It is now the end of Year 2. XYZ Group has three divisions, each producing and selling a different group of products. Information about the financial performance of each division/product group is as follows.
Segment A
Year 1
Year 2
Year 3 (forecast)
GH¢000
GH¢000
GH¢000
Sales
8,000
8,323
8,741
Cost of sales
4,400
4,520
4,610
Gross profit
3,600
3,803
4,131
Transport costs
400
415
430
R&D expenditure
low
low
Low
Market share
11%
10%
8%
Sales volume index
100
102
104
Segment B
Year 1
Year 2
Year 3 (forecast)
GH¢000
GH¢000
GH¢000
Sales
10,000
11,220
12,600
Cost of sales
6,000
6,480
7,000
Gross profit
4,000
4,740
5,600
Transport costs
350
390
450
R&D expenditure
high
high
high
Market share
27%
27%
27%
Sales volume index
100
110
121
Segment C
Year 1
Year 2
Year 3 (forecast)
GH¢000
GH¢000
GH¢000
Sales
6,000
5,600
5,400
Cost of sales
3,900
4,080
4,210
Gross profit
2,100
1,520
1,190
Transport costs
360
476
540
R&D expenditure
medium
medium
medium
Market share
20%
20%
20%
Sales volume index
100
107
114
Required:
Use this information to evaluate the performance of the three product groups. You should try to use an analytical model to support your financial analysis.
XYZ GROUP: FINANCIAL ANALYSIS
It is now the end of Year 2. XYZ Group has three divisions, each producing and selling a different group of products. Information about the financial performance of each division/product group is as follows.
Division A
Year 1
Year 2
Year 3 (forecast)
Sales
GH₵000
GH₵000
GH₵000
8,000
8,323
8,741
Cost of sales
4,400
4,520
4,610
Gross profit
3,600
3,803
4,131
Transport costs
400
415
430
R&D expenditure
low
low
low
Market share
11%
10%
8%
Sales volume index
100
102
104
Division B
Year 1
Year 2
Year 3 (forecast)
Sales
GH₵000
GH₵000
GH₵000
10,000
11,220
12,600
Cost of sales
6,000
6,480
7,000
Gross profit
4,000
4,740
5,600
Transport costs
350
390
450
R&D expenditure
high
high
high
Market share
27%
27%
27%
Sales volume index
100
110
121
Division C
Year 1
Year 2
Year 3 (forecast)
Sales
GH₵000
GH₵000
GH₵000
6,000
5,600
5,400
Cost of sales
3,900
4,080
4,210
Gross profit
2,100
1,520
1,190
Transport costs
360
476
540
R&D expenditure
medium
medium
medium
Market share
20%
20%
20%
Sales volume index
100
107
114
Required:
Use this information to evaluate the performance of the three product groups. You should try to use an analytical model to support your financial analysis.
Ashanti Pharmaceuticals Ltd has an objective in its long-term business plan of achieving significant growth in its business in the period Year 1 to Year 5. It is now the end of Year 2.
Its results for the years to 31st December Year 1 and Year 2 are summarised below.
Statement of profit or loss for the year ended 31 December
Year 2 (GH₵)
Year 1 (GH₵)
Sales
31,200,000
26,000,000
Cost of sales
18,720,000
15,600,000
Gross profit
12,480,000
10,400,000
Operating costs
6,780,000
5,200,000
Interest charges
500,000
–
Taxation
3,000,000
3,000,000
Net profit
2,200,000
2,200,000
Statement of financial position as at 31st December
Year 2 (GH₵)
Year 1 (GH₵)
Non-current assets
27,300,000
26,000,000
Net current assets
15,600,000
7,800,000
Total assets
42,900,000
33,800,000
Borrowings
9,000,000
–
Net assets
33,900,000
33,800,000
Share capital and reserves
19,500,000
19,500,000
Retained earnings
14,400,000
14,300,000
Total equity
33,900,000
33,800,000
Sales are seasonal, and are much higher in the first six months of the year than in the second six months. The half-yearly sales figures in the past two years have been as follows:
Sales
Year 2 (GH₵)
Year 1 (GH₵)
First six months
21,645,000
16,900,000
Second six months
9,555,000
9,100,000
Total
31,200,000
26,000,000
The company employs part-time workers during the first six months of each year. Part-time workers operate for a full working week during the weeks that they are employed. Employee numbers have been as follows:
Employee numbers
Year 2
Year 1
Full-time
318
260
Part-time (first six months)
494
310
The company introduced four new products to the market in Year 1 and another five new products in Year 2.
