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This assignment is an individual assignment designed to assess the following learning outcomes:

2.  Apply numeracy skills and qualitative judgment to aid financial decision making.

3.  Understand apply and evaluate management accounting concepts and techniques in decision making.

Coursework Assignment 

You have just started a new job as Managing Director of Newtron Technologies Ltd a UKbased company whose principal activity is the manufacture and distribution of computer components.

After discussions with colleagues at a business conference, you have concluded that the strategic planning and annual budgeting process needs to be reformed. You are particularly interested in the concept of “Beyond Budgeting” that was one of the themes of the conference.

You have therefore carried out some background research into “Beyond Budgeting” and have obtained the following documents (available on the module Moodle page).

Document 1 – A journal article on the Beyond Budgeting (Sandalgaard, N. and Bukh, P.N.

(2014) ‘Beyond Budgeting and change: a case study.’ Journal of Accounting & Organizational

Change 10, (3) 409-423)

The following income statements relate to Newtron Technologies Ltd.

    Year-ended    31/12/2017 31/12/2016 31/12/2015 31/12/2014 31/12/2013 31/12/2011 31/12/2010

	£000	£000	£000	£000	£000	£000	£000
Turnover	31,671	43,416	48,509	52,377	42,753	20,097	14,810
Cost of Sales	(22,603)	(31,603)	(36,239)	(40,272)	(31,076)	(15,292)	(11,636)
Gross Profit	9,068	11,813	12,270	12,105	11,677	4,805	3,174
Administration Expenses	(12,675)	(11,102)	(12,482)	(16,980)	(23,876)	(5,433)	(3,951)
Operating Profit	(3,607)	711	(212)	(4,875)	(12,199)	(628)	(777)
Other Income & Interest	2	194	(152)	(1,123)	10,432	(63)	(47)
Profit (Loss) before Tax	(3,605)	905	(364)	(5,998)	(1,767)	(691)	(824)
Taxation	810	(82)	0	(569)	386	214	267
Profit (Loss) after	(2,795)	823	(364)	(6,567)	(1,381)	(477)	(557)

Tax 

The last seven years have been very difficult for the company, and it has survived through the support of its parent company and its bank. However, the company now intends to engage in a number of income generating, cost-saving and efficiency measures in order to improve its financial performance.

 

 

 

 

 

 

 

 

 

 

Newtron Technologies Ltd are considering automating their production process for the TX9 computer procesor. At present this is requires a significant input of manual labour.

Due to the automation, the requirement for production labour will be significantly reduced. 

The current typical annual volume of output and sales is about 160,000 units.

Information relevant to this decision is given in the following table:

	Current production system	Automated production system
Sales price (per component)	£42.00	£42.00
Direct materials cost (per component)	£23.00	£23.00
Direct labour cost (per component)	£12.00	£5.00
Fixed manufacturing overheads	£800,000	£1,400,000
Fixed administrative overheads	£80,000	£60,000
Fixed selling and distribution overheads	£60,000	£60,000
Break-even point (components)	134,286	108,572
Margin of safety at budgeted profit level Unit sales required to achieve budgeted profit	35%	25%
of £500,000 (components)	205,715	144,286

 

 

 

 

 

 

 

 

 

 

Newtron Technologies Ltd’s Finance Department has prepared the following cash budget and budgeted income statement together with some balances extracted from the budgeted statement of financial position for the final 6 months of 2018.

The Chairman of the Board has expressed surprise and dismay that the cash balance is expected to deteriorate by nearly £2,000,000 over a period when the total loss is expected to be less than £1,500,000.

Cash budget	July	August	September      October	November	December
	£	£	£                     £	£	£
Opening balance	(250,000)	(487,937)	(895,422) (1,344,350)	(1,823,601)	(2,104,989)
RECEIPTS:
Cash sales	623,700	643,191	662,229          706,038	732,262	609,608

Credit sales                                                               1,981,809      2,067,771      2,233,962     2,347,738

Total receipts                                                           2,644,038      2,773,809      2,966,224     2,957,346

PAYMENTS:
Cash purchases	(586,818)	(629,604)	(684,468)	(726,206)	(698,490)	(664,333)
Credit purchases	(579,495)	(563,806)	(580,708)	(605,511)	(615,599)	(566,798)
Operating expenses	(144,800)	(154,936)	(165,782)	(177,386)	(189,803)	(203,089)
Fixed overheads	(155,800)	(155,800)	(155,800)	(155,800)	(155,800)	(155,800)
Production labour	(789,544)	(824,645)	(869,479)	(932,324)	(912,413)	(809,967)
Administration labour	(600,180)	(618,185)	(636,731)	(655,833)	(675,508)	(695,773)

