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Use the information to calculate the contribution per person, and hence the net profit which would be generated from tours where e

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  • Post Date 2018-11-10T11:48:31+00:00
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Use the information to calculate the contribution per person, and hence the net profit which would be generated from tours where either 10 or 15 or 20 tickets were sold.

"The Yorkshire Rose Hotel"

   "The Yorkshire Rose Hotel"                                          

 

The beautiful city of York is the county town of Yorkshire and a favourite destination for tourists who visit York to see such attractions as the famous ‘York Minster’ Cathedral, the Jorvik Viking Centre, The National Railway Museum, or just to explore the  medieval city walls and ‘The Shambles’ shopping street. 

                                         

This picturesque city is also home to “The Yorkshire Rose Hotel” situated right in the city centre and popular with both business clients and visiting tourists. This mid-priced hotel has 40 letting rooms, and fine restaurant & bar, and a coffee shop on its frontage which is a popular stopping off point for tired shoppers.

  

You have recently graduated from Sheffield Hallam University with a 2.1 in Business Studies and are delighted to be starting your first full-time job as ‘Sales Development Manager’ at The Yorkshire Rose Hotel. However, as you find out on your first day, in this small business everyone (regardless of job title) is expected to turn their hand to whatever is asked of them. As soon as the Hotel’s General Manager realises that you studied ‘Financial Fluency’ at University she immediately ask for your help in tackling a series of issues facing  the business !

Background

 

The Yorkshire Rose Hotel is privately owned by a local property dealer who delegates the day to day running of the hotel to a General Manager (Anne Clayborn) who has been at the hotel for some years now.  Whilst Anne is a very experienced hotelier she is (by her own admission) not that strong on the ‘numbers side’ of the business and has told you right at the outset that she wants you to produce a business report analysing several areas of the business that she doesn’t feel confident looking at. 

Legal Status & Accountancy Services

The Yorkshire Rose Hotel (YRH) is owned and operated  by a private limited company Yorkshire Rose Hotel Ltd (YRH Ltd), which is 100% owned by a local property dealer who takes no part  in the day to day running of the company but instead delegates this to Anne Clayborn who was employed as the hotel’s  General Manager some years ago. The Yorkshire Rose Hotel is the sole business interest held by and operated by YRH Ltd. 

The hotel employs an in-house administrator to perform basic book-keeping tasks such as banking the daily takings, paying suppliers & staff, and producing some basic reports. This individual however has no financial expertise beyond what they have taught themselves whilst working at the hotel.   

A local firm of Chartered Certified Accountants (ACCA) perform an annual audit on the hotel’s accounts, and prepare the final year-end accounts for submission to Companies House. They also deal with all Corporation Tax, VAT and PAYE (payroll) tax issues, but do not tend to get involved in any of the internal management accounting issues regarding the operation of the business. 

Overview of The Yorkshire Rose Hotel 

The Yorkshire Rose Hotel has been a feature of York city centre for many decades. It is first and foremost a 40 bedroom hotel used by a mixture of independent travellers (making one-off bookings) and tour operators (making block bookings), in addition to business travellers (some of whom make their own bookings, and a number of larger businesses who book on behalf of their staff).

 

The hotel has a decent sized restaurant serving breakfast, lunch and dinner seven days per week to both hotel residents and walk-in guests. The restaurant has an adjacent bar area used for predinner drinks and also by conference and function guests.  

  

                            

 

The kitchen also provides food for the separate function suite which is used extensively by private guests (weddings, birthday parties etc.) and local businesses (conferences etc.).  

 
   

 

 

 

 

 

Finally the hotel boasts a popular coffee bar which picks up lots of passing trade from tourists and shoppers in need of caffeine and somewhere to rest their legs ! 

             

 

Overview of Coursework

 

During the first week of your new position as the Sales Development Manager of the Yorkshire Rose Hotel,  Anne Clayborn asks you to look at a number of issues the hotel is facing, together with some of her ideas for the future. She supplies you with plenty of background information, and in addition over your first few weeks at the hotel you investigate all of these issues further yourself. 

The end result of your coursework will be a business report which tackles each of these issues in turn. The following pages summarise your research notes which have been formulated from the various meetings you have had on each of these issues, together with additional information you have been able to ascertain.  The final part of each research section is your summary of what you are required to include in your final report.  The five areas are as follows :-

  1. 1.      Feasibility Study

Reviewing a proposal to offer inclusive all-day guided tours around York city centre. 

