CRICOS # 02571D
ASSESSMENT COVER SHEET
Course Name: Diploma of Management (BSB51107).
Subject Name: Financial Management (BM111).
Method: Individual project work.
Assessment No.: 1
Weighting: 35%.
Due Date: Week 6.
Competency Title/s: BSBFIM501A: Manage Budget and Financial Plans.
Trainer Name: Mohammad Toammel Hossain
Purpose of Assessment
The purpose of this assessment is for you to demonstrate your ability to undertake financial management within a work team in an organisation. This includes planning and implementing financial management approaches, supporting team members whose role involves aspects of financial operations, monitoring and controlling finances, and reviewing and evaluating effectiveness of financial management processes in line with the financial objectives of the work team and the organisation. No licensing, legislative, regulatory or certification requirements apply to this unit at the time of endorsement.
This unit addresses the requirement for managers to ensure that financial resources are used effectively. This is done by ensuring access to budget/s and ongoing monitoring expenditure against the budget/s. The unit applies to managers working in small and large business environments and not for profit organisations.
This group project work addresses the elements of competency for the unit BSBFIM501 – Manage budget and financial plan as listed below.
• Plan financial management approaches
• Implement financial management approaches
• Monitor and control finances
• Review and evaluate financial management processes
Description of Assessment
This assessment is a combination of several situation to be analysed as an assignment.
Assessment Instructions
Your assessment will be required to be typed in Arial font size 12 only. You will provide your completed assessment for all of questions in one document and MUST be uploaded into MOODLE (No other method of submission will be accepted).
You are required to professionally format your document including spell-check and indicating each Task answer [e.g. Task 1 (a.) then the answer, Task 1 (b.) then the answer etc.] according to this Assignment requirement. You may lose marks if you have not spell-checked your document (as this is a professional formatting requirement, a business skill).
This assessment can be completed in one of several ways. Assessment candidates may identify unit requirement within their own work environment or organisation, or with reference to a scenario provided by the trainer/assessor.
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Be sure to properly reference your sources of information using the Harvard referencing system. For more information go to:-
• Student Handbook - latest version
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If, as a student you feel you have special needs that require your Trainer/Assessor to apply a reasonable adjustment – please discuss this with your Trainer/Assessor at the beginning of the subject studies.
Your Assignment must:
a. Be of a professional standard (spelling, grammar, punctuation)
b. Size 12, Arial Font
c. 1.5 Spacing
d. All pages must have a Header/Footer with the following details:
o Name
o Student ID
o The course & unit of competency
o Date o Page numbering
e. Title page
f. Index page
g. Body of work
h. Referencing
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Total Marks: 100
Question 1 : Case study : Development of Cinema Multiplex
Peter and John Stewart (the brothers) had a long-term dream of owning a business. They preferred a business suitable to their qualification and experience. Peter Stewart has recently completed his MBA and is working for one of the Australia's largest cinema distribution companies. John Stewart currently works as an advertising executive. They discussed their dream with their friends with a view of getting advice and information.
One day a friend who works for the owner of the local shopping complex informed Stewarts that the owner has plans to expand the complex but had no plan for a cinema multiplex. She added that it may be possible to convince the Chief Executive Officer (CEO) of her company to consider including a cinema multiplex because he is very receptive to new ideas.
The brothers feel that this is an ideal opportunity to fulfil their dream and set out to do some market research. The purpose of the research was to determine whether there will be a demand for cinema entertainment in the area where the shopping complex is situated. They found out that the cinemas that are attached to shopping complexes are highly patronised particularly by those who fall within the 15-24 year age group. The demographics of the people who live in the area where the shopping complexes are, fall mainly within this age group, and continue to attract young people to relocate there. They also find that if they included the Gold Class concept which has been successful elsewhere, this will attract more patrons. Gold Class will give patrons the opportunity to watch blockbuster movies from the comfort of luxurious, reclining lounge chairs while enjoying food and drinks brought directly to them.
It is intended that Peter manages the operational side of the cinema while John concentrates on marketing. Peter and John together would invest $1,000,000 of their own money and take on this project full-time. The owners would borrow any additional capital required to achieve their business objectives and complete all legal and other requirements, to commence their business.
The multiplex cinema will comprise altogether four theatres: one Gold class theatre with 50, and three regular class theatres, two each of 100 and one of 150 seating capacity. Also they need to build a kitchen and bar area to cater for the Gold class patrons.