 SHAPE  * MERGEFORMAT

Total payments:	(2,856,637) (2,946,976)		(3,092,967) (3,253,060)	(3,247,612)	(3,095,760)
Net cash flow	(237,937)	(407,485)	(448,928)        (479,251)	(281,388)	(138,414)
Balance c/f    Budgeted income	(487,937)	(895,422)	(1,344,350) (1,823,601)	(2,104,989)	(2,243,402)
statement	July	August	September      October	November	December
	£	£	£                     £	£	£
Sales	2,520,000	2,625,000	2,730,000       2,940,000	3,080,000	2,590,000

Cost of sales   

Gross profit   

Operating expenses	(154,936)	(165,782)	(177,386)	(189,803)	(203,089)	(217,306)
Fixed overheads	(156,645)	(156,645)	(156,645)	(156,645)	(156,645)	(156,645)

Administration costs (600,180)        (618,185)       (636,731) 

Total expenses          (911,761)     (940,612)       (970,762) 

Operating
profit/(loss)	(227,761)	(228,112)	(229,762)	(204,281)	(199,242)	(366,724)

 

             

Accounts receivable at	July	August     September October	November December
the period end (£)  Accounts payable at	1,896,300	1,981,809 2,067,771 2,233,962	2,347,738 1,980,392
the period end (£)	563,806	580,708          605,511       615,599	566,798       515,484
RM closing stock (£)	349,237	405,047          477,755       514,307	502,217       548,080
FG closing stock (£)	462,825	529,472          627,220       722,797	668,587       725,507

The following information is relevant to the figures above:

1.     Credit customers are allowed one month’s credit on sales;

2.     Credit suppliers allow one month credit on raw materials purchases;

3.     Production labour costs are included in cost of sales in the budgeted income statement.

 

 

Newtron Technologies Ltd’s product costing team have provided you with the following information on the current method used to charge overhead costs to products. The table shows each overhead cost and the apportioned and reapportioned costs by cost centre together with the apportionment bases used.

Department		Computer Processors			Graphics Processing Units	Memory Cards		Maintenance	Admin- Total istration
Direct costs
Direct materials (£)				3,405,000	2,951,000	2,644,000		–			–  9,000,000
Direct labour (£)				2,066,000	1,902,000	2,032,000		–			–  6,000,000
Overheads
Indirect labour (£)												900,000
Rent (£) Machine insurance												2,380,000
(£)												20,000
Heating (£)												50,000
Machine power (£) Machine												900,000
depreciation (£) Value of machines												720,000
(£)				832,000	725,000	713,000		1,330,000			–	3,600,000
Floor area (m2)				11,000	10,000	9,000		8,000	7,000			45,000
Machine hours				449,000	385,000	329,000		637,000	–			1,800,000
Direct labour hours				130,000	110,000	104,000		–	–			344,000
Employees				72	61	58		68	49			308
	Department		Computer Processors		Graphics Processing Units	Memory Cards	Maintenance			Administration             Total
			£		£	£	£			£                  £
	Direct materials (£)		3,405,000		2,951,000	2,644,000	–			–  9,000,000
	Direct labour (£)		2,066,000		1,902,000	2,032,000	–			–  6,000,000
	Direct costs		5,471,000		4,853,000	4,676,000	0			0			15,000,00 0
	Overheads Indirect         labour
	(direct labour)		309,900		285,300	304,800	–			–			900,000
	Rent (floor area) Machine insurance		581,778		528,889	476,000	423,111			370,222			2,380,000
	(machine value) Heating (floor		4,622		4,028	3,961	7,389			–			20,000
	area) Machine power		12,222		11,111	10,000	8,889			7,778			50,000
	(machine hours) Machine depreciation		224,500		192,500	164,500	318,500			–			900,000
	(machine value) Total apportioned		166,400		145,000	142,600	266,000			–			720,000
	overhead costs Re-apportion maintenance		1,299,422		1,166,828	1,101,861	1,023,889			378,000			4,970,000
	(machine hours) Re-apportion		395,293		338,949	289,647	(1,023,889)			–			–
	administration (employees) Total reapportioned		142,492		120,723	114,785							–
							–  (378,000)
	overhead costs Total reapportioned		1,837,208		1,626,499	1,506,293	0                 0						4,970,000
	overhead costs		1,837,208		1,626,499	1,506,293
	Direct labour hours Overhead absorption rate per direct labour		130,000		110,000	104,000
	hour (£)		14.13		14.79	14.48