 

  1. 2.      Costing & Pricing

Calculation of the total costs associated with holding a 100 guest wedding function and thereby setting an appropriate selling price for this.  

 

  1. 3.      Variance Analysis

Analysing the operation of the coffee bar to understand why it failing to make the profit it is budgeted to make.

 

  1. 4.      Capex Appraisal

Evaluating whether the time has come to invest in the development of a fitness suite.

 

  1. 5.      Budgeting

Formulating a financial plan for the coming year. 

Although it is important to keep business reports as concise as possible, they must above all else be understandable to the final reader (in this case Anne Clayborn). Your report must therefore contain sufficient narrative to summarise the issue at hand, explain the analytical techniques used, the results derived, and provide clear justified recommendations where appropriate.                                

                                                  

Assessment of Coursework

 

 

Your report should be presented in the EXACT order indicated over the following pages with all the information relating to each of the individual requirements (1a, 1b,1c etc.)  being contained within just that section of your report (do not put information into appendices).

The assessment of each of the individual requirements will be allocated a mark somewhere within each classification range as follows :-

First (70%-100%)           = Excellent computation, explanation & presentation etc.

2.1 (60% - 69%)             = Good computation, explanation & presentation etc.

2.2 (50% - 59%)             = Satisfactory computation, explanation & presentation etc.

3rd (40% - 49%)              = Borderline computation, explanation & presentation etc.

Fail (0% - 39%)              = Unsatisfactory  computation, explanation & presentation etc.

 

The overall percentage weighting given to each of the individual requirements is indicated in [red square brackets] over the following pages. 

 

Your final coursework mark is the weighted sum of all these individual marks.

Please note that merely presenting accurate ‘numbers’ will be unlikely to achieve a good pass (or possibly even a pass at all). Great emphasis is placed on your ability to be able to interpret your results and  intelligently comment on them. Your report will be assessed on how well it informs the end-user to assist in the management decisions they need to make. This will require appropriate explanations and recommendations if the report is to be of use, and the marking will fully reflect how well you present your findings on each topic. 

Remember that the intended reader of your report (Anne Clayborn) is not particularly financially astute  (though she is clearly a capable operator).  Your report must explain financial concepts in plain English that can be readily understood by an intelligent (though not financial) reader. Always aim to go one step further in your explanations by (for instance) stating the reasons behind your recommendations and the potential consequences of either accepting or not accepting the recommendations etc.. 

VAT may be completely ignored in all parts of this coursework.

 

1. Feasibility Study – Sightseeing Tours

 

 

There are several operators already offering sightseeing tours around York and the staff at the Yorkshire Rose   Hotel are frequently recommending them to guests who enquire about the best way of seeing all of York’s attractions within a single day. 

Anne Clayborn has previously considered whether the hotel should promote their own tours but has always shied away from pursuing this as an idea, because it is a little remote from her experience as a hotelier.   Anne now wants you to carry out a feasibility study (just  on paper at this stage) to establish the likely costs, selling price, and break-even point in terms of establishing the minimum number of guests on a particular tour. 

 
   

 

 

 

 

 

 

 

The idea is to hire a minibus & driver (who doubles up as a guide) to take the often elderly guests around a series of York attractions over the course of a day (starting and finishing at the hotel). The guest would pay a single ticket price and this would include any relevant admissions and refreshments.  

The proposed itinerary comprises of :-

 

  • Jorvik Viking Centre
  • York Minster Cathedral
  • The Shambles &  City Walls
  • Late lunch at Betty’s Tea Rooms
  • National Railway Museum
  • Castle Museum 
  • Early evening River Cruise  

After some research you have established that for regular group bookings you can negotiate the following discounted costs for each element of the itinerary (there are    no        entrance          charges           etc.      for       the

Driver/Guide !)

 

Minibus & Driver :  Carries up to 20 passengers. Driver is also an accredited ‘Blue Badge’ tourist guide. Includes all fuel, parking & insurance etc.. : £200 per day flat fee

Jorvik Viking Centre  : £7 per person admission

York Minster Cathedral : £5 per person admission

The Shambles & City Walls : Free admission 

Lunch at Betty’s Tea Rooms : £11 per person

National Railway Museum : Free Admission

Castle Museum : £4 per person

Early River Cruise : £6 per person 

Some basic market research had indicated that you could sell ‘all-inclusive’ tickets for £50 each. 