The brothers are of opinion that a large marketing budget would not be necessary as the focus would be on offering promotions such as half price tickets during the day and/or two for the price of one deal. These can be offered in conjunction with various local business/newspapers reducing marketing costs substantially. This way the advertising campaign would target local customers to ensure that they remained regulars, as it is unlikely that people travel a long way to attend a cinema. While actual advertising costs will be low, printing and other costs will still need to be considered.
The main costs incurred by a cinema relate to the percentage of box office takings that go to the film distribution companies. The intention behind the Gold Class concept, along with offering patrons the ultimate cinema experience, is to try to increase revenue from those areas of the business, which are not subject to distribution company payments (i.e. from food and alcohol).
A regular ticket at Cinema Multiplex for the first and second years is expected to be $12 during the day (will increase to $14 in the third year) and $18 in the evening (will increase to $21 in the third year) per person. Gold class tickets will be priced at $24 during the day and $36 in the evening for the first and second years. This will increase to $27 and $40 respectively for the third year. In addition patrons will be able to buy food and drinks that will be brought to them while the movie is playing. The average price of food items and alcoholic drinks will be approximately $25 for the first and second years and $28 for the third year.
The number of tickets per day expected to be sold, in the first three years assuming a 360-day year is:
Year 1 Year 2 Year 3
Regular- day 130 145 145
Regular – evening 160 175 175
Gold class – day 25 30 30
Gold class – evening 30 35 35
It is expected that only one half of the Gold class patrons will make use of bar sales.
The cost of cinema operations comprises payment to film distributors of 40% of takings and wages of $300 000 in the first year increasing each year by 4% of the previous year.
The brothers have approached a friend who runs a small restaurant to assist them with estimating the cost of bar operations. The cost of bar operations consists of $70 000 in wages and $50 000 in cost of food and drinks in the first year, wages increasing by 4% and food and drinks by 20% of that in the previous year, in each of the following years. They are also informed that they could sub-contract catering and bar to outsiders for $100 000 for the first year which could be safely increased by 20% on the previous year's amount for the next two years as the bar business is expected to get popular in the future.
Income from advertising at the cinema multiplex is expected to be $250 000 in the first year increasing by 10% of that in the previous year.
Armed with the idea the brothers arranged a meeting for preliminary discussions with the CEO of the Shopping Complex. At the meeting the brothers were told that the Shopping Complex will provide for only the basic structure in their development plan. It will be the responsibility of the cinema to set up screen and the projection equipment. They are also expected to furnish and decorate the theatres. It is the practice of the Shopping Complex to set a basic monthly rent payable in advance and in addition a percentage of the gross sales over a stipulated sales figure for the year, payable just after the end of the year. The amount received by the Shopping Complex as percentage of rent will have a ceiling set. The CEO indicated that the basic lease rent for the cinema would be $50,000 per month and an additional lease payment of 10% of the Cinema Ticket sales over $2,300,000 per year and would not exceed $50 000 for a year.
After this meeting the brothers feel that this cinema multiplex project has an extremely good chance of proceeding and start gathering detailed estimates for this project.
General operating expenses for the first year are estimated to consist of Salaries $200,000 (rising each year by 4% of the previous year), Advertising $75,000 (increasing by 10% each year) and other expenses $80,000 (increasing by 10% each year). Interest expenses are estimated to be $56,000; $36,000 and $27,000 for Years 1, 2 and 3 respectively.
The capital expenditure comprises $1,500,000 on screens, fixtures and fittings (life expectancy of ten years for both), and motor vehicles (life expectancy of five years) costing $100,000. The brothers would like to use the straight-line method of depreciation for both.
With respect to legal requirements, the owners will need a liquor license, building approval from their local authority, a hygiene inspection of their kitchen and advice from a solicitor as to whether or not they are able to trademark the Gold Class name. This set up cost is expected to be $200,000 which will be written off over four years.
The brothers estimate that the borrowing will be $700,000 to cover the capital expenditure and other initial operating expenditure. Repayment on the loan is to be $250,000 per year starting from Year 2.
Accounts receivable outstanding at the end of each year is expected to be 10% of yearly advertising income.
Inventory of food and drinks at the end of a year will be 10% of the cost of the items sold during the year.
Accounts payable outstanding at the end of each year is expected to consist of 10% each of the payments to the film distributors, food and drinks purchases and advertising for the year.