Required:
Explain with reasons whether the company appears to be on course for achievement and production.
Keta Textiles Ltd is planning to open a new investment centre, which will make and sell a single product. The investment in the new division at the beginning of the year will be GH¢2 million, consisting entirely of non-current assets. These are expected to have a five-year life with no residual value, and they will be depreciated each year at the rate of 20% of cost.
Sales in the first year of operation are expected to be GH¢4 million and the budgeted gross profit is 30%. Overhead costs excluding depreciation of non-current assets will be GH¢600,000 in Year 1.
The estimates for the first five years of operation are as follows:
(1) The company will not make any additional investment in non-current assets for the division in the first five years.
(2) The cost of sales per unit in the five years will remain constant, with no increases.
(3) Sales volume will be the same in Year 2 as in Year 1. Sales volume will then increase in Year 3 by 5% but will fall by 10% in Year 4 and a further 10% in Year 5.
(4) The sales price per unit will be increased by 5% in Year 2. There will be no change in sales prices in Year 3, but prices will be increased by 5% in Year 4 and again by 5% in Year 5.
(5) Overhead costs excluding depreciation will remain at GH¢600,000 for the first three years, but will then be GH¢700,000 in each of Years 4 and 5.
Required:
Calculate the return on investment for the division for each of the first five years, assuming that ROI is calculated using the net book value of assets at the beginning of the year.
Using ROI and any other measures of performance, assess the expected performance of the division over the five-year period.
PrimeCorp has several separate divisions, each operating as an investment centre within the group. North Sector makes and sells three products, A, B, and C. All three products are sold under the Apex brand label, but Product A and Product B are also sold through a supermarket group as unbranded products. Budgeted data for the year to 31 December Year 7 is as follows:
Product sales
Product A
Product B
Product C
units
units
units
Apex brand
160,000
120,000
50,000
Unbranded
450,000
600,000
Selling prices
Product A
Product B
Product C
GH¢ per unit
GH¢ per unit
GH¢ per unit
Apex brand
2.50
3.20
5.00
Unbranded
1.50
2.00
Variable costs
Production
Packaging
GH¢ per unit
GH¢ per unit
Product A:
Apex brand
1.20
0.30
Unbranded
1.20
0.10
Product B:
Apex brand
1.60
0.40
Unbranded
1.60
0.20
Product C:
Apex brand
2.50
0.50
Budgeted marketing expenditure is GH¢180,000 for the year, and other budgeted expenditure for other fixed costs is GH¢375,000. The average capital employed in North Sector in Year 7 is expected to be GH¢400,000 and the division’s cost of capital is 10%.
Required:
(a) Calculate the budgeted ROI for North Sector for the year to 31 December Year 7.
b) Calculate the budgeted residual income for North Sector for the year to 31 December Year 7.
KLM Enterprises Ltd. uses a standard costing system. The following profit statement summarises the performance of the company for August 20X3:
GH¢
GH¢
Budgeted profit
3,500
Favourable variance:
Material price
16,000
Labour efficiency
11,040
27,040
Adverse variance:
Fixed overheads expenditure
(16,000)
Material usage
(6,000)
Labour rate
(7,520)
(29,520)
Actual profit
1,020
The following information is also available:
Standard material price per unit (GH¢): 4.0
Actual material price per unit (GH¢): 3.9
Standard wage rate per hour (GH¢): 6.0
Standard wage hours per unit: 10
Actual wages (GH¢): 308,480
Actual fixed overheads (GH¢): 316,000
Fixed overheads absorption rate: 100% of direct wages
Required:
(a) Calculate the following from the given data:
(i) Budgeted output in units
(ii) Actual number of units purchased
(iii) Actual units produced
(iv) Actual hours worked
(v) Actual wage rate per hour
(b) State any two possible causes of favourable material price variance, unfavourable material usage variance, favourable labour efficiency variance, and unfavourable labour rate variance.
Tamale Chemicals, based in Tamale, has the following standard cost for producing 9 litres of GreenLube:
5 litres of Material X at GH₵0.70 per litre
5 litres of Material Y at GH₵0.92 per litre.
There are no inventories of materials, and all material price variances relate to materials used. Actual results showed that 100,000 litres of materials were used during a particular period as follows:
45,000 litres of Material X: cost GH₵36,000
55,000 litres of Material Y: cost GH₵53,350
During the period, 92,070 litres of GreenLube were produced.
Required:
Calculate the total materials cost variance and analyse it into its price, usage, yield, and mix components.