 

 

1. Requirements:-

 

a)      [4%] Use the above information to calculate the contribution per person, and hence the net profit which would be generated from tours where either 10 or 15 or 20 tickets were sold.

 

b)      [2%] Calculate the break-even number of ticket sales required for each sightseeing tour.   

 

c)      [2%] If Anne believes that you could probably sell 16 tickets per tour (and hence used this as the ongoing budgeted sales volume) what percentage margin of safety would this  provide ?  

 

d)      [4%] During your discussions with Anne you pondered how ‘elastic’ the pricing might be. Anne was unfamiliar with this term and asked you to briefly explain it (possibly illustrating it with some ‘made up’ figures).  

Aim to present your numerical work in largely tabular form in a manner which can be readily understood by the intended reader including explanations and recommendations as appropriate. Include sufficient narrative to make the report readable and understandable.  

 

 

 

 

 

           

2. Costing & Pricing – Function Suite

 

The Yorkshire Rose Hotel has always been a popular venue for conferences and functions and has a dedicated function suite which is typically used several times each month for various celebrations and meetings.  The previous approach to setting prices for various functions has been to simply add up all of the variable costs incurred by each guest attending the function (staff, food , drink etc.) and to then add a percentage mark-up.  However as you have explained to Anne this takes no account of the various indirect costs of the hotel which (to some extent) relate to the function suite. 

You have advised Anne that the best way to take these into account is by introducing an Activity

Based Costing (ABC) System whereby:-

  1. The cost of each activity (or other source of overhead) within the hotel is calculated
  2. A ‘cost driver’ and ‘cost driver rate’ (or other means of sharing)  is identified for each activity
  3. The calculated cost driver (or other means) is used to calculate how much of each activity’s total cost should be absorbed by the function suite

Anne has now asked you to implement such an ABC system, initially just focussing on using it to accurately cost out events in the function suite. She has provided details of a typical 100 person wedding reception so that you may ultimately compare your method of pricing such a function to the current (marginal) method. 

After a significant amount of research you have identified that the operation of the function suite utilises (to a great or lesser extent) the following ‘activities’ (or other overheads) within the hotel:-

  • Premises: The budgeted premises costs (rent, rates, gas, and electricity, insurance) will total £169,200 in the next year. The total floor area of the hotel is 8,000 m2 whilst the floor area of the function suite is 600 m2.

 

  • Reception: You have estimated that the hotel’s reception function incurs costs of £50,000 per annum and that they spend 5% of their time dealing with function suite related activities.

 

  • Marketing: The Marketing function costs £60,000 per annum, and approximately 30% of their efforts (time and advertising spend) are spent on promoting the function suite. 

 

  • Depreciation: The annual depreciation charge for all of the non-current assets in the hotel is £300,000 per annum. The original purchase cost of all of the non-current assets in the hotel was £1,500,000; of which the non-current assets in the function suite (furniture etc.) accounted for £30,000 of this total.  

 

  • Maintenance: The hotel spends £40,000 per annum on repair and maintenance tasks. Last year there were 500 such tasks logged, of which 25 related to the function suite.
  • General Management: The total cost of the hotel’s management team is £180,000 per annum.

They estimate that ~20% of their time is devoted to the function suite  

In the coming year the function suite is budgeted to host 150 separate functions. 

Anne advises that at a typical Wedding Reception each guest would incur the following costs:-

  • One 125ml glass of house champagne on arrival
  • Two 175ml glasses of house wine with the meal
  • Total food costs of £12.50 (includes food ingredients and kitchen staff costs)
  • Sundry costs of £2.00 per guest (paper napkins, candles, table decorations etc.) 

In addition the following additional costs are also incurred:-

  • One member of waiting staff per 10 guests (each required for 4 hours per function)  § One function supervisor to oversee the whole event (required for 10 hours per function)  § One DJ for the evening entertainment.