The Graphics Processing Unit cost centre has been making significant losses in recent times and the Board of Directors have held discussions about whether this product line is still viable or should be shut down. The manager of the Graphics Processing Unit cost centre has complained that a significant portion of the cost centre’s costs are apportioned and reapportioned overheads. The manager has noted that the cost centre is charged a higher amount per direct labour hour (£14.79) for overheads than the other cost centres (£14.13 and £14.48). She has complained that she has no control over these costs and has queried the basis upon which the charges are made.

The Maintenance department is considering investing in a new piece of problem diagnostic equipment that will help them identify problems with production equipment more quickly, reduce equipment down times and wasted material and components in the factory.

There are two options for the new piece of equipment: the Oracle and the Clairvoyant.

The following information about the cash flows, profits and capital investment appraisal measures has been provided to you. The company’s cost of capital is currently 6%.

Cumulative

        Year                                                                                                     Profit (£)     cash flow

(£)

0                           (1,500,000)          1.0000             (1,500,000)                             (1,500,000)

1                           480,000    0.9434             452,832           (264,000)        216,000           (1,020,000)

2                           420,000    0.8900             373,800           (264,000)        156,000           (600,000)

3                           375,000    0.8396             314,850           (264,000)        111,000           (225,000)

4                           315,000    0.7921             249,512           (264,000)        51,000             90,000

5                           270,000    0.7473             201,771           (264,000)        6,000   360,000

          5*                  180,000     0.7473              134,514                                                      540,000

                                                  NPV =              227,279                               540,000                        

                                                                       

Payback period   3 years 9 months                                                                           

Accounting rate of return    12.86%                       

 Internal rate of return          11.31%              

 

 

 

 

 

 

 

 

 

 

                                                                         

Cumulative

        Year                                                                                                     Profit (£)     cash flow

(£)

0                           (2,000,000)          1.0000             (2,000,000)                             (2,000,000)

1                           370,000    0.9434             349,058           (350,800)        19,200             (1,630,000)

2                           431,000    0.8900             383,590           (350,800)        80,200             (1,199,000)

3                           513,000    0.8396             430,715           (350,800)        162,200           (686,000)

4                           575,000    0.7921             455,458           (350,800)        224,200           (111,000)

5                           657,000    0.7473             490,976           (350,800)        306,200           546,000

          5*                  246,000     0.7473              183,836                                                      792,000

                                                  NPV =              293,632                               792,000                        

                                                                         

Payback period   4 years 3 months                                                                           

Internal rate of return   10.29%                             

 *The second cash flow in year 5 for each option represents the sales proceeds on the disposal of the equipment at the end of its life (residual value).

The Clairvoyant will not be fully effective until other modifications and improvements have been made to production equipment over the next few years, whereas the Oracle will be fully effective almost immediately.

Only one of the two pieces of equipment can used on the company’s production equipment as they are incompatible and essentially perform the same functions.

 

You are required to write a report for the Board of Directors of Newtron Technologies Ltd (italicized words in brackets indicate the approximate word count for each section).

The report should cover the following key areas:

1.       An executive summary outlining the key challenges that the company is facing and the main outcomes from the analysis work you have under taken so far (250-300 words).

2.       A discussion of why Newtron Technologies Ltd might want to implement “Beyond

Budgeting” and why the company may not want or be able to fully adopt “Beyond Budgeting”. (Document 1) (225-275 words).

3.       A discussion of the break-even analysis of the proposed automation of the TX9 production process (Document 3) with particular emphasis on the following areas :

a.     An explanation of the probable reasons for the changes in the different costs relating to production of the TX9 component in the table above (90-110 words).

b.     A review of  the risk and return offered by the two manufacturing options with reference to the concept of operating gearing and a recommendation on which option Newtron Technologies Ltd should choose (210-240 words).

4.       A discussion of the reasons for the significant deterioration of the cash balance in the cash budget above (Document 4), given the much smaller total loss recorded in the budgeted income statement. (325-375 words).

