The Kalgan Driftwood Company

Questions and guidance on preparing case study

Managerial Finance ACC08402 Assignment – Part 2

This document provides the assignment brief, specification and assessment criteria for your second assessment on the module: Managerial Finance.

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Case Study

This Case Study will form 45% of your overall mark for this module The Kalgan Driftwood Company

Background

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

0 1 2 3 4 5

Net cash flows

£(140,000) £23,240 £45,780 £54,320 £54,320 £54,320

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Budget data for the first year of the re-cover service are as follows:

Sales (units)

Selling price per unit Direct labour cost per unit Fabric cost per unit Contribution per unit

Large 2,250 £115 £12.60 £44.80 £57.60

Medium 1,450 £90 £8.40 £32.20 £49.40

Small 2,400 £58 £6.30 £21 £30.70

Small 0.25 hours

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

Time to make each cover 0.6 hour 0.4 hour

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 8% 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.

(iii) Suggest two actions that the company could take to overcome the shortage of labour.

(iv) Calculate the payback period for the re-cover project. (v) Calculate the net present value for the re-cover project.

(10 marks) (5 marks) (5 marks)

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(5 marks) Total for this part = 30 marks

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 7th System (name and date). For detail of the APA 7th System refer to Learning Information Services (i.e. the Library’s) Referencing web page and Guide or Napier web pages on plagiarism. http://www2(dot)napier(dot)ac(dot)uk/ed/plagiarism/

(10 marks) (Total 100 marks)

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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

30 60 10

Question A Question B

Presentation of work

Overall mark

Comments

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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.

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