Notes:-

  • House champagne costs £15.00 per 750ml bottle
  • House wine costs £8.00 per 750ml bottle
  • Waiting staff cost £8.00 per hour 
  • A function supervisor costs £15.00 per hour 
  • Local DJs typically charge £150 per event 

 

2. Requirements:-

 

a)      [4%] Using an Activity Based Costing approach determine the total overheads which should be absorbed by the function suite per annum, and hence per function. Your workings should be presented in a largely tabular format in a manner which clearly identifies the various activities, total overhead per activity, cost drivers, and workings leading to the proportion of that particular activities costs to be absorbed by the function suite; and which finally shows the total overhead per function to be absorbed. 

 

b)      [4%] Calculate the total costs incurred in hosting a 100 guest wedding reception. Your workings should be presented in a largely tabular format which clearly allows the reader to understand exactly how each element of cost has been derived. The table should end with a proposed selling price for a 100 guest wedding reception based on an 80% mark-up on total cost.

 

c)      [6%] Explain and illustrate the pros and cons of the hotel’s current marginal costing methods with your proposed absorption costing method (numerical examples are not required).  Explain to Anne why the total cost you have calculated is nearly £1,000 more than her previously calculated marginal cost and why this is so important.

     3. Variance Analysis – Coffee Bar

 

 

The first thing which everyone comments on when they first visit the coffee bar is the gorgeous smell of fresh coffee beans being grounded by hand on the premises.  Not only does the old manual coffee grinder offer a touch of theatre, it also adds authenticity to the ‘old-school’ product. If the customer wasn’t particularly thirsty when they arrived they certainly were once they saw and smelt what was on offer! 

                                         

The coffee bar has always proved popular but has never made the level of profit that Anne had expected when she was first  presented with forecast profitability figures by the company she originally purchased the coffee machine from many years ago.  Anne has dug out the original ‘coffee profitability’ figures she was given and updated all the figures to current values. She also knows how many coffees she budgets to sell each month, and how many she actually does (together with all of the associated staff and material costs etc.) 

Unfortunately what Anne does not know is exactly how to analyse all of this information to allow her to see exactly where the coffee bar is falling short of expectations and where it is doing well. 

She asks for your help in understanding exactly what is going wrong and to make recommendations to help improve the profitability of the coffee bar, and provides you with the following information.

                        

For simplicity it can be assumed that only one type of coffee is made and sold (in fact this is more true than people may at first realise. Most types of coffee whether they be Americanos,

Espressos, Lattes etc. are based on a single espresso shot of coffee!)

The hotel’s budget makes the following assumptions:-

  • 5,000 cups sold per month at a standard selling price of £2.00 each
  • Arabica Coffee beans being purchased at £3.50 per Kg 
  • 1 kg of coffee beans makes 40 cups of coffee
  • A coffee barista can make 10  coffees per hour , and they are paid £7.50 per hour
  • Each cup of coffee incurs variable overheads of £0.04 (paper napkin, milk & sugar) 

Anne provides you with the actual sales figures and costs relating to one month’s trading in the coffee bar:-

  • Sales of 6,200 coffees rung through the EPOS till system generating £11,780 of sales revenue
  • 255 Kg of Arabica coffee beans used at a total cost of £969
  • 830 staff hours at a total cost of £6,474
  • £350 has been incurred on milk, sugar and paper napkins in the month. 

 

 


 

3. Requirements:-

 

a)      [2%] In largely tabular form (including all relevant workings) show how much one standard cup of coffee should cost and hence how much profit contribution (£ and %) a single cup of coffee should make according to the Hotel’s budget.

 

b)      [4%] By comparing the standard budget results anticipated for this product (see above), to the actual results for the example month, produce a table showing the revenues, various elements of cost and profit contribution for the month for :-

  1. The original budget for the month
  2. The flexed budget for the month 
  3. The actual results for the month

c)      [6%] Using the results of the above (and additional calculations if necessary) clearly identify

(by name) and state the value of each of the following variances and sub-variances in turn :-

  1. Sales Profit Volume Variance
  2. Sales Price Variance
  3. Direct Labour Rate Variance iv.             Direct Labour Efficiency Variance
    1. Direct Materials Price Variance
    2. Direct Materials Quantity Variance
    3. Variable Overhead Variance

 

d)      [2%] Produce a profit reconciliation statement which reconciles the original budget for the month, to the flexed budget for the month, to the actual results for the month

 

e)      [6%] Then (largely in words) explain how each variance actually arose using the supplied figures to reconcile back to each of the previously calculated variances (i to vii above)

 

