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Turn over

2. Teddybears Picnics Ltd

Teddybears Picnics Ltd produces teddy bears. Financial information includes:

2004($)

2005($)

Fixed assets 10 000 10 000Sales revenue 22 000 24 000Cash 1 200 1 000Stock 4 800 5 200Debtors 2 900 3 200Cost of sales 8 400 8 900Creditors 3 200 3 400Retained profit 8 700 9 900Overheads 4 400 5 000Long term liabilities 7 000 6 100

(a) Define the following terms:

(i) fixed assets (ii) current assets (iii) current liabilities. [6 marks]

(b) Construct a profit and loss account for Teddybears Picnics Ltd for each of the years 2004 and 2005. [5 marks]

(c) Produce a balance sheet for Teddybears Picnics Ltd for each of the years 2004 and 2005. [6 marks]

(d) Identify three ways in which Teddybears Picnics Ltd can improve their net profit. [3 marks]

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5. Seifert Sawmill

The Seifert Sawmill has operated in Sweden for 80 years. Daniel Seifert, the managing director, provided the following data on a proposal to set up a Sawmill in Latin America.

Table 1Fixed costs $800 000 per annumVariable costs $1000 per batchSelling price $4000 per batchForecast sales 500 batches per annum

Table 2The fixed costs per annum: $ The variable costs: $

Directors fees 200 000Rent 250 000Annual logging licence 100 000 Depreciation 70 000 Interest 150 000Other expenses 30 000

Direct labour 300 per batchMachine hire 100 per batchElectricity 100 per batchVehicle running costs 100 per batchMaterials 400 per batch

Seifert Sawmills has hired a management consultancy firm, Business Dynamics, to assess the business environment in Latin America. The following is a summary of their findings:

• the local and regional construction industry is showing strong signs of recovery from recession• the recent national elections resulted in the PBP political party being re-elected with policies

favouring the business community• the local currency has been pegged to the US dollar in an attempt to improve business confidence

and contain inflation• the trade union movement in Latin America is getting stronger. There is a widespread belief

among employees that trade unions offer the only real hope of improving living standards• global and local environmental groups are gaining in popularity and political influence• there is a growing use of synthetic materials in the construction industry rather than timber.

(a) Use the data in Table 1 to prepare a break-even chart for Seifert Sawmill. [6 marks]

(b) Identify on your chart the margin of safety and profit if 500 batches are sold. [2 marks]

(c) Assuming 500 batches are sold, construct a forecast profit and loss account using the data provided in Table 2. [6 marks]

(d) Use a PEST/STEP framework to evaluate two external factors which might influence Seifert Sawmill’s decision to set up a sawmill in Latin America. [6 marks]

1. John Bite owner of a retail store has recorded the items below during the year endingDecember 31, 1999.

20Expenses

5Bank money (money in a bank account)

200Long term loan

60Cost of goods sold

15Accounts receivable (debtors)

20Accounts payable (creditors)

Owner’s equity

100Sales

200Building

80Vehicles

40Stock

Value ($ 000s)Item

The current assets ratio for 1998 was 1:1 and the asset test ratio was 0.5 :1.

From the above figures:

[6 marks](a) Produce the Balance Sheet for the year ending December 1999 and

calculate the owner’s equity.

[2 marks](b) Identify the two possible elements that make up the owner’s equity.

[3 marks](c) Prepare an Income Statement (Trading and Profit and Loss Account).

[3 marks](f) Compare the 1998 ratios to the 1999 ratios and write a comment on

your findings.

[4 marks](e) Explain what these ratios measure and show why both are important to

the firm.

[2 marks](d) Calculate the current assets ratio and acid ratio for 1999.

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At an annual shareholders meeting Bill Adriano reported the following financial information

Figure II

81 00080 000Other costs

42 00040 000Selling and distributioncosts

145 000140 000Administration costs1 900 0001 820 000Total cost of sales2 400 0002 600 000Total sales

2000 (projected)$

1999$

Vidler’s appointed a market research consultant, to undertake a $10 million project to find outthe perception consumers had of Vidler, compared to its rival, Vercher.

