The Kalgan Driftwood Company (Kalgan) was established in 1950. It is located on a 100
hectare site in a beautiful scenic location on the banks of the Kalgan River. The company
has built its reputation on making quality furniture at affordable prices from cast-off jarrah
wood from a nearby timber mill.
Re- cover service
Kalgan, which sources its fabrics from Indonesia and Vietnam, offers a choice of over 50
different fabrics. Kalgan is considering offering a re-cover service to supply replacement
cushions when the existing ones wear out or customers wish to change their fabric since
a recent study found that customers kept their Kalgan furniture for an average of 18 years.
The re-cover service will make three sizes of covers: large, medium and small.
The company accountant has carried out an investment appraisal of the new re-cover
service assuming a project life of 5 years. The net cash flows on a relevant cost basis for
each of the five years were as follows:
Year Net cash flows
0 £(140,000)
1 £23,240
2 £45,780
3 £54,320
4 £54,320
5 £54,320
3
Budget data for the first year of the re-cover service are as follows:
Large Medium Small
Sales (units) 2,300 1,500 2,800
Selling price per unit £112 £84 £56
Direct labour cost per unit £12.60 £8.40 £6.30
Fabric cost per unit £44.80 £32.20 £21
Contribution per unit £54.60 £43.40 £28.70
Specific Fixed Costs:
• Factory power costs: £84,000 per annum
• Lease of equipment for re-cover service: £70,000 per annum
The expected time to produce each size of cover is as follows:
Re-cover Service Large Medium Small
Time to make each cover 0.6 hour 0.4 hour 0.25 hours
The production director has now informed the board that the supply of skilled labour for
year 1 will be restricted to a maximum of 2,500 hours.
The company’s cost of capital is 10% per annum.
Question A
(i) Calculate the budgeted profit after specific fixed costs, for year 1 of the re-cover
operation, assuming demand can be met in full.
(5 marks)
(ii) Calculate the sales mix that will maximise budgeted profit for year 1 of the re-cover
operation based on the limited availability of labour.
(10 marks)
(iii) Suggest two actions that the company could take to overcome the shortage of labour.
(5 marks)
(iv) Calculate the payback period for the re-cover project.
(5 marks)
(v) Calculate the net present value for the re-cover project.
(5 marks)
Total for this part = 30 marks
4
Question B
The Kalgan Driftwood Company has decided to that it needs to use the budgeting process
much more substantially to manage its activities. You are a graduate trainee who has just
started work in the accounting department of Kalgan. In your degree studies, you
completed a module called Managerial Finance and learned that budgets serve a number
of useful purposes including:
(i) Planning annual operations;
(ii) Coordinating the activities of the various parts of the organisation;
(iii) Communicating plans to the various responsibility centre managers;
(iv) Motivating managers to strive to achieve the organisational goals;
(v) Controlling activities;
(vi) Evaluating the performance of managers
You are asked to select four of these purposes and explain in a presentation to your
Kalgan work colleagues about how budgets achieve these aims. Write an essay that will
form the basis of your presentation.
Total of 1,000 words for this part = 60 marks
Note: The report should be word processed (Arial font size 12) and well presented.
Referencing and bibliographies should use the APA 6th System (name and date). For
detail of the APA 6th System refer to Learning Information Services (i.e. the Library’s)
Referencing web page and Guide or Napier web pages on plagiarism.
http://www2.napier.ac.uk/ed/plagiarism/
(10 marks)
(Total 100 marks)
5
Marking Schedule
The following report assessment feedback sheet will help you identify the key
elements of the report and the manner of evaluating them by your lecturer.
Managerial Finance ACC08402
Report Submission
Matriculation Number:
Tutor:
Very
Poor
Weak Satisfactory Good Very
Good
Excellent Marks
Question A 30
Question B 60
Presentation
of work
10
Overall mark
6
Assessment criteria for the module report assignment
Below we give you a schedule, which is used as the basis for marking your assignment
in Managerial Finance. This will help you to judge what you need to do to achieve any
given mark range.
Less than 40% – a very poor/weak assignment, the student has not answered the
assignment properly. There may be a number of errors including insufficient
explanation of the theory, and a limited ability to interpret the ideas to practical
situations.
40-49% – a satisfactory assignment, the student shows partial understanding of the
issues but possibly combined with errors and/or insufficient or unclear explanation of
the key points. There is limited interpretation of the issues in relation to the real world.
50-59% – a good assignment, with most of the key points correctly stated, the
student demonstrates an ability to interpret at least some of the issues and makes a
reasonable attempt at explaining the theoretical concepts.
60-69% – a very good assignment with minimal errors. Demonstrates an
understanding of the key issues and is thorough in its analysis of the issues and
theoretical concepts. The student shows strong critical and analytical ability.
70-79% – an excellent assignment which is well written and explained. It will
demonstrate a clear understanding of the issues, using a high level of critical and
analytical ability.
80% + – an exceptional assignment, which is sophisticated in its approach while
being correct in every particular detail. Extremely high level of critical ability is
demonstrated with original thought being evident.
Note that in ALL categories above it is expected that you will provide a bibliography
(where applicable) of the material used in preparation of your assignment.
References and bibliography should use the APA 6th System (name and date). You
must also be careful not to plagiarise. Help is available for both referencing and
plagiarism by following the links from your Edinburgh Napier Student Portal ‘Don’t
plagiarise’. If material is simply reproduced from report and accounts using the same
words, this will be treated as plagiarism and a fail mark will be given. Material copied
from websites or other sources that provide ready-made solutions to report will be
deemed an academic offence and subject to disciplinary action.