(e.g. using a completely different example  “The average actual selling price of the widget was £10 as opposed to the standard selling price of £11.50. There were 220 widgets sold in the month and so the lost profit  as a result of this reduced selling price (i.e. the ‘Sales Price Variance’) was : 220 x (£11.50 - £10.00) = £330 Adverse”) 

 

 

      

4. Capex Appraisal – Fitness Suite

 

 

One current omission from the Hotel’s facilities is that it does not currently boast any kind of fitness facilities. The Yorkshire Rose Hotel does however have plenty of spare space in a large ballroom which has stood unused for many years. There is sufficient space to set up a decent sized gym complete with a variety of exercise machines, in addition to a studio for aerobic and ‘boxercise’ classes, and a small spa facility comprising of steam & sauna rooms, and a spa pool.    

 

The General Manager has already met with the Hotel’s regular builder who has quoted for the relatively modest structural alterations and decorating costs; and also a supplier of gym / spa equipment who has quoted for the correspondingly more expensive exercise equipment! The total costs are significant and it appears that the project would require an initial cash outflow of £650,000.  

 

YRH Ltd’s Bank Manager has said that they would be willing in principle to provide a 5 year £650,000 bank loan for the money required at a 10% per annum fixed interest rate (= cost of capital) but that this was conditional on Anne producing a robust business plan for the proposal. Additionally,  before Anne takes such a large proposal to the owner of YRH Ltd she wants to verify for herself that such a project would indeed be financially feasible  !

 

 

 

 

The financial benefits of such a new facility would be that the Hotel’s ‘star rating’ would move up one notch which would justify a blanket increase in the room rates (albeit a modest one). Additionally non-residents could use the facilities either on payment of an entrance fee or by paying an annual subscription to become members of the YRH Fitness club.  

 

Having helped Anne to put together both profit and cashflow forecasts for the project it is established that  the new fitness suite is expected to produce the following additional cash inflows over the first five years (these do not include the original cash outlay required, nor any cash inflow from the equipment’s residual value at the end of its anticipated 5 year life) :-

  • §

Year 1 

£120,000 cash inflow

  • §

Year 2  

£160,000 cash inflow

  • §

Year 3  

£200,000 cash inflow

  • §

Year 4  

£220,000 cash inflow

  • §

Year 5  

£220,000 cash inflow

The entire £650,000 capital cost of the project will be depreciated on a straight line basis over a 5 year period and it is anticipated that the second-hand equipment will be sold for £50,000 at the end of the five years. The average annual incremental profit from the fitness suite has been estimated at £60,000 per annum.  

4. Requirements

Using the above figures evaluate the proposed capital investment using the following four appraisal methods clearly explaining what each one shows, and the pros & cons of each method. a) [2%] Payback

b)      [2%] Accounting Rate of Return (ARR) *

c)      [4%] Net Present Value (NPV @ 10%)

d)      [4%] Internal Rate of Return (use NPV @ 10% and NPV @ 20%)

e)      [4%] Based on the results of the above provide firm recommendations (with reasons) on whether to invest or not.

f)       [6%] During your discussions with Anne you mentioned that borrowing £650,000 would obviously increase the gearing * of the company. Anne did not understand what this meant and asked you explain what gearing is, how it is calculated, and the pros and cons of having low or high gearing (numerical calculations not required). 

* Use the SHU “Financial Fluency” version of the ARR formula and definition of ‘gearing’ 

                                 

5. Budgeting – The Coming Year

 

 

  • Anne has requested your help in drafting a detailed month by month income statement for the (imminent) start of the new financial year.  You have wisely advised her to also produce a cashflow budget as well 

 

  • Anne has produced the following budget estimates for sales earned and the various expenses incurred for each month of next year.  At this stage the future of the new fitness suite is still to be decided and it may therefore be completely ignored.