All other expenses and income are paid and received in the year they are incurred and earned.
Given the above scenario, please answer the following questions:
a) As part of the proposal to the owners of the Shopping complex the Stewart Brothers need a financial plan. Also this financial plan is to be used for their borrowing from other financial sources. As a financial manager assist them in preparing a projected Income Statement, as part of the financial plan for the three years for the Cinema Multiplex project. (12 marks)
Three years projected income statements
Sales
Year 1 Year 2 Year 3
Ticket Sales - Seats Price Value ($) Seats Price Value ($) Seats Price Value ($)
Regular - day 130 12
Regular - Evening 160 18
Gold Class - Day 25 24
Gold Class -
Evening 30 36
Total - Ticket Sales
Bar Sales
Income Statement
Year 1 Year 2 Year 3
Ticket Sales
Less: Costs of Sales
Payment to film distributors
Wages
Gross Profit on tickets
Bar trading - Sales
Less: Costs of Sales
Wages
Food and drinks
Gross Profit on Bar trading
Advertisement income
Total Gross income
Operating Expenses
Salaries
Basic Lease payments - Cinema
Additional Lease payments - Cinema
Advertising
Depreciation
Write Off - Set up Costs
Interest
Other expenses
Total Operating Expenses
Net Income
b) After preparing your financial plan, how will you clarify this plan with Stewart Brothers? (Hints: Your financial plan should be achievable, accurate and comprehensible) (3 marks)
c) What are the possible contingencies the cinema will be open to and how these contingencies could be mitigated? Discuss. (3 marks)
d) What negotiations would you expect to make with the Shopping Complex Owners and the suppliers for the kitchen and the bar? (3 marks)
e) Research the sources of additional funding they need. Discuss the advantages and disadvantages of each of the sources. (3 marks)
On the basis of planning of your financial management approaches, Peter and John Stewart (the Brothers) have given you another project where you will now focus on implementing financial management approaches. In documenting this project, you need to incorporate the following evidence:
f) Prepare a communication plan through which you will disseminate relevant details of the agreed financial plans to the team members of the Cinema Multiplex. (3 marks)
g) What additional support will you provide to these team members and what required roles will you set up for them? (3 marks)
Question 2: Scenario analysis
The Special Soap Company is a manufacturer and wholesaler of upmarket toilet soap. The company markets a variety of soap but all of them are of the same size. The main ingredient in all the soaps is the same. The difference in price and quantities of the special additives used in the different variety of soaps is negligible, and therefore they are not differentiated in financial reports.
You are newly appointed in the company and are responsible for producing the variance reports. You are one of the three members of 'Production Cost Control' team. It is your responsibility to discuss the financial results you produced with the other members of the team, the Production Manager and the Purchasing Manager of the company. The team is to device action plans to rectify negative situations before reporting to the General Manager. You find that the variance between budgeted and actual cost of production in the financial report for the week ending 27 October 200X is $102(U).
You identify from the budgets the following standards:
Main ingredient per unit of soap 7 kilograms
Additive per unit of soap 1 kilogram
Main ingredient price per kilogram $3
Additive price per kilogram $9
Direct labour per unit of soap 2 hours
Direct labour rate per hour $15
Overhead (all fixed) recovery rate per unit $10
Also you know a unit consists of 100 pieces of soap and a 'just in time' method of operation (ie no raw material is held in stock) is followed by the company.
For the week ending 27 October 200X, the following data applies:
Actual unit price of Main Ingredient $2.95
Actual unit price of Additive $9.20
Total cost of Main Ingredient $4 248
Total cost of Additive $1 794
Actual unit price of Direct labour $16
Total Direct labour cost $5 920
Total overhead (fixed) cost $2 140
The production for the week is 200 units.
Tasks:
Discuss the results for the week giving your comments and/or guidelines as to:
a) How a report for the 'Production Cost Control" team should be prepared. (10 marks)
b) What you think are the reasons for the variances, the corrective actions required and the matters to be discussed and confirmed with your Team. (10 marks)
Question 3: Scenario analysis
Initially BNP started with two outlets in the CBD and, with increasing demand, has spread into five health food outlets located in major shopping centres through the Sydney area. Opportunities exist to expand further across the state and into other capital cities. These have been created because of strength of its product, high level of quality, uniqueness, finest ingredients and good marketing strategies. A further opportunity exists to break into the alternative health therapies market by supplying massage oils and flower remedies. Below are the financial statements for the past three years.
