Accounting;

You are to assume the role of management accountant working for Cassiopeia Plc, a well established UK based company operating in the leisure retailing sector.
The company has well established management accounting systems and procedures in place.
Your assignment consists of three separate tasks relating to ‘Cygnus’ which is one of the nightclubs operated by the company:
Task 1 – Preparation of the annual budget
Task 2 – Review of financial performance and trend analysis
Task 3 – Financial appraisal of investment opportunities.
Cassiopeia Plc’s financial year is from January 1st until December 31st. Management accounts are based on 12 accounting periods in the year and operates on a 4week / 4 week / 5 week accounting cycle.

Task 1
1. Prepare a budget for 2013 for Cygnus Nightclub using the information given. This should be presented in a similar format to the Budget for 2012 at

2. Prepare a written report which summarises and evaluates the budget for 2013 and identifies any potential risks and opportunities. (3,000 words)
TASK TWO – REVIEW OF FINANCIAL PERFORMANCE AND TREND ANALYSIS
You should assume that it is now July 2013.
The management accounts for Cygnus Nightclub for the six month period January to June 2013 is provided at Appendix 2. The following information is given:
• Actual profit and loss account
• Budgeted profit and loss account
• Actual profit and loss for the comparative period in the previous year

Task 2

1. Calculate a flexed budget for January to June 2013 and the total, volume and flexed budget variances. When calculating the flexed budget you should assume that wages are treated as a variable cost which should be flexed on the basis of total sales income.
2. Prepare a written report which summarises, evaluates and analyses the financial performance for the six month period. (3,000 words). Your report should:
a. Highlight any performance issues.
b. Identify possible causes of these issues.
c. Make recommendations for possible performance improvement.
3. Prepare an updated profit forecast for 2013 based on the actual performance up to June 2013 using trend analysis techniques.

TASK THREE – FINANCIAL APPRAISAL OF INVESTMENT OPPORTUNITIES

You should assume that it is now December 2013.

The financial performance of the Cygnus Nightclub has continued to decline. The management believe that this is due to the opening of a new competitor in the town. The actual profit for the year 2013 was £465,000; a drop of over 50% compared to the previous year.

The management have been considering various alternative options regarding Cygnus Nightclub:

Option 1
Continue to trade in the current format. In this situation, it is anticipated that profit will reduce by a further 10% in 2014, but then stabilise thereafter.

Option 2
Undertake a complete refurbishment and re-fit of the existing nightclub and re-launch trading under a new name. The capital cost of the project has been costed at £700,000. It is forecast that the project would increase future profits by £200,000 per year to £665,000 after charging an additional £40,000 depreciation relating to the capital cost.

Option 3
Sell the existing nightclub now as a going concern to a third party for £2.5 million.

Option 4
Sell the existing nightclub now for £2.5 million (as option 3) and acquire a new and better located site in town for development as a new venue.
The site would be acquired at a cost of £1.5 million. Development and fit-out of the site would take 12 months to complete and cost £2.5 million.
Option 4 – continued
Profit for the new nightclub is forecast at £700,000 after charging depreciation in the first year of trading, increasing to £800,000 in the second year and then reducing back to £700,000 in later years.
The annual depreciation charge will be £175,000.
It is anticipated that the property will have a residual value on disposal of £1.5 million at the end of five years trading.

Other relevant information

Cassiopeia Plc appraises its investment projects over a five year trading period.
The company’s cost of capital is 12%
You should assume a residual value on disposal of £750,000 for the existing Cygnus Nightclub in five years time.
You may ignore taxation in your calculations.

Task 3 – Required:

1. Complete a financial investment appraisal for each of the options outlined.
2. Prepare a short report comparing the results of your investment appraisal of the four options. Recommend the preferred option based on your results and give reasons for your recommendation. (500 words)

.

Accounting
Question 1:
Fosdick Company has 1,200 pounds of raw materials in its December 31, 2004 ending inventory. Required production for January and February are 4,000 and 5,000 units, respectively. Three pounds of raw materials are needed for each unit, and the estimated cost per pound is $6. Management desires an ending inventory equal to 10% of next month’s materials requirements. Prepare the direct materials budget for January.
Question 2:
For McNulty, Inc., variable manufacturing overhead costs are expected to be $30,000 in the first quarter of 2004 with $4,000 increments in each of the remaining three quarters. Fixed overhead costs are estimated to be $35,000 in each quarter. This includes $15,000 in depreciation costs each quarter. Prepare the manufacturing overhead budget, by quarters and in total, for the year.
Question 3:
Liang Industries expects credit sales for January, February, and March to be $200,000, $275,000, and $310,000, respectively. It is expected that 60% of the sales will be collected in the month of sale, and 40% will be collected in the following month. Compute cash collections from customers for February and March.
Question 4:
Thornton Company specializes in home computer speakers. It budgets its monthly cost of goods sold to equal 70% of sales. The inventory policy calls for a beginning inventory in each month equal to 25% of the budgeted cost of goods sold for that month. All purchases are on credit, and 20% of the purchases in any month are paid during the same month. Another 50% is paid during the first month after purchase, and the remaining 30% is paid in the second month after purchase. The following sales budgets have been established:
July $600,000
August 480,000
September 540,000
October 480,000
November 420,000

a. Calculate the budgeted purchases for July, August, September, and October. 5 marks
b. Calculate the budgeted payments on accounts payable for September and October. 5 marks
c. Calculate the budgeted ending balances of accounts payable for September and October.

Accounting
Question 1:
Fosdick Company has 1,200 pounds of raw materials in its December 31, 2004 ending inventory. Required production for January and February are 4,000 and 5,000 units, respectively. Three pounds of raw materials are needed for each unit, and the estimated cost per pound is $6. Management desires an ending inventory equal to 10% of next month’s materials requirements. Prepare the direct materials budget for January.
Question 2:
For McNulty, Inc., variable manufacturing overhead costs are expected to be $30,000 in the first quarter of 2004 with $4,000 increments in each of the remaining three quarters. Fixed overhead costs are estimated to be $35,000 in each quarter. This includes $15,000 in depreciation costs each quarter. Prepare the manufacturing overhead budget, by quarters and in total, for the year.
Question 3:
Liang Industries expects credit sales for January, February, and March to be $200,000, $275,000, and $310,000, respectively. It is expected that 60% of the sales will be collected in the month of sale, and 40% will be collected in the following month. Compute cash collections from customers for February and March.
Question 4:
Thornton Company specializes in home computer speakers. It budgets its monthly cost of goods sold to equal 70% of sales. The inventory policy calls for a beginning inventory in each month equal to 25% of the budgeted cost of goods sold for that month. All purchases are on credit, and 20% of the purchases in any month are paid during the same month. Another 50% is paid during the first month after purchase, and the remaining 30% is paid in the second month after purchase. The following sales budgets have been established:
July $600,000
August 480,000
September 540,000
October 480,000
November 420,000

a. Calculate the budgeted purchases for July, August, September, and October. 5 marks
b. Calculate the budgeted payments on accounts payable for September and October. 5 marks
c. Calculate the budgeted ending balances of accounts payable for September and October.