ACC4029 Managing Operations and Finance Assignment Sample 2023
1. Introduction
The United Kingdom is a place where numerous companies had started their journey and eventually registered their name in the world’s biggest company in terms of market share and wealth. Management of operation is one of the crucial steps that a company is required to take from the beginning so that it can ensure effective control over its company. Financial enhancement is also necessary as it is the key to business expansion and becoming a global leader. This study has been conducted based on the analysis of management scenario of N-tech UK Ltd. which was founded in the year 2010 as Smartphone components manufacturing company. Therefore, based on the discussion of the case study several managerial concerns will be discussed and analyzed which will ensure the business expansion and profit growth.
2. Management Accounting
The responsible person who maintains financial information as well as the company’s resources and analyzes, interprets and measures in order to make a business decision is known as a management accountant. It can be said that management accounting is necessary for a company to analyze company data in order to achieve the organization’s goal (Canyakmaz, Karaesmen and Özekici, 2017, p.108). The process of making business expansion related decisions will not be possible without the effort of a management accountant. Apart from that, it can be seen that a company often has numerous business projects but one option can be selected, so management accountant helps in making judgments regarding possible maximum outcomes for alternative options. As per the view of Birge et al. (2017, p.658), based on a good analysis interpretation of information a logical decision can be made by the company and maximization of profit becomes possible.
2.1. Role of Management Accounting
It has been noticed from the study of N-Tech that Mr. Scott has been appointed in the company as a managerial accountant. There are several vital roles of Mr. Scott in the company which are required to be discussed in this section.
Making decisions: The skill of effective analysis and interpretation of financial and non-financial information helps in managerial accounting in judging the scenario (Shang, Wang and Yang, 2017, p.325). Therefore, it can be said that good management accounting is effective in making business decisions considering costing, statistics and economics.
Business planning: Planning provides the path of achieving business goals and it can be said that one good role of maintaining management accounting is to make proper business planning (Luo and Shang, 2019, p.469). Therefore, Mr. Scott appointed with an expectation that he will guide the company towards success with building a core business plan.
Identification of business issues: It can be seen while running a business there often several problems occur which violate the planning so, management accounting is useful in tracking business issues with valid numerical data. According to Butler (2016, p.4), establishing controlling action is also the role of an efficient managerial accountant.
Strategic management: Business management is not incorporated with laws, so it can have its own unique ways to maintain the company. Therefore, based on the in-depth analysis and interpretation of financial information managerial accountant will be able to establish strategic management which allows the company to boost productivity as well as revenue.
2.2. Management Accounting and Financial Accounting – Discussion on differences
A good organization requires the efficiency of two types of accountant, managerial accountant and financial accountant. Differences between both accounting systems are discussed below:
- The functional area of managerial accounting is inside of organization as it uses development and control of the internal sections (Bhatti, 2020, p.2). However, the requirement of financial accounting to provide organizations report to its shareholders hence, it can be said that the functional area of financial accounting is big.
- The financial accountant requires to maintain GAAP rules and principles while preparing financial statements (Babich and Kouvelis, 2018, p.12). The managerial accountant has no requirement of maintaining GAAP principles but in-depth analysis of internal business conditions is necessary.
- The role of a managerial accountant in the organization to make effective decisions for the business development and enhancement of profit margin. According to Purba (2017, p.25), financial accountant helps external users such as investors, shareholders and creditors in making investment related decisions.
- Managerial accounting includes non-financial information which can influence the business growth but financial accounting is conducted based on only financial information.
- The financial statement helps in acquiring business funds, so it is vital to maintain its accuracy and reliability, so auditing is a norm in financial accounting (Yang and Birge, 2018, p.68). While managerial accounting is used for the development of business and its functional area inside the firm, there is no need for maintaining audits or investigations.
