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Management Report on Selling Price – Assignment Homework Answer
- Course Code: m004cl
- Course Title: management report
- Referencing Styles : Harvard
As disruptions from the coronavirus pandemic continue to unfold, 64% of companies across the manufacturing and industrial sectors are likely to bring manufacturing production and sourcing back to avoid similar difficulties in the future. Among industries, manufacturing reported the most interest in nearshoring, with 28% of manufacturing respondents saying they were ‘extremely likely’ to bring more production and sourcing back to North America following the pandemic.
Medlock Ltd manufactures medical and safety technology equipment, of which the glucose monitor is one of their primary product. The company is appraising the feasibility of bringing back on overseas production unit to local shores, as an interim measure. This will involve expanding current domestic production capabilities the glucose monitor.
The finance unit has gathered the following information involving projected revenues, cost and expenses for this relocation project.
a. New and extended production facilities would have to be acquired to integrate into the existing production line. These are estimated to cost $100million.
b. The extended facilities will need to reclaim an entire lower floor of the building, currently being leased out to a logistic company for warehousing, at an annual rental of $2.2 million the newly acquired assets are expected to have a 15-years useful life. There is no salvage value at the end of the asset’s life. annual sales in units over the next 15years are projected to be as follows: YearAnnual sales(‘000 units)1-51 6006-10200011-152 300eProduction of the glucose monitor would require working capital of $5millionto finance inventories and expenses.
This working capital will be released at the end of the asset’s life. glucose monitor would sell for $50/unit; variable costs(inclusive of production, administration, and sales)would be $15/unit. the annual fixed expense is projected at $36million.Included in fixed expenses annual depreciation on the assets estimated at $6.6million.
MedTack’sboard of directors has specified a required rate of return of 15% on this investment, as the minimum rate to validate relocation.hMedTackpays a corporate tax rate of 23%. There is no tax on the capital gain. Case Study 2 –Budgeting ahead on June 1, 2020, MedTackis attempting to budget cash flows through July 31, 2020. On this latter date, an unsecured note will be payable in the amount of $1.3 million. This amount was borrowed in January to carry the company through the seasonal peak in April and May 2020.
A cash dividend of $2.4 million will be due end of June.Selected balances from MedTack’s book of accounts on June1are: CashInventoryAccounts Payable$1 200 000$450000$698 400The company estimates that approximately 20% of the sales will be for cash, and the rest will be on credit. Of the credit sales, 30% of the money will be received in the month of sale. 50% will be collected in the following month, and 20%will be received 2 months after the sale. Approximately 2% of credit sales collected in the final month results in bad debt and are written off. The average selling price of the company’s products is $50per unit. Actual and projected sales are:April(actual)$ 7580 000May(actual)$7 7600 000June(estimated)$6200 000July(estimated)$5600000August(estimated)$5400000Total estimated sales for year ending 31 Dec $80000 000The average purchase cost is $9per unit.Purchases are made on basis of the following month’s projected sales units.
Half of the purchases are paid for in the month of purchase, and a 5% prompt settlement discount is received. The remainder is paid in full the following month. The company maintains a safety closing inventory level of 50 000 units total budgeted fixed operating expenses for the year are $36million(this includes $5 million depreciation). Fixed costs are accrued evenly through the year. The operating variable costs are determined to be $6with accrued evenly with unit sales. Both fixed and variable operating expenses are paid in the month incurred. Source: Costing Accounting, A Managerial Emphasis, 15e, Charles T Hongren, Pearson, 2012
You will be required to write a management report in which the following points should be discussed.
•Analyse the Investment proposals by using NPVand IRRand provide recommendations. You should also briefly comment on other investment proposal techniques that MedTackmay use, and the limitations of using these techniques.
•Provide an explanation on the different sources of funding available Othe company, and their advantages and disadvantages and make recommendations as to how these funding sources are appropriate to the planned investment project.
•Analyse the level of breakeven required if MedTackproceeds with the investment.
•Prepare a forecasted cash budget for June and July 2020.
•An evaluation of MedTack’sperformance or position during the same period.
•A detailed Literature Review of the tools you have used such as capital investment techniques, breakeven analysis and budgets and their importance to the business case.
•Other issues for management to consider that you think are vital for them to survive and make a profit.