Student name: Michael booth

Student number: S0076804

Student course code and number: ACCT11059 Accounting, Learning and Online Communication

Assessment number: Assignment 2, Steps 7-10

Due date: Monday 9 October 2017; 11 am

Extension granted: Thursday 12 October; 11:45 pm

Weighting: 29 marks

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Executive summary

This is an assignment report on product performance, ratios and a capital investment decision from 2 options relating to the operational performance of 4imprint for the last 4 years.

This task is carrying on from previous assignment workings displaying the performance of the company by restated the financial statements to provide insight to the financial performance of the company and its profitability.

The ratios show the performance of the company as percentage and or dollar values and clearly demonstrates the performance of the company and what areas it is or isn’t performing.

The capital investment plan and internal rate of return are calculated in Question 9 and display the best rate of return and investment option for a capital investment decision related to the options available.

The feedback process from other students can be useful when evaluating your company reports and accuracy of information by gathering advice from other students.

The feedback process is useful for getting the information correct and displaying the relative performance of companies and operations and is a useful tool for learning.

The process of feedback is more useful if you can get involved and have understanding to engage with other students and in this stage (due to being sick the weeks before) I was unable to contribute and help other students but I did contribute with some online communication in forums, face book and my own blog.

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Contents page

Page 1. Title page

Page 2. Executive summary

Page 3. Contents page

Page 4. Assignment 2. step 7.

Page 5. Assignment 2. step 7.

Page 6. Assignment 2. step 7.

Page 7. Assignment 2. step 8.

Page 8. Assignment 2. step 9.

Page 9. Assignment 2. step 10. Feedback

Page 10. Assignment 2. step 10. Feedback

Page 11. Assignment 2. step 10. Feedback

Page 12. Assignment 2. step 10. Feedback

Page 13.

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Assignment 2, Step 7

Accounting and online communication

The products selected for 4imprint are listed below with the variable cost and contribution margins calculations for this step with the sales prices as listed on the 4imprint website as follows: -

Refresh clutch 20oz Water bottles; retail cost = 95c to $1.59 Javelin pens; retail cost = 23c to 39c Sport bottle with push pull lid 20 oz.; retail cost = 52c to 95c

Estimates of variable cost

Refresh clutch 20oz Water bottles; variable cost = 30 to 80c Javelin pens; variable cost = 8 to 14c Sport bottle with push pull lid 20 oz.;variable cost = 22 to 42c

Contribution margin calculation is listed as follows; contribution margin (CM) is the difference between sales revenue (S) and variable costs (VC): CM = S – VC

• Refresh clutch 20oz Water bottles; CM= 95-30 and 1.59-80 = 65 to 79c

• Javelin pens; CM = 8-23 and 14-39 = 15 to 25c

• Sport bottle with push pull lid 20 oz.;CM = 22–52 and 42-95 = 30 to 43c

The sales costs are variable to begin with due to the varying costs of colours, size and style of products and if you purchase the products in large quantities then the cost is also reduced in line with reduced production costs.

The cheaper sports bottle would likely be more popular with a lower sales cost.

The contribution margin is different to the gross or sales margin and this is a concept I am familiarizing myself with and is a little confusing, comparatively.

The costs can be reduced within the printing sector when larger quantities are produced as the setup and takedown time of screens, templates or plates and the human labour cost will push these lower production process costs upwards.

The cost of different colours and inks for printing can also be a factor in increase pricing and then the supplier cost of products like plastic and or finished supplied products like pens and drink bottles that are likely mass produced in china and stored in a warehouse and printed in demand, so faster moving products will be cheaper due to the higher turnover of the products and the reduced storage cost in line with final sales costs.

But the reason other less popular products and colours for example may be held in stock is to provide the range and service for the customer, as there will always be a customer that will want purple or pink water bottles instead of more popular blue or white bottles and pens in line with their company logo or branding. So, the varying costs also lie within product variety, popularity of products and turnover and then the customer service aspect

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where 4imprint standards are placed very high with very competitive pricing making them a market leader.

The firm may produce a variety of products with different contribution margins to have a big variety of products and colours and provide a better service to customers in that respect and that will attract customers but in times of economic crisis when sales drop the certain products with higher costs and contribution margins may be dropped and products discontinued in favour of more popular products and limited less costly variety, reducing costs.