2.3. Uses of costing models in operational management
Costs management is a crucial step of enhancing profit margin and it can be seen that N-Tech UK Ltd. is also focusing on increasing ROCE to 22%. According to Shen, Bao, Yu and Hua (2019, p.30), based on implementing a proper costing model expenses control will be possible. It can be seen there are mainly three costing models commonly used in manufacturing firms
- Absorption Costing Model
- Contribution Margin Model
- Activity Based Costing
Hence, based on the scenario of N-Tech it can be ascertain that implementation of ABC model can be effective for the company as it focuses on direct fixed as well as variable expenditure. The aim of obtaining £7.5 million profit can be explained from the calculation of BEP calculation.
| Sales per unit | 200 |
| Less: VC per unit | 150 |
| Contribution per unit | 50 |
| Total Fixed Costs | 2,500,000 |
| BEP Unit | 50,000 |
| BEP Sales | 10,000,000 |
Table 1: Breakeven Point Calculation
(Source: Created by learner)
Based on the calculation it is noticeable that the selling price per unit is £200 while the variable VC p.u. is £150. Therefore, contribution p.u. can be calculated by deducting VC per unit from sales per unit and the result is £50 per unit. Apart from that, the company expected that there will be a fixed cost of amounting £2,500,000 so; the process of calculating the BEP unit is dividing fixed costs by contribution P.U. Hence, the company required to sell a total of 50,000 units in order to avoid facing losses and sales above this unit will be cash inflow for the firm.
3. Capital Investment Appraisal Technique
The purpose of conducting this section is to provide assistance to N-tech UK Ltd. in making investment related decisions. It can be seen that the company presently occupied with four alternative options and one beneficial option is required to be accepted (Obaidullah, 2018, p.26). Therefore, investment appraisal technique will be useful in measuring the attractiveness of each investment proposal with logical and numerical information. Hence, three different investment appraisal techniques have been used to measure the value of the investment options of N-Tech UK Ltd.
- Proposal 1:-
| Cash flows (£ms) | Cash Flows | CCF | DCF @10% | PV (@10%) | DCF @30% | PV (@30%) |
| Year 0 | -24 | -24 | 1 | -24 | 1 | -24 |
| Year 1 | 16 | -8 | 0.91 | 14.56 | 0.77 | 12.32 |
| Year 2 | 12 | 4 | 0.83 | 9.96 | 0.59 | 7.08 |
| Year 3 | 8 | 12 | 0.75 | 6 | 0.46 | 3.68 |
| Year 4 | 4 | 16 | 0.68 | 2.72 | 0.35 | 1.4 |
| Year 5 | -8 | 8 | 0.62 | -4.96 | 0.27 | -2.16 |
| Residual value | 0 | 8 | 0.62 | 0 | 0.27 | 0 |
| NPV = | 4.28 | -1.68 | ||||
| PBP = | 1 | year | 8 | month | ||
| IRR = ra + {Na * (rb – ra) / (Na – Nb)} | |
| Where, | |
| ra = Lower DCF = | 10% |
| rb = Higher DCF = | 30% |
| Na = NPV at ra = | 4.28 |
| Nb = NPV at rb = | -1.68 |
| Therefore, | |
| IRR = | 24.4% |
Table 2: Investment appraisal techniques for proposal 1
(Source: Created by learner)
NPV: The NPV calculation of proposal 1 resulted as £4.28 million considering the discounting rate of 10%.
PBP: It is noticeable that if the company decides to invest in proposal 1 then the period of recovering invented money will be 1 year and 8 months.
IRR: The calculation of IRR has been conducted based on the analysis of NPV results at the different discount rate and the result is 24.4%.
