Sheffield Aerospace Materials is a medium sized firm based in the advanced manufacturing parkway just outside the city centre. The firm’s managing director Richard Byrd has asked for your help in selecting the firm’s future strategy and direction.
After 5 years of research and development the firm has 5 products they are investigating and will launch to the market.
Below is a full set of accounts for Sheffield Aerospace Materials for the year to 31st October listed as Appendix 1.
Mr Byrd the managing director would like you to prepare a report which answers the following questions.
- Explain the role and function of the Finance Director/Finance Manager providing a clear explanation of the role of Financial Accounting and Management Accounting.
(15 % weighting)
- Critically explain the meaning of ‘Risk and Return’ for Sheffield Aerospace Materials and the ‘Time Value of Money’
(15 % weighting)
Questions 3 to 4 are based on appendix 2 the Key Product Information sheet.
Using the information in Appendix 2.
- Calculate:
- The contribution per unit
- The break-even point and the margin of safety
- The required number of units to hit target profit.
Clearly explain each figure you have calculated and what this means for the firm.
- If the firm makes the target profit based on estimated sales and the addition information in appendix two produce a revised Statement of Financial Position.
(30 % weighting)
- Calculate the Payback Period and Net Present Value for the product?
(15 % weighting)
- Critically evaluate if the product is viable for Sheffield Aerospace Materials and evaluate the advantages and disadvantages of the two investment appraisal methods.
(15 % weighting)
10% of the mark to be awarded for presentation of your report, clarity of financial information provided and referencing to the APA standard.
Word Limit 2000
Required:
You must produce an individual report. Submission before 3pm on 4th Jan 2023. Disclosure there are 5 scenarios. Only produce the workings for the scenario you are assigned. Failure to submit work relating to your scenario will achieve zero.
APPENDIX 1 – Financial Statements
Income Statement for Sheffield Aerospace Materials for the year ended 31st October 2022.
| Revenue | 13,340,000 | |
| Cost of Sales | (6,450,000) | |
| Gross Profit | 6,890,000 | |
| Selling + Distribution Expenses | (2,390,000) | |
| Administration | (1,950,000) | |
| Net Profit | 2,550,000 |
Statement of Financial Position for Sheffield Aerospace Materials as at 31st October 2022.
| Non-Current Assets | ||
| Land & Buildings | 9,750,000 | |
| Vehicles | 320,000 | |
| 10,070,000 | ||
| Current Assets | ||
| Inventories / Stock | 1,345,000 | |
| Trade Receivables | 550,000 | |
| Cash / Bank | 2,250,000 | |
| 4,145,000 | ||
| Total Assets | 14,215,000 | |
| Current Liabilities | ||
| Trade Payables | 1,945,000 | |
| Non-Current Liabilities | ||
| Bank Loan | 4,000,000 | |
| Capital and Reserves | ||
| Shares | 1,000,000 | |
| Retained profits | 7,270,000 | |
| Total Liabilities | 14,215,000 |
APPENDIX 2 – Key Product Information Sheet
Information relating to Scenario 1 – Product Epsilon
Estimated Sales 8,500 units
Selling price per unit £175
Direct Material Costs £65 per unit
Selling Costs £435,000
Admin Costs £225,000
Production Capacity 9,500 units
Accounting Additional Information
Additional information related to Sheffield Aerospace Materials required to update the Statement of Financial Position:
Increase in land and buildings £800,000
Increase in trade payables £250,000
Loan obtained on 1st November for £275,0000
Additional Profit £xxxx (to be calculated based on revenues and costs above)
Assumptions
There will be no change in the cash balance held by the company. There will also be no change to the level of trade receivables
Tax can be ignored.
Investment Appraisal Additional Information
Total Investment £1,050,000
Assume Total Revenues of £1,487,500 per year, Direct costs £552,500 , Selling Costs of £435,000 and Admin costs of £225,000
The finance director has estimated the cost of capital is 11% and the product would be on sale for 5 years.
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