 

Sales are categorised into:-

 

  • Room Bookings    (50%  cash basis, 25% on 30 day credit terms, 25% on 60 day credit terms)
  • Restaurant & Bar (100% cash basis)  Ø Coffee Bar       (100% cash basis) 
  • Functions             (50% cash basis, 50% on 30 day credit terms)

 

 

SALES (£)

Quarter 1

Quarter 2

Quarter 3

Quarter 4

 

 

Month    1

       Month   

2

Month    3

Month 

4

Month 

5

Month 

6

Month 

7

Month 

8

Month 

9

Month 

10

 

Month 11

Month 12

 

Room

Bookings

£55,000

 

£55,000

 

£55,000

£65,000

£65,000

£65,000

£75,000

£75,000

£75,000

£60,000

£60,000

£60,000

Restaurant & Bar

£40,000

 

£40,000

£40,000

£45,000

£45,000

£45,000

£55,000

£55,000

£55,000

£50,000

£50,000

£50,000

Coffee Bar

£10,000

£10,000

£10,000

£12,000

£12,000

£12,000

£14,000

£14,000

£14,000

£16,000

£16,000

£16,000

Function Suite

£20,000

£20,000

£20,000

£24,000

 

£24,000

£24,000

£30,000

£30,000

£30,000

£24,000

£24,000

£24,000

 

  • § The anticipated Gross Profit Margins* are:-

o

Room Bookings      

90%      

o

Restaurant & Bar 

50%                              

o

Coffee Bar              

55%

o

Function Suite        

45%

 

* For the purpose of these budgets the above margins are calculated using a Cost of Sales figure that includes both the direct materials (e.g. food, drink, toiletries for rooms etc.) and direct labour costs (e.g. bar staff, kitchen staff, waiters, house-keeping etc.)  But no overheads.

  • Assume all direct materials are purchased/received in the month of sale, but paid for on 30 days credit (assume that the levels of inventory remain constant so that the purchases are simply replenishing the inventory levels).

 

  • Salaried Staff  £30,000 per month 

 

  • Assume all staff direct wages and salaries paid in month incurred 

 

  • Rent £96,000 per annum (paid in advance on the first day of each quarter)

 

  • The business rates are £19,200 per annum, but this is payable in 8 monthly instalments over the first 8 months of each financial year.

 

  • The expected gas & electricity usage is expected to be £36,000 per annum payable in equal instalments at the end of each quarter.

 

  • The ‘all-risks’ business insurance policy costs £18,000 per annum payable in two instalments in the 1st  &  7th month of the financial year.

 

  • Other expenses (marketing, maintenance, administration, telephone & broadband accountancy fees etc.) is budgeted to total  £10,000 per month (paid ‘cash’ when incurred)

 

  • The Hotel’s Accountants advise to budget for the previous financial year’s £30,000 Corporation tax liability to be paid in Month 9.

 

  • YRH Ltd depreciate all Non-Current Assets on a straight-line basis. Depreciation on its old existing equipment is £25,000 per month. 

 

  • YRH Ltd has an existing bank loan. On the first day of the new financial year the outstanding capital sum owed to the bank is £96,000. Capital repayments on the outstanding balance, and the loan interest incurred are both due on the last day of each quarter (treat these as two separate items)  o The capital sum is being repaid by equal quarterly payments over the remaining 8 years of the bank loan.

o The quarterly interest charge relates to the outstanding capital sum in the immediately preceding  quarter. The interest rate is 12% per annum (fixed rate).  

           

5. Requirements

 

a)      [4%] Produce a spreadsheet to show the quarterly loan repayments and quarterly loan interest paid over the next financial year.  

 

b)      [8%] Produce a tabular monthly budgeted Income Statement (using accruals concept) for YRH Ltd for the forthcoming financial year.  The columns should correspond to the 12 months of the year plus a final Total column. 

The rows should be exactly as follows:-

 

SALES & GROSS PROFIT

 

  • § Sales              

- Room Bookings

  • § Cost of Sales  

- Room Bookings

  • § Gross Profit (£)

- Room Bookings

  • § Gross Profit (%) 

 

- Room Bookings

  • § Sales              

- Restaurant & Bar

  • § Cost of Sales  

- Restaurant & Bar

  • § Gross Profit (£)

- Restaurant & Bar

  • § Gross Profit (%) 

 

- Restaurant & Bar

  • § Sales              

- Coffee Bar

  • § Cost of Sales  

- Coffee Bar

  • § Gross Profit (£)

- Coffee Bar

  • § Gross Profit (%) 

 

- Coffee Bar

  • § Sales              

- Function Suite

  • § Cost of Sales  

- Function Suite

  • § Gross Profit (£)

- Function Suite

  • § Gross Profit (%) 

- Function Suite

 

 

  • Total Sales
  • Total Cost of Sales 
  • Total Gross Profit (£)
  • Total Gross Profit (%)

 

 

EXPENDITURE

  • Salaries
  • Rent 
  • Business Rates
  • Gas & Electricity
  • Insurance
  • Other Expenses
  • Depreciation

 

PROFIT

  • Operating Profit
  • Finance Costs
  • Profit before Tax

 

Briefly comment on the key aspects of next year’s profit forecast. Explain how the accruals concept has affected the treatment of both items of sales revenue and items of expenses on this budgeted income statement (giving examples to illustrate both).

