HND财政预算答案.doc

Part A(i)Tricol plcFlexed BudgetFor JuneOriginal Budget2,000 unitsFlexed Budget1,600 unitsActual results1,600 unitsVarianceF/ADirect Material80,00064,00061,6002,400FDirect Labour36,00028,80035,2006,400AVariable Production Overheads4,0003,2003,2000Insurance Costs2,2002,2002,400200ADepreciation15,0001,5001,5000Rent and Rates2,5002,5002,5000Administration Overheads2,0002,0002,200200ATotal104,200108,6004,400A(ii)Direct material total variance(standard units of actual productionstandard price) (actual quantityactual price)(4kg1600)10 61600= 64000 61600=2400 ( F )The rate for direct material total variances is 2,400/ 64,000100%=3.75%3%Direct material price variance actual quantity( standard priceactual price) =5600kg( 10- 11) =5600kg1 =5600 (A)The rate of direct material price variance is 5,600/ 64,000100%=8.75%3%Direct material usage variance standard price(standard units of actual production-actual units) =10(4kg1600-5600kg) =10800kg =8000 (F) The rate of direct material usage variance is 8,000/ 64,000100%=12.5%3%Note: When adding the price and usage variances the result must equal the total variance. Therefore, 5600(A) (price)8000(F) (usage) = 2400(F) (total).Direct labour total variance ( standard hours of actual productionstandard rate ph) (actual hoursactual rate ph) (2h1600)9 (3520h10) =(3200h9)35200 =28800 35200 =6400(A)The rate of diretc labour variance is 6400/28800100%=22.2%3%Direct labour rate variance actual hours( standard rate phactual rate ph) 3520h(910) =3520h1 =3520(A)The rate of direct labour rate variance is 3,520/ 28,800100%=12.2%3%Direct labour efficiency variance standard rate ph ( standard hours of actual production actual hours) 92h16003520h =9(3200h3520h) =9320h =2880(A)The rate of direct labour efficiency variance is 2,880/ 28,000100%=10%3%Note: When adding rate and efficiency variances the result must equal the total variance. Therefore, 3520(A) (rate)2880(A) (efficiency) = 6400(A) (total).Overhead total variance (standard insurance costactual insurance cost)(standard administration overheadsactual administration overheads) (22002400)(20002200) =200(A)200(A) =400(A)The rate of overhead total variance is 400/ 4,200100%=9.52%3%(iii)AnalysisMaterial varianceFrom the actual budget, we can see that the direct material total variance is 2,400(F). The Direct material usage variance is 8,000 (F),the Direct material price variance is (5,600)(A).The possible reasons for material usage variances are include:Use new machinery.Use higher qualityThe possible reasons for material price variance:Change suppliers.Use higher quality material.Loss of discountLabour varianceThe direct labour total variance is (6,400) (A) ,the Direct labour efficiency variance is (2,880) (A) and the Direct labour rate variance is(6,400) (A). The possible reason for direct labour efficiency variance:Lower grade workforceShortage of skilled labor The possible reason for direct labour rate varianceHigher grade workforcesShortage of skilled labourOverhead varianceThe total overhead variance is (400)(A). The Insurance and Administration variances are (200)(A). The total overhead variance is (400)(A).The possible reasons for overhead variances:Using new machineryIncreased administration costTo conclude a higher-than-expected wage settlement for production operates.Difficult trading conditionsIntensely competitionRecommendationAccording to above analysis, we can easily understand the organizations current situation. In order to achieve the lower costs and high profit here some recommendations divided in three sections which in clued material variances, labour variances as well as the overhead variances.The recommendation for material variances:Investigate the cheaper material.Hold a staff training program to increase their work efficiency. Negotiate with current supplier in order to achieve lower price. The recommendation for labour variances:Provide training program to staff for higher skill of operating the new material. Consider about the lower grade labourThe recommendation for overhead variances:try to decrease the administration cost Teach the staffs scientifically use these overhead in order to make it longer-used. Part BPayback period method:Year Anuual cash flowCumulative 0(1,000,000)(1,000,000)1160,000 (840,000)2160,000 (680,000)3320,000 (360,000)4320,000 (40,000)5(1/8 of 320,000)40,000 NIL 5（7/8 of 320,000)280,000 240,000 Payback will take 4 year 1.5months.Net present ValueAnnualCash FlowPresent ValueFactorsat 10PresentValueYear 0(1,000,000)1.000(1,000,000)1160,0000.909145,4402160,0000.826132,1603320,0000.751240,3204320,0000.683218,5605320,0000.621198,720935,200Net Present Value(64,800)The premise of payback period methods Identify all of the costs of initial investment. Assume that they will be paid now. Find the cash inflow for each project. Add up cash flows each year until cost of project covered. Pick the project with the shortest payback period. If the payback period is only one year then it should be compared with an internal figureThe premise of discounted cash flow techniqueUncertainty does not exist. There is no inflation. The appropriate discount rate to use is known, to avoid unnecessary calculations. When undertaking DCF questions, the discount rates have been computed for you, and are given in the discount tables .Unlimited funds can be raised at a competitive rate.Analyzing payback period methodAccording to the payback period method, the original capital that the company invest is 1,000,000 and there are 5 years for the company to get the return that is the budgeted payback period. According to the program, 4 years and 1.5 months that the company will get its all investments. At the last year, company will get the return about 280,000. As a result, based on the period method, the project will be profitable and is worth to invest.Analyzing discounted cash flow techniqueIf the company uses the discounted cash flow technique, according to the peogram, the investment is 1,000,000, and the net present value is 10%. The budgeted payback period is 5 years. After 5 years, the NPV for the project will be -64,800. It shows that the return is less than the investment. It will be the loss of 64,800 to invest this project. So this project will not be profitable and is not worth to invest.RecommendationAccording to the two methods, it is not difficult to find that the company would better to choose the payback period method. The company chooses payback period method could get the profit of 280,000 and less 5 years could get the all investment. And for the discounted cash flow technique, it will cost 5 years and loss 64,800 at last of the project. So, based on the profit, the company would better to choose the payback period method.Consideration of other factors First, the environment is one factor that the managers should to consider. Tricol makes a range of furniture and kitchenware. It may make pollute during the producing. If the company does not pay attention to the environment, it may get some fine. Technology is one factor that the managers should to consider about. If the company uses the new technology and equipment in the project, it could improve its productivity. And improve its profitability. The company should also think about the legal. The company should insure that the project is not against the legal. If not, company may be punished by the government and even be banded. At last, company should consider its customers. It should consider that its products, making by the project, will be attracted by the customers. If no customers like it, they may get little profit for the project.ConclusionAs an advisor for the company, this report can help the company make the flex budget and variances and use the two methods to analysis the investment and help the company choose the best method. This will help company make much profit.