- Proposal 2:-
| Cash flows (£ms) | Cash Flows | CCF | DCF @10% | PV (@10%) | DCF @30% | PV (@30%) |
| Year 0 | -19 | -19 | 1 | -19 | 1 | -19 |
| Year 1 | 2 | -17 | 0.91 | 1.82 | 0.77 | 1.54 |
| Year 2 | 8 | -9 | 0.83 | 6.64 | 0.59 | 4.72 |
| Year 3 | 8 | -1 | 0.75 | 6 | 0.46 | 3.68 |
| Year 4 | 12 | 11 | 0.68 | 8.16 | 0.35 | 4.2 |
| Year 5 | 10 | 21 | 0.62 | 6.2 | 0.27 | 2.7 |
| Residual value | 0 | 21 | 0.62 | 0 | 0.27 | 0 |
| NPV = | 9.82 | -2.16 | ||||
| PBP | 3 | year | 1 | month | ||
| IRR = ra + {Na * (rb – ra) / (Na – Nb)} | |
| Where, | |
| ra = Lower DCF = | 10% |
| rb = Higher DCF = | 30% |
| Na = NPV at ra = | 9.82 |
| Nb = NPV at rb = | -2.16 |
| Therefore, | |
| IRR = | 26.4% |
Table 3: Investment appraisal techniques for proposal 2
(Source: Created by learner)
NPV: The calculated result of NPV of proposal 2 is £9.82 million which is high compared to proposal 1.
PBP: The process of calculating PBP is done by analyzing cumulative cash flow and the result is 3 years and 1 month.
IRR: Based on the calculation it can be seen that the result of IRR of proposal 2 is 26.4% and it is high compared to the result of proposal 1.
- Proposal 3:-
| Cash flows (£ms) | Cash Flows | CCF | DCF @10% | PV (@10%) | DCF @30% | PV (@30%) |
| Year 0 | -16 | -16 | 1 | -16 | 1 | -16 |
| Year 1 | 6 | -10 | 0.91 | 5.46 | 0.77 | 4.62 |
| Year 2 | 8 | -2 | 0.83 | 6.64 | 0.59 | 4.72 |
| Year 3 | 6 | 4 | 0.75 | 4.5 | 0.46 | 2.76 |
| Year 4 | 6 | 10 | 0.68 | 4.08 | 0.35 | 2.1 |
| Year 5 | 4 | 14 | 0.62 | 2.48 | 0.27 | 1.08 |
| Residual value | 0 | 14 | 0.62 | 0 | 0.27 | 0 |
| NPV = | 7.16 | -0.72 | ||||
| PBP | 2 | year | 4 | month | ||
| IRR = ra + {Na * (rb – ra) / (Na – Nb)} | |
| Where, | |
| ra = Lower DCF = | 10% |
| rb = Higher DCF = | 30% |
| Na = NPV at ra = | 7.16 |
| Nb = NPV at rb = | -0.72 |
| Therefore, | |
| IRR = | 28.2% |
Table 4: Investment appraisal techniques for proposal 3
(Source: Created by learner)
NPV: The NPV of proposal 3 is in the middle point of proposal 1 and 2 where the result is £7.16 million.
PBP: The time will take if N-tech decides to invest in proposal 3 is 2 years and 4 months which is negotiable compared to proposal 2.
IRR: Based on the calculation it can be said that proposal 3 is proving lower risks as its result of IRR is 28.2%.
- Proposal 4:-
| Cash flows (£ms) | Cash Flows | CCF | DCF @10% | PV (@10%) | DCF @30% | PV (@30%) |
| Year 0 | -32 | -32 | 1 | -32 | 1 | -32 |
| Year 1 | 6 | -26 | 0.91 | 5.46 | 0.77 | 4.62 |
| Year 2 | 10 | -16 | 0.83 | 8.3 | 0.59 | 5.9 |
| Year 3 | 18 | 2 | 0.75 | 13.5 | 0.46 | 8.28 |
| Year 4 | 16 | 18 | 0.68 | 10.88 | 0.35 | 5.6 |
| Year 5 | 12 | 30 | 0.62 | 7.44 | 0.27 | 3.24 |
| Residual value | 8 | 38 | 0.62 | 4.96 | 0.27 | 2.16 |
| NPV = | 18.54 | -2.2 | ||||
| PBP | 2 | year | 11 | month | ||
| IRR = ra + {Na * (rb – ra) / (Na – Nb)} | |
| Where, | |
| ra = Lower DCF = | 10% |
| rb = Higher DCF = | 30% |
| Na = NPV at ra = | 18.54 |
| Nb = NPV at rb = | -2.2 |
| Therefore, | |
| IRR = | 27.9% |
Table 5: Investment appraisal techniques for proposal 4
(Source: Created by learner)
NPV: Based on the analysis of NPV of proposal 4 it has been found that the result £18.54 million is the highest among available proposals.