 

c)      [12%] Produce a tabular monthly  cashflow statement for YRH Ltd for the coming year.  The columns should correspond to the 12 months of the financial year plus a final Total column. The rows for CASH INFLOWS and RECONCILIATION should be exactly as specified below. 

Use own judgement for the layout of the CASH OUTFLOW section (but ensure that each individual cash outflow is listed separately and not aggregated) 

 

CASH INFLOWS 

  • Room Bookings (cash basis)
  • Room Bookings (30 day terms)
  • Room Bookings (60 days)
  • Restaurant & Bar (cash basis)
  • Coffee Bar (cash basis)
  • Function Suite (cash basis)
  • Function Suite (30 day terms)
  • TOTAL CASH INFLOW

 

 

           

CASH OUTFLOWS

  • Record each individual cash outflow on separate rows  (do not aggregate) § TOTAL CASH OUTFLOW

 

RECONCILIATION

  • Opening Bank Balance
  • Net Cashflow
  • Closing Bank Balance

 

Notes :-

  • One month prior to the beginning of the new financial year the sales revenue from Room Bookings was £50,000 whilst the sale revenue from the Function Suite was £26,000.
  • Two  months prior to the beginning of the new financial year the sales revenue from Room Bookings was £60,000. 
  • One month prior to the beginning of the new financial year the total cost of sales (for all categories of sales) was £36,000 
  • Assume an opening Bank Balance on the 1st day of Month of £50,000 
  • For the purpose of cashflow budgeting it may be assumed that the total Cost of Sales figure is comprised (on average, across all types of sale revenue) of 50% direct labour costs (paid in the month incurred) and 50% direct materials (paid on 30 day credit terms the month after the purchase was made) and that no overheads are included.

 

Briefly comment on the key aspects of the cashflow forecast. 

Compare the budgeted final Profit before Tax figure for the forthcoming  year, to the budgeted Net Cashflow figure for the same year. List three significant  ways in which they differ and (in general terms only) explain these.  Numerical reconciliations are not required.

d) [8%] During your discussions with Anne you had mentioned that the working capital cycle of the business seemed over-long and how it might affect the business’s liquidity. Anne asked if you could explain exactly what you meant  by ‘working capital’ , ‘liquidity’ and ‘the working capital cycle’ , and what actions (in general) a business could undertake in order to improve matters (numerical calculations not required) 

           


 

Hints & Tips on Presentation

 

 

General

The standard of presentation required is high. Marks are available to reward professionally presented work but these will not be awarded trivially.

In order to gain presentation marks your work should be structured, written and presented in a manner which facilitates rapid understanding of the issues and a clear explanation and justifications of your recommendations. 

The requirements of your target audience should be considered, and a brief recap of any salient background might be appropriate. By contrast simply repeating ‘chunks’ of this brief will gain no credit and will result in lost presentation marks. 

Layout

In the requirements section you will be given exact details of the work you are to complete and how each one is to be labelled and formatted.  Please follow these instructions to the letter to ensure that you gain full credit for your work. We are asking for a lot of information. If you provide it in the wrong place, it may not receive credit!  For this reason please do NOT put information in separate appendices. Keep every section self-contained!  

A title page is required which includes your name, student number, seminar tutor, word count and Turnitin Originality score (which can be hand written in at the last moment).

Although in your future business careers you may well quite rightly include contents pages and either an end of report summary or an initial executive summary, these are not required for your FFFMDM coursework. Referencing

FFFMDM coursework tends to take the form of a business report or similar, as opposed to a piece of academic writing. You are therefore not required to reference your work.

If however you are quoting (say) a benchmark industry statistic (which the Marker may not be familiar with) you should informally state where you obtained the statistic from e.g. “The average gross profit margin for this industry sector is 65% [Mintel]” 

         

English

Please ensure that your use of English, grammar and punctuation are at the highest level (spellchecker set to UK English not US English !). In the absence of a relevant Learning Contract incorrect use of ‘there’ & ‘their’ , or ‘to’ & ‘too’ etc. will be frowned on. 