Figure III Main Findings of the Project

Large car parksSmall car parksDifferent trolleysStandard trolleysStaff bonus scheme for suggestionsStaff discountWide aislesNarrow aislesInternet orderingTelephone order lineFast scanning to speed up checkoutSlow checkout servicesSpecial offers to attract customersFew special offersBright modern corporate identityDull grey and brown corporate identity

VercherVidler

Vidler will use the recommendations made in the report produced by the market researchconsultant to decide changes that are needed to increase market share.

20

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[6 marks]

1. What is meant by the following terms?(a) Market leader. (b) Branding.(c) Tertiary sector.

[4 marks]2. Produce one pie chart showing market share for each company for 1999.

[6 marks]3. Evaluate three consequences of removing a layer from the organisational

structure at senior director level.

[8 marks]

4. You are the market research consultant appointed by Vidler. Produce a report forthe Chief Executive, Bill Adriano, discuss your findings and conclusions, andmake at least three recommendations as to how Vidler could relaunch itself forYear 2000.

[6 marks]

5. Vidler need to improve communication between store managers and theirstaff. Explain three methods they could implement in order to makecommunication more effective.

[2 marks]6. If the total sales for Vercher, in December 1999 were $ 420 000, calculate the

total sales Vercher had in January 2000.

[8 marks]

7. Using the financial information given prepare a profit and loss account forVidler for the year ending 1999 and the projected figures for 2000. Use tworatios to compare the accounts and comment on what is happening.

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Safebuy Supermarkets

Safebuy Supermarkets, established in 1988, grew rapidly on the back of aggressive pricingand marketing. The store’s own brand products make up 60% of sales by value. Each store isrun by a manager, who is given considerable independence. Most managers are recruitedfrom competitors, tempted by high performance related bonuses. They are young: averaging32 years old, and work to strict sales targets. Those who do not meet their targets aredismissed. The managers recruit their own staff, who are required to be flexible and work as ateam. Staff turnover is relatively high. Team leaders run several departments and the organisationstructure below team leaders is flat.

Safebuy is facing increasing competition as the economy moves out of recession. Customersare looking for higher quality, good value branded products. In particular, Safebuy has lostmarket share to INCA Brands. INCA Brands offers clothes, household items, food, computersand even small motorbikes. It has recently been acquired by a large US clothing retailer andis able to charge low prices because of economies of scale in purchasing. INCA’s recentadvertising claims that prices in its stores will be cut by 5% over the next twelve months.They are also heavily promoting their new Internet shopping service and home delivery.

35

40

45

Table I Hunter & Sons financial highlights 1998 – 2000

190018801800shareholders funds

548483288long term liabilities

378325276current liabilities

486488484current assets

234022001880fixed assets

364356368overheads

266258244cost of sales

706754788sales revenue$m$m$m

200019991998

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[8 marks]

1. Using the information in the text and from Figures I and II, compare theorganisation structures of Hunter & Sons and Safebuy Supermarket, anddiscuss how the different structures and management cultures will affect theoperation and management of the two stores.

[8 marks]2. Prepare Profit and Loss Accounts and Balance Sheets for Hunter & Sons for the

years 1998 and 2000.

[8 marks]

3. Comment on the performance of Hunter & Sons over the three years 1998 to2000 and its present financial position. Assess the profitability, liquidity andefficiency of Hunter & Sons over the three years 1998 to 2000, usingappropriate ratios to support your analysis.

[4 marks]4. (a) Explain two purposes of branding products.

[2 marks]

(b) Why is Tom Spielberg planning to sell cheaper, more fashionableclothes under the Botticelli brand rather than use the existing Huntersbrand name?

[8 marks]5. (a) Produce a SWOT (Strengths, Weaknesses, Opportunities and Threats)

analysis for Hunter & Sons.

[8 marks]

(b) Using your SWOT analysis, write a report from Tom Spielberg to theHunter brothers analysing possible advantages and potential problems ofthe proposed merger with Safebuy Supermarkets. The report must be in a format suitable for presentation to the board ofdirectors.