PBP: The payback period of proposal 4 is 2 years and 11 months which is high compared to proposal 1 and 4 but lower than proposal 3.
IRR: The result of IRR for proposal 4 is 27.9% and it is higher than proposal 1 and 2 but slightly lower than proposal 3.
- Decision:-
Investment appraisal techniques are useful in making a decision by analyzing the results so, through implementing NPV, IRR and PBP calculation for the three alternative proposals different outcomes have resulted. The proposal option 4 resulted in the highest NPV and also resulted in the second highest IRR but the payback period is high compared to proposal 1 and 3. As per the view of Rosenman (2018, p.1125), N-Tech UK Ltd. needs to accept this proposal as it proved a decent result in overall investment appraisal technique.
4. Business Plan and Budget
Planning is a part of managerial accounting and with the process of planning the budget is constructed. As per the view of Kryukova, Kalyna, Burdeina and Romashko (2019, p.159), budget planning is the predetermination of possible incomes and expenditure for a specific period of time. Business development and growth is dependable on good business planning as the market condition is not stable so predicting possible future demands for the product is hard for management.
4.1. Role of Business Plan and Budget
N-tech UK Ltd. is new in the Smartphone components manufacturing industry and it can be seen that components are gradually upgrading with passing days. As per the view of Rahman (2018, p.2), it can be said there exists several roles of planning and maintaining a budget for the company.
- An effective budget planning is able to control the flows funds of the business so budget is essential to control finance.
- A budget is a good tool that ensures the path of the future goal of the company.
- Business planning and budgeting are used to predetermine the revenue of the organization, hence, it is used for making an effective decision as well.
4.2. Improvement areas analysis
It is noticeable that the CEO of the company had claimed complete knowledge about the annual budget of the organization. However, there are no valid documents available which are able to clearly define the annual budget. As per the view of Reid and Sanders (2019, p.4), annual budget reports with estimated data are important in order to meet the annual goal. Apart from that, there is also lacking information regarding the estimated units required to be produced and sold in a year in order to achieve profits of £7.5 million. Hence, there is a need for implementation of the contribution margin in order to determine the required unit.
| Required Profit | £ 7,500,000.00 | |
| Add: Fixed costs | £ 2,500,000.00 | |
| Required Total Contribution | £ 10,000,000.00 | 25% |
| Add: Total Variable Costs | £ 30,000,000.00 | 75% |
| Required Total Sales | £ 40,000,000.00 | 100% |
| Required Units for sale | 200,000 |
Table 6: Calculation for required units
(Source: Created by learner)
Explanation on improvement in the budget report:
| Annual Budget | Budget | Actual | Variances | Variances % | Utilization % | |
| Unit | 200,000 | 16,500 | 6,000 | 10,500 | 63.64% | 3.00% |
| COST | Annual Budget | Budget | Actual | Variances | Variances % | Utilization % |
| Material | 1,640,000.00 | 135,300.00 | 49,000.00 | 86,300.00 | 63.78% | 2.99% |
| Suppliers | 840,000.00 | 69,300.00 | 22,500.00 | 46,800.00 | 67.53% | 2.68% |
| Direct Labor | 400,000.00 | 33,000.00 | 10,500.00 | 22,500.00 | 68.18% | 2.63% |
| Indirect Labor | 240,000.00 | 19,800.00 | 6,200.00 | 13,600.00 | 68.69% | 2.58% |
| Depreciation | 120,000.00 | 9,900.00 | 3,000.00 | 6,900.00 | 69.70% | 2.50% |
| Share of sales costs | 180,000.00 | 14,850.00 | 4,800.00 | 10,050.00 | 67.68% | 2.67% |
| Apportioned overhead | 800,000.00 | 66,000.00 | 25,000.00 | 41,000.00 | 62.12% | 3.13% |
| TOTAL | 4,220,000.00 | 348,150.00 | 121,000.00 | 227,150.00 | 65.24% | 2.87% |
Table 7: Revised Budget
(Source: Created by learner)
The required unit production in a year is 200,000 so on the basis of annual requirement the monthly target is required to be 16,500 units in order to achieve the desired profit. Hence, the revised budget report has been prepared considering the actual production data for the month of December 2019. As per the view of Samuel (2018, p.12), the utilization percentage also helps the manufacturing department to maintain the track of production. Therefore, based on the revised budget the budgeted total cost for the month of December should be £348,150.