Keep sentences at the required length to make a single point. Don’t hesitate to simplify your phrasing by breaking down complex arguments in to a number of smaller sentences. You can test this by reading your work aloud (preferably in private !). We tend to breathe at the end of sentences, so if you find yourself running out of breath it probably shows that your sentences are too long ! 

 

Style of English  

The nature of your coursework and who the target reader will be, will dictate the style of your writing. Good business writing is clear and concise, and need not be overly formal.  A mixture of

3rd person (and maybe occasional 1st person) is fine. For example if writing to your business Bank Manager you may state:-

“The sales are expected to achieve £10,000 per month by the end of the first year. The selling prices are calculated to deliver a 70% gross profit margin, though care must be taken to ensure that unnecessary discounting does not erode this. I have already discussed this issue with my Sales Manager”. 

 

Proof Reading

It is very difficult to completely effectively proof-read your own work as there is a tendency to read what you thought you wrote, not what you actually wrote. Returning to proof-read work over the following days can help to reduce this, as you will then actually read what is on the page and immediately spot silly omissions.   Another reason to avoid complete your report against the final deadline! 

Word Count

There is a 2,500 (+/- 20%) word count (excluding any introductions, summaries, tables and their headings and appendices. However remember that the quality of your work is far more important than the quantity. You should aim to make your points as succinctly as possible but do not take this aim to extremes. You still need to properly introduce and explain topics, and justify your choice of methods and explain your methods.  Just don’t waffle in the process! 

 

Formatting 

Think carefully about the formatting of your work always remembering how important it is to make it as understandable and readable as possible. By way of guidance:-

  • Your final report should be submitted in a single Microsoft Word document
  • The report should be printed single-sided 
  • Use a regular font (e.g. Ariel or Calibri) set to 12 or 13 point size.  
  • Use 1.5 line spacing and start each new main section on a fresh page.
  • Your report should be well spaced out and presented in small ‘chunks’ of information with liberal use of sections, headings and sub-headings. 
  • A ‘wall’ of text will serve to put the reader off and will lose presentation marks. Small sections of text properly headed up will invite the reader in. 
  • Bullet points (where appropriate) are quite acceptable in a business report.

 

Formatting of Numbers

  • Use an appropriate number of decimal places (dp), for example :- o Calculation of the cost/selling price of a small item à 2 dp  i.e. Pounds & Pence o Annual Income or Cash flow statement à No dp o Sales Mix percentage à Possibly no dp  o Gross Margin percentage à  Possibly 1 dp  

 

  • Ensure that all numbers are accompanied with the appropriate units, and that thousands are signified by the use of commas, for example :- o 52.5% o £7.50 o 1.25 Kg o 7,000 metres o £15,600 

 

  • In the UK commas are not used as decimal points!

 

 

 

 

Spreadsheet Work

  • Any required spreadsheet work should be originally created in Microsoft Excel.
  • Ensure that all spreadsheets have meaningful titles and that each column and row is properly labelled
  • Either include the units for the entire column in the heading e.g. “ £”  or  include against each separate figure. Arguably if your spreadsheet contains a mix of figures (£ , % , Kg , Hours etc.) it may actually be clearer to label each figure separately.
  • Financial statements for large PLCs etc. sometimes head their columns with  “£ million” or “£’000”. However this can lead to confusion and silly mistakes and so you are advised to avoid this for your coursework.

Calculations

 

  • § It makes sense to use the functionality within Excel to carry out basic arithmetical calculations but this does not extend to more complex financial functions (e.g.  NPV, IRR etc.) which should be calculated manually  (apart from the basic arithmetical aspects) as demonstrated and practised within the FFFMDM lectures & seminars.   

 

Transferring Spreadsheet Work into Final Coursework    

  • In order to then incorporate spreadsheet tables within your final report you should highlight the Excel cells you wish to copy (right click and ‘copy’), and then  insert the copied table into your final Word document (right click and  ‘paste’).
  • Experiment with the various ‘Paste’ options (e.g. ‘source’ or ‘destination’ formatting) to produce the clearest end result. Alternatively you can ‘paste’ the table as a ‘picture’ which then allows you to resize it or even rotate it into landscape format to enable  larger tables to be accommodated.
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