Balance sheet 2007 2008 2009
Current assets $20,000 $35,000 $50,000
Non-current assets $30,000 $45,000 $60,000
Total assets $50,000 $80,000 $110,000
Current Liabilities $10,000 $20,000 $25,000
Non-Current Liabilities $20,000 $25,000 $30,000
Owner equity $20,000 $35,000 $55,000
Total Liabilities $50,000 $80,000 $110,000
Accounts receivable balances for the past four years as follows:
2006 $5,000
2007 $8,000
2008 $5,000
2009 $10,000
BNP credit policy requires payment within seven days of the receipt of the invoice.
Income statement 2007 2008 2009
Sales $100, 000 $150,000 $200,000
Less: Cost of goods sold
Opening stock $5,000 $5,000 $25,000
Purchases $55,000 $95,000 $115,000
Goods available $60,000 $100,000 $140,000
Less: Closing stock $5,000 $25,000 $35,000
Cost of goods sold $55,000 $75,000 $105,000
Gross Profit $45,000 $75,000 $95,000
Less: Expenses
Marketing and distribution $5,000 $15,000 $20,000
Office and administration $20,000 $30,000 $35,000
Finance $10,000 $15,000 $20,000
Net profit before tax $10,000 $15,000 $20,000
Net profit after tax $7,000 $10,500 $14,000
Required:
a) Calculate the ratio for BNP Company. (10 Marks)
• Current ratio • Inventory turnover rate
• Liquid ratio • Return on equity
• Gross profit ratio • Debt to equity
• Net profit ratio • Total assets turnover
• Accounts receivable rate • Return on investment
b) After calculating this entire ratio, develop a report for BNP Company by interpreting all of these performance indicators. (5 Marks)
Question 4 : Practical Problem Solving
Musicova Pty Ltd produces a single product which uses one direct material.
The specification for this product has been determined as:
Direct material: 3 kilogram @ $2.00 per kilogram
Direct labor : 1 hour @ $ 12.00per direct Labor hour
Factory overhead: applied at the rate of $ 10.00 per direct labor hour
The sales budget for the coming year has been prepared and an extract shows:
MONTH SALES UNITS
July 15,000
August 10,000
September 10,000
October 15,000
Management requires closing stock of finished goods at the end of each month to be equal to 50% of the following month's sales. Finished goods stock on hand at 1 July is expected to be 7,000 units.
There have been no cost changes for some months and there are no expected cost increases until December. Factory overhead under or over applied is not recorded on a monthly basis. (5X4=20 marks)
Tasks:
A. Production budget. (4 marks)
B. Direct materials budget. (4 marks)
C. Direct labour budget. (4 marks)
D. Budgeted cost of production. (4 marks)
E. Budgeted cost of goods sold. (4 marks)
Question 5 : Practical Problem Solving
On 1 July 2011, Billabong had $2700 in its bank account. It provided the following list of expected transactions for July 2011:
• Cash sales are expected to be $12,000. Credit sales are expected to be $5,100, but only $3,000 is expected to be collected in July. All stock is sold at a 50% mark – up.
• Cash purchases of stock will be $4,000
• Drawings will consist of $1,000 cash and $300 worth of stock.
• The following expenses will be paid:
Advertising $2,100
Wages $3,600
Interest $ 230
• $400 wages will owe at the end of July 2011.
• Yearly rent will be paid on 1 July 2011, costing $8,400
• The monthly loan repayment of $1,600 will be made on 14 July 2011
• New shop fitting worth $3,500 will be purchased for cash from Fitts Best.
Required
a. Prepare a Budgeted Cash Flow Statement for Billabong for July 2011. (10 marks)
b. Suggest two actions the owner may take to plan for the outcome predicted in the Budgeted Cash Flow Statement. (5 marks)
ASSESSMENT MARKING GUIDE
Student Name :
Student ID Number:
Assessor Name: MOHAMMAD T HOSSAIN
Unit of competency (Title & Code): BSBFIM501 – Manage budget and financial plan.
The student has: Yes No Value Student Score
Question 1
30
Question 2
20
Question 3
15
Question 4
20
Question 5
15
Total Marks 100
The student's performance was: Satisfactory
Not Satisfactory
Feedback to Student:
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