the same time, I will identify a minimum of one possible cause of the each variance. Finally, according to data analysis, there have been some recommendations to management of Matteck PLC. In Part B, It will have four different ways to evaluate financial performance a
5、nd give recommendations for Matteck PLC. These ways are ARR ,Payback, NPV and IRR. Part A2.0 The flexed budgetFor Flex budged of Matteck PLC, we can see the Appendix 1. 3.0 Calculate the Materials variances, Labour variances and the Total overhead.3.1 Direct the materials variances , labour variance
6、s and the total overhead.This section shows the Appendix 2.DE3J 35 Outcome 3&4 - 3 -3.2 Variance analysis.Material price variance:The material price variance is 32,000(F). According to the data analysis, it is 2/kg less expensive than planned. The possible reasons can be divided into three points: f
7、irst, they could replace raw materials, using a lower - grade material. Second, the supplier to provide some discount for this batch of raw materials. Finally, learn from the case, the company has managed to locate new materials from an overseas. Due to the product from overseas, according to differ
8、ent exchange rate, the material will reduce the price.Material usage variance:The material usage variance is 30,000(A). The possible reasons include the effects of raw materials and the influence of the machine. If the company using poor quality raw materials, it may be more difficult to work. This
9、will increase the waste materials. At the same time, the case shows that the companys new machinery can be fully used in the second week. The delay time may have caused the machine to use more materials than planned. Material total variance:The material total variance is 2,000(F). Case shows that th
10、e companys raw materials are from overseas suppliers. This will reduce some costs. Which leads to the material price variance is 32,000 (F). On the other hand, the company has introduced a new machine, the influence of machine installed time, caused some wasted of materials. This makes the material
11、usage variance is 30000 (A). Even if The companys material total variance is 2000 (F). The companys management still should pay attention to The utilization of raw materials.Labour efficiency variance:The Labour efficiency variance is 10,000(F). The possible reasons could include the new machine to
12、improve staff work efficiency. Using new machine can less labour hours. At the same time , the case shows that the company has had to employ more highly qualified staff. They can increase the DE3J 35 Outcome 3&4 - 4 -working efficiently through the higher skill. Labour Rate Variance:The Labour rate
13、variance is 15,000(A). Through the calculation, the labour rate is 1.50 per hour higher than original. The possible reasons is 1.50 per hour higher than planned. The cost of direct labour is adverseness for this firm.Labour Total Variance:the Labour total variance is 5,000(A). The reasons of varianc
14、e, the company has introduced the new machine, As the result the direct labor efficiency variance is favorable which is 10,000(F). On other hand, the labour rate is higher than standard labour rate. Finally, lead to the labour total variance is adverse, 4.0 The recommendations for management (varian
15、ces).1. The company should be had a variety of data investigation to set up complete data system. At the same time, through the different variance, the company can know more about the market information.2. The company should intensify the performance monitor for staff because the lower performance w
16、ill accelerate waste of material and then lead to the material usage is increase, the performance monitor can help the company shrink the variance.3. Management: the company can provide some motivation policies to motivate the staff that is work hard and enhance the work enthusiastic of the staff. T
17、his can improve the staff work efficiency.DE3J 35 Outcome 3&4 - 5 -Part B5.0 Using four different methods to evaluate the financial.5.1 Identify the accounting rate of return.ARRAverage profit= 50,3=660,000Accounting rate of return= 0,26=26.4%The cases show that the company should have an accounting
18、 rate of return of at least 15%, through calculation, the ARR is 26.4%. Therefore, the data has meet company standards.5.2 Identify the payback.The company hopes to recover the cost of the investment within 4 four years. In fact, they just use 3 years 341days. (see Appendix 3.)5.3 Identify the Net p
19、resent value.The NPV method calculates the present values of cash inflows and outflows and establishes whether. Basically, NPV provides an objective for evaluating and selecting investment projects. Moreover, it takes into account required rate of return of company and then takes into account time v
20、alue of money. But there are substantial DE3J 35 Outcome 3&4 - 6 -uncertainly factors in our world. For instance the inflation and deflation, the exchange rate.When the Mattecks cost of capital is 10%. The NPV is (46200). The NPV value less than 0. The company should not invest this project. ( see A
21、ppendix 4.)5.4 Identify the Internal rate of return.When the present value is 5%, the internal rate of return is 9.39%. Which less than 10% of company standard.therefore,the company should not invest this project.( see Appendix 5)6.0 Recommendations for investment decision.1. According the four meth
22、od, The ARR and Payback are both implement for this project, but the NPV and IRR are not implemented for this Project. In this case ,the company should focus on the NPV and IRR.2. By calculates the net present values, it seems that the deficit, which means that the annual cash flows are not enough t
23、o allow more interest to be deducted and still repay the original investment. This investment is unworthy .3. Within five years. All the market factors are changeable. The information will have different change. And there are maybe some other situations occurred. So the Matteck PLC should not concer
24、n with the project.7.0 ConclusionThe report can help the company make the flex budget, and then by variances analysis and use the DE3J 35 Outcome 3&4 - 7 -four methods to evaluate the financial. Through the recommendations can help the company choose the best investment to gain the maximum profits.8
25、.0 Appendices8.1 Appendix 1Matteck PLC Flexed budgetFor December 2011Original budget 5000 unitsFlexed budget4500 unitsActual results4500 unitsVariance F/A Direct Material 180,000 162,000 160,000 2000(F)Direct Labour 100,000 90,000 95,000 5000(A)Variable Overheads50,000 45,000 47,500 2500(A)Supervisi
26、on Cost 3,300 3,300 3,400 100(A)Rent and Rates 1,000 1,000 1,200 200(A)Administration Overheads2,000 2,000 2,100 100(A)Depreciation 3,000 3,000 3,000 0Total 306,300 312,200 5,900(A)8.2 Appendix 2DE3J 35 Outcome 3&4 - 8 -8.3 Appendix 3Payback Capital cost 2,500,00Year 1 500,000Year 2 600,000Year 3 70
27、0,000Year 4 750,000Year 5 750,000Total 3,300,000Payback=3 year+ 365days0,75,81,2=3 year 341days DE3J 35 Outcome 3&4 - 9 -8.4 Appendix 4Year Annual cash flowPresent value Factors at 10%Present Value 0 (2,500,000) 1,000 (2,500,000)1 500,000 0.909 454,5002 600,000 0.826 495,6003 700,000 0.751 525,7004
28、750,000 0.683 512,2505 750,000 0.621 465,750 2,453,800NPV (46,200)DE3J 35 Outcome 3&4 - 10 -8.5 Appendix 5Year Annual cash flow Present value Factors at 5% Present Value 0 (2,500,000) (2,500,000)1 500,000 0.952 476,0002 600,000 0.907 544,2003 700,000 0.864 604,8004 750,000 0.823 617,2565 750,000 0.874 588,000 2,830,256NPV 330,256R=10% NPV=(46200)R=5% NPV=330256IRR=5%+ 5%=9.39%)20,46(5,3
