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Explain the nature of costs in small businesses and employ a range of costing techniques in order to account for materials, labour and overheads

ASSIGNMENT FRONT SHEET

Student Name: Certification :  I certify that the whole of this work is the result of my individual effort and that all quotations from books, periodicals etc. have been acknowledged. Student Signature:                                                                              Date:
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Notes for students : Electronic copy of assignment must be submitted through Turnitin. Paper copy not required 2. 10% of marks are awarded for satisfactory use of language and/or good presentation. 5% of marks are awarded for satisfactory referencing and/or presentation of a bibliography where either is required. Note that all referenced work should be obtained from credible sources. Students should ensure that they comply with Wrexham University’s plagiarism policy. Students should make correct use of the Harvard referencing method.

 

Learning Outcomes Tested in Assessments One (25%), Two (25%) and Three (50%) 1) Explain the nature of costs in small businesses and employ a range of costing techniques in order to account for materials, labour and overheads. 2) Produce a range of financial budgets for small businesses and discuss the benefits and relevance of budget preparation in decision making processes. 3) Recognise business objectives and theoretical rules for financial decision making in small business. 4) Interpret and present financial information in a variety of forms for making effective (informed) decisions.
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	Mark %

Masters Level Marking Criteria 

Description: Fail: Marks below 30%	No work has been submitted in the time allowed, or the work submitted demonstrates little or no understanding of the task or the subject matter.  This may be evident where the work is substantially incoherent, irrelevant or lacking in factual content, or where these shortcomings are present in combination such that the work as a whole is unsound.  Major errors of fact, or evidence of substantially poor cognitive or other relevant skills will also lead to a fail.
Description: Fail:  Marks in the range 30% – 39%	The work shows some knowledge and required skills are present to a degree.  There may be appreciable error or omission of facts, poor structure, misdirection to the task, or poor conceptualisation or illustration of the work.  Evidence of analysis and evaluation is weak.  There will be indications in the work that the candidate is capable of improving it by further application to the task
Description: Pass: Marks in the range of  40% – 49%	The work contains sufficient descriptive information.  There is some analysis and explanation with appropriate illustration and example, and some attempt to evaluate.  The work will generally be coherent and relevant, it will contain some useful proposals or solutions related to familiar solutions and there will be some attempt at originality.  It will be communicated clearly.
Description: Pass: Marks in the range of  50% – 59%	The work contains all the necessary contextual information.  There will be adequate analysis, explanation and conceptualisation, with appropriate illustration and example, and sound attempts to evaluate and judge.  The work will be substantially coherent and will contain relevant and feasible proposals or solutions related to familiar situations, some responses to uncertainty or ambiguity and some acknowledgements of the implications of change.
Description: Pass: Marks in the range of  60% - 69%	The work will contain complete explanations using most available information.  There will be substantial analysis; the ability to recognise evidence, use ideas, conceptualise, evaluate and judge in familiar situations will be clearly demonstrated.  Proposals or solutions will be contextually relevant and useful, with substantial evidence of the skill necessary to operationalize them in a variety of situations, including those in which uncertainty, ambiguity or change are present.  The work will provide evidence of originality and of useful knowledge transfer to novel situations.  It will be coherent and convincing.
Description: Pass: Marks in the range of 70% and above	The work will clearly demonstrate the ability to analyse accurately, reliably and fully, all relevant information; to use evidence; to conceptualise, evaluate and judge; to propose and operationalise effective solutions, and to show substantial originality and creativity in a variety of familiar situations or in the face of ambiguity, uncertainty or change.  It will demonstrate valuable knowledge transfer and propose feasible solutions for a wide range of situations.  Evidence of the ability to innovate will be present.

  

ASSIGNMENT ONE (%)

Small Business Finance – ONL715 – Due Monday, Week 4 

Assignment One is a circa 750 word assignment excluding tables, figures, references, appendices, calculations etc. The word count is a guide only. It will not be applied mechanically to determine your mark.

Please see the masters level marking criteria. 

First Question (30 marks) ABSORPTION AND MARGINAL COSTING METHODS

A bike company based in England, Raleigh Bike Inc., is planning to sell its existing inventory of Mini Bike in a new market (Scotland). Total production is expected to be 10,000 units. Allocated production costs are provided as follows:

Allocated Production Costs	in £
Raw Materials	200,000
Direct Labour	300,000
Variable Overheads	50,000
Allocated Fixed Overheads	150,000
Total or Full Cost	700,000

As an accounting manager of the company, you will need to answer the following questions for chairing the Company Board Meeting.