[4 marks]6. Examine the benefits and limitations for both customers and retailers of

on-line Internet shopping.

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5. Brownlow Ltd

The following financial information is given for Brownlow Ltd for 2003 and 2004:

22 00028 000Reserves

3 0003 000Overheads

12 50010 000Debtors

40 00040 000Long term liabilities

52 00052 000Share capital

30 00020 000Creditors

2 5002 000Cash in bank

12 0009 000Cost of sales

9 0008 000Stock

1 20 0001 20 000Fixed assets

24 00020 000Sales revenue

20042003

[5 marks](a) Prepare a profit and loss account for 2003 and 2004.

[5 marks](b) Prepare a balance sheet for 2003 and 2004.

[10 marks](c) Using four appropriate ratios analyse the liquidity and profitability of

the company and comment on its performance.

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4. The finance manager, Colin Buckley, has drawn up draft accounts for the year ended 31 May 2007. The main figures from these accounts are given below.

$000Gross profit 525Net profit 190Interest 35Tax 25Dividends 100Turnover 2750Fixed assets 1250Creditors 450Debtors 350Cash 50Short-term borrowing 135Net assets 1570Share capital 350Loan capital 550

(a) (i) Calculate the gross profit margin and the net profit margin for the years ended 31 May 2006 (see Appendix 1 in the case study) and 31 May 2007. [4 marks]

(ii) Explain two possible reasons for the change in the net profit margin between 31 May 2006 and 31 May 2007. [4 marks]

(b) Use the figures above to construct a full profit and loss account and balance sheet for the year ended 31 May 2007 (N.B. Use the same layout for the accounts as in Appendix 1). [10 marks]

6. The board of directors of Riveau Yachts are keen to know what the financial results are likelyto be for 2004 and so have asked the financial director to prepare a forecast set of accounts.The financial director has started to collect forecasts of the financial information for thefinancial year 2004. He has so far managed to get the following information:

$75 841 000Net assets$20 500 250Current liabilities$1 894 000Retained profit

$789 950Cash$7 250 000Net profit$18 250 675Debtors$18 750 000Gross profit$28 550 000Stock$160 000 000Total sales revenue

He is also using the following supplementary information and assumptions:

! the number of shares is the same as in 2003! the board want to pay a dividend of $0.50 per share! the interest bill will be the same as in 2003! the tax bill will be $1 250 000! share capital and loan capital figures will be the same as in 2003.

[8 marks]

[12 marks]

(a) Construct the forecast balance sheet and profit and loss account for2004.

(b) The firm is considering conversion to a public limited company in 2005.With reference to the figures you have calculated in part (a) and usingfour ratios, evaluate these forecast accounts from the point of view of apotential investor.

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6. Stock valuation

Trend-Setter, established in January 2004, produces dresses for fashion conscious clients.The company buys a fixed amount of the silk material used for production from cheap, butvery reliable overseas suppliers.

In the first three months of its first trading year, Trend-Setter sold 2 000 dresses per month at$20 each. However, in the next three months of operation the company experienced a 50 %drop in the number of dresses sold despite a 20 % price cut. Consequently, the amount ofstock held increased.

The manager, therefore, is thinking of introducing the JIT (just-in-time) method of productionand stock control. Stock data for Trend-Setter for the first six months of 2004 is shown below

500NILJune

5005 000 @ $4May

1 000NILApril

2 0005 000 @ $4March

2 000NILFebruary

2 0005 000 @ $3January

Stock used (sq meters)

Purchases(sq meters and price)

Month / 2004

[6 marks]

[5 marks]

(a) Using the FIFO (first in first out) method of stock valuation:

(i) calculate the value of the closing stock at the end of June 2004.(Show all your working.)

(ii) prepare a profit and loss account for the period January to June2004. (Show all your working.)

[3 marks](b) Explain how the use of the alternative LIFO (last in first out) method of

stock valuation will affect gross profit. (Calculations are not required.)

[6 marks](c) Evaluate whether Trend-Setter should introduce a JIT (just-in-time)

method of production and stock control.

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