4.2.1. Recommendation
It can be seen that there are several budgeting techniques available however zero based budgeting is suitable for the N-tech after the new appointment of Mr. Scott. Market research demands and based on considering the production efficiency zero based budgeting is required to be prepared. Apart from that, there is a requirement of highlighting the variables of the actual budget report and predicted report in order to reduce the costs of manufacturing. It is also required to note while analyzing monthly budget reports that fixed costs may increase in future, so a monthly valuation of fixed costs along with variable costs is important.
5. Balanced Scorecard Approach
BSC framework is a useful strategic decision making tool which was founded in 1992 by Norton and Kaplan. The concept of the BSC framework is focusing on four main elements of the business concerns which are as follows:
- Process goals
- Customer goals
- Learning and growth goals
- Financial goals
Therefore, based on analyzing the above mentioned four factors business development can be possible. As per the view of Das and Kim (2017, p.95), analysis of the BSC framework can be done by setting objectives, measurement processes, targets and initiatives that need to be taken.
5.1. Benefits of using Balanced Scorecard Approach
Improvement in business performance: The BSC framework provides guidelines for business development in a strategic manner so the improvement of business processes becomes easy.
Strategic planning: Business innovation is necessary by observing business position and goals so the BSC framework provides the visual map by analyzing four important business elements.
Helpful in management: Effective business control is necessary in order to meet the goal and the BSC framework proves a clear view of goals, measurement tools and required initiatives to be taken.
Improvement in initiatives: It is noticeable that the preparation of a balanced scorecard is done by planning proper initiatives which can be worked to meet the goal. According to Nathwani and Ng (2018, p.69), it can be said that business goals can be achieved with strategic initiatives.
5.2. Balance Scorecard of N-Tech UK Ltd
| Objectives | Measures | Targets | Initiatives | |
| 1. Financial | Revenue and profit growth | ROCE, Profit and loss Statement | 22% Growth of ROCE | Increase production and mitigate costs |
| 2. Customers | Enhance customer relationship | After-sales surveys (within 4 weeks) | 85% Positive report | Maintain connection with dealers and customers |
| 3. Business process | Enhancing the product’s quality | Surveys, Re-checking | 3% recovery rate of defective products | Maintain budgetary control |
| 4. Learning and Growth | Development of skills of office staffs | Observing product quality, Employee retention rate | 7.5% skilled staff turnover | Maintain business with NVQ4 – B.Sc qualified employees |
Table 8: Balanced Scorecard
(Source: Created by learner)
Explanation: It can be said on the basis of the scenario of N-Tech Ltd. that business development and enhancement is possible with the increase in revenue. The company has a target of achieving ROCE of 22% along with 7.5 million of profit in a year. As per the view of Nathwani and Ng (2018, p.69), with the initiative of increase in production unit sales and profit growth will become possible. Apart from that, building a strong relationship with customers is also important for the organization, so the company has a target of setting 85% happy customers. Thus, maintaining after sales surveys is important within 4 weeks in order to get the customer’s opinion about the products and company. Followed by the product’s quality improvement is also important and the company currently wants to recover a minimum of 3% error products. Apart from that, based on the BSC framework it can be seen that the company has a target of maintaining skilled employees which will enhance productivity.
6. Conclusion
N-Tech UK LTD. has the potential of improving business by maintaining strategic management in the organization. Hence, it can be concluded that Mr. Scott requires to improve the current issues of the organization in order to enhance the production rate. Budget planning and balanced scorecard approach are two effective management tools and with proper implementation, the company will be able to get targeted results.
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