1) Calculate the selling price (per unit) required to give a profit margin of ten percent (10%) on full cost pricing (Absorption Costing Method) as initially planned by the company. (7.5 marks)

2) Due to heavy competition in the Scottish markets, the company is planning to employ a price penetration strategy in order to enter the markets successfully. The market condition in Scotland is proved to be much worst than is originally forecasted. In addition, the company is being left with substantial unsold bike stock. What will be the penetration selling price, if the company is employing Contribution Margin Pricing (Marginal or Variable Costing Method) with a mark-up of 5% to base the price on the average variable cost. (7.5 marks)

3) As an accounting manager, evaluate which pricing strategy (1 or 2) is the best policy. Justify your answer critically to the Company Board Meeting. Hint: this is a conceptual question, calculation is not required. Higher marks will be given for rigorous answers with complete Harvard referencing. (15 marks) Total 30 marks 

Second Question (40 marks) THE BUSINESS STRUCTURES 

When you decide to open a new small business, you will be faced with both fixed costs (FC) and variable costs (VC). Examples of FC are the costs for starting the business, such as building, insurance and rent, while the VC are, amongst others, labour costs (additional workers) and raw material costs. In relation to costing, there are several types of business structures, which you need to be familiar with when choosing your business, such as sole trader, partnership, limited company etc. You need to know these structures in terms of the following costs and benefits as follows:

• Economies of scale and economies scope (what are the benefits and costs of individual structures, etc).
• Legal liability (who is/are responsible if you go bankrupt or have legal disputes with clients etc).
• Investors (what type of structures are favoured by the investors).

You are required to critically discuss the following tasks. (Hint: these are conceptual questions. Calculation is not required. Higher marks will be given for rigorous answers with complete Harvard referencing).

1) Identify several types of business structures and critically discuss the advantages and disadvantages of each. (30 marks)

2) When you open a new small business, you will be faced with both fixed and variable costs. Discuss which types of small businesses are profitable between the following two types of businesses below (a or b) and why (critical explanation). (10 marks)

a) The small business with relatively higher fixed costs in the beginning but carries relatively lower variable costs in the later stages. An example of this small business is opening an online mobile hairdressing service offering a haircutting service through the Internet. The initial (fixed) cost is relatively high (designing an aesthetic website and buying complete equipment and a car to provide the service), while variable costs are relatively low since you are the only worker in the company.

b) The small business that has relatively lower fixed costs in the beginning but has relatively higher variable costs in the later stages. For example, renting a small curry kiosk in a shoping centre (food retail shoping malls). While the fixed costs are relatively low, the business has higher variable costs due to paying for several waitresses, delivery staff and cooking staff, etc.

Total 40 marks.        

Third Question (30 marks) BREAKEVEN POINT

The goal of any commercial business is to maximize total revenues (TR) or reduce total costs (TC). Hence, a company’s survival depends on the relationship between its TR and TC, as described in Table 1. Because these factors are interconnected, a change in any one can affect the others.

Table 1 below describes the relationship between the concepts of the average cost, marginal cost and total cost of an adult train ticket from Birmingham to London using Virgin Trains during off-peak hours.

Table 1

P = Price; Q = Quantity or sales volume; TR = Total Revenue (PxQ); TFC = Total Fixed Cost; AVC =

Average Variable Cost (TC/Q); TVC = Total Variable Cost (AVCxQ); TC = Total Cost (ATCxQ)

 

P	Q	TR	AFC	TFC	AVC	TVC	TC	ATC	π
Col.1	2	3=1x2	4=5/2	5	6	7=2x6	8=5+7	9=8/2	10=3-8
60	1000			120000	45
60	2000			120000	45
60	3000			120000	45
60	4000			120000	45
60	5000			120000	45
60	6000			120000	45
60	7000			120000	45
60	8000			120000	45
60	9000			120000	45
60	10000			120000	45

Using the production table below, as a professional accountant, you are required to undertake the following tasks:

1) Complete the table above, fill in the blanks and advise the company at what units of production (Q) the company achieves breakeven (BEP). (7.5 marks)

2) Inform the company of what will be the company’s profit or loss if it plans to produce only 6,000 units and what will be the profit or loss if the company sells 10,000 units? (7.5 marks).

3) As a financial analyst, which pricing strategies and non-pricing strategies would you recommend Virgin Trains to help increase revenue? Hint: this a conceptual question, calculation is not required. Higher marks will be given for rigorous answers with complete Harvard referencing. (15 marks)

Total 30 marks