5.       A discussion of the basis and reasons for charging overheads to individual production cost centres (Document 5) with particular emphasis on the following areas:

a.     Using the figures in the tables above, explain the basis of the overhead charges to the Graphics Processing Unit cost centre.  (275-325 words);

b.     Using the figures in the table above to illustrate your points, critically discuss the process of absorption costing.  (180-210 words).

6.       A critical appraisal of the results of the capital investment appraisal of the Oracle and Clairvoyant (Document 6) with particular emphasis on the following areas:

a.     A discussion of the reasons for the apparent conflicts between the investment advice provided by each method (375-425 words);

b.     A discussion of the risk and return presented by each option and a recommendation as to which option should be chosen (170-200 words).

 

GUIDELINES TO THIS ASSIGNMENT

 

 

This assignment will summatively assess learning outcome 3.

2.    Apply numeracy skills and qualitative judgment to aid financial decision making.

3.    Understand apply and evaluate management accounting concepts and techniques in decision making. 

Marks will be awarded according to the following criteria:

5%	An executive summary outlining the key challenges that the company is facing and the main outcomes from the analysis work you have undertaken so far.
20%	A discussion of potential for the introduction of the “Beyond Budgeting” philosophy.
20%	A discussion of the break-even analysis of the proposed new production equipment for the TX9 computer processor.
20%	A discussion of the reasons for the significant deterioration of the cash balance in the cash budget.
15%	A discussion of the basis and reasons for charging overheads to individual production cost centres.
15%	A critical appraisal of the results of the capital investment appraisal of the Oracle and Clairvoyant.
5%	Referencing, spelling and language used.

Word Count

The word count is between 2,000 and 2,250 (see guidance above on word count for each section). There will be a penalty of a deduction of 10% of the mark (after internal moderation) for work exceeding the word limit by 10% or more. The word limit includes quotations, but excludes the reference list.

How to submit your assessment

The assessment must be submitted by 16.00:00 on 02/07/18. No paper copies are required.

You can access the submission link through the module web.

•       Your coursework will be given a zero mark if you do not submit a copy through Turnitin.

Please take care to ensure that you have fully submitted your work. 

•       All work submitted after the submission deadline without a valid and approved reason (see below) will be given a mark of zero. 

•       The University wants you to do your best. However, we know that sometimes events happen which mean that you can’t submit your coursework by the deadline – these events should be beyond your control.  If this happens, you can apply for an extension to your deadline for up to two weeks, or if you need longer, you can apply for a deferral, which takes you to the next assessment period (for example, to the resit period following the main Assessment Boards). You must apply before the deadline. You will find information about the process and what is or is not considered to be an event beyond your control at https://share.coventry.ac.uk/students/Registry/Pages/Deferrals–and–Extension.aspx

•       Students MUST keep a copy and/or an electronic file of their assignment.

•       Checks will be made on your work using anti-plagiarism software and approved plagiarism checking websites.

Plagiarism

As part of your study you will be involved in carrying out research and using this when writing up your coursework. It is important that you correctly acknowledge someone else’s writing, thoughts or ideas and that you do not attempt to pass this off as your own work.  Doing so is known as plagiarism.  It is not acceptable to copy from another source without acknowledging that it is someone else’s writing or thinking. This includes using paraphrasing as well as direct quotations. You are expected to correctly cite and reference the works of others. The Centre for Academic Writing provides documents to help you get this right. If you are unsure, please visit www.coventry.ac.uk/caw.  You can also check your understanding of academic conduct by completing the Good Academic Practice quiz available on Moodle.

Moodle includes a plagiarism detection system and assessors are experienced enough to recognise plagiarism when it occurs. Copying another student’s work, using previous work of your own or copying large sections from a book or the internet are examples of plagiarism and carry serious consequences. Please familiarise yourself with the CU Harvard Reference Style (on Moodle) and use it correctly to avoid a case of plagiarism or cheating being brought. 

Again, if you are unsure, please contact the Centre for Academic Writing, your Academic Personal Tutor or a member of the course team.

Return of Marked Work

You can expect to have marked work returned to you within 10 working days. If for any reason, there is a delay you will be kept informed. Marks and feedback will be provided online. Marks will have been internally moderated only and will therefore be provisional; your mark will be formally agreed later in the year once the external examiner has completed his/her review. 

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