Production costs can be higher for different colours of items with storage costs compared to higher turnover products and more popular colours.

With the three products as listed above for the example of costs increase and market competition wherein the refresh clutch bottles may be dropped in harsh or competitive, market conditions over the cheaper more popular sports bottles. Then the sports bottles range may be reduced slightly and only stock a limited selection of colours to satisfy the market, reduce costs and stay alive in and economic climates, where larger firms may take advantage of these slack economic times and expand the market to capture a larger market share of customer.

Due to low sales in the market or a competitor trying to provide the same service at a lower cost than the firm it may be forced to only stock red blue black and orange or the most popular colours of this water bottle to drop overhead costs and reduce costs and contribution margins to increase sales and return profits to the firm.

In hard or competitive market conditions, a firm may also run sales and offer break cost sales items to reduce tax and attract new customers and use its buying power to drive a competitor out of the market and then return to its previous pricing once the competitor is removed.

Resource constraints, the 4imprint firm may face are listed below: -

Competition Supplier costs Production costs Raw material costs Market volatility

The constraints a firm face will require fast action and decisive course to remedy the effect of cost increase and material or product scarcity and in this area a competitor can gain advantage and impact a firm’s sales so the competition a firm may face will result in sales and market capture strategies.

The increased supplier costs or competitor and rival sales impacts on available products from suppliers can be a real problem for a firm and so contracts and supplier contracted

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supply quantities and qualitative contract requirements often are implemented to combat the effect of supplier or supply chain disruption to firms.

The raw material cost is a variable cost that will affect contribution margins and can have impact on a firm but likely will affect the market and competitors as well, so in this it can be a strategy for one company to attempt to buy all the market share of a material to impact and or disrupt supply to a competitor. This is an area for managers to be aware of and manage of strategically illuminate often with contract and supply expectations.

This raw material cost and scarcity of materials are an applicable resource constraint affecting contribution margins and final sales costs and usually affect the market driving up costs market wide with weather events often impacting the supply or production of raw materials.

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Assignment 2 step 8

Ratio analysis

When I look at the ratios calculated for 4imprints performance the following is displayed:

The net profit margins have been stable at 4% with 2% as indicated in year 2013. The return on assets is indicated at 37% and the year 2013 was low at 8% The average daily cost of goods storage is stable and as expected with a company

with such a wide variety of novelty items. The asset turnover ratio is high and a good strength indicator of business

performance. The current liquidity ration appears to be calculated wrong with a high percentage Debt equity ratio is zero Earnings per share is relatively high at 87 with steady growth since 2013 from 22% The market price per share is high and decreased since 2013 Return on equity is indicated as negative in 2014, but grew to balance the loss in

2015 with steady growth in 2016 Return on net operating assets was high in 2014 Profit margin has grown and steadily from 2013 Asset turnover is very high Economic profit is ridiculously high and must be a miscalculation

Economic profit

The indicated figures are a very high economic profit calculation and the earning on per dollar investment is extraordinary and must be a miscalculation.

The return on net operating assets has grown and the year 2014 was over 116% which is very high and great performance from the firm continuing and steady for 2015 and 2016.

The profit margin was steady and have almost doubled since 2014 a good performance for the firm by management.

I think the company has a great service guarantee and this in turn drives customer satisfaction and repeat sales.

The growth of the business is directly related to the customer satisfaction target by performance targets set by management which in the competitive online market dictated by reviews and online feedback the growth and performance of a business in such a competitive environment is consistent with the relative marketplace.

The performance of the firm from capital investment decisions is and continues to provide growth and sales and great return for shareholders.

The process as frustrating as it has been for me has provide an insight into business analysis by accounting methods via ‘breaking into bits’ each segment of the business and indicating its performance history and growth for performance analysis for investment.

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Assignment 2 Step 9

The capital investment decision I have formulated for 4imprint is for market expansion into the Australasian market being for the 2 options; New Zealand or Australia.

I provided slightly higher construction costs for New Zealand than Australia due to higher operating g.s.t for that area relating to the labour of such constructions and then indicative lower sales volumes for the lower population.

The cost of capital implemented is 10% and the payback period is presented as 1 yr. and 2.7 months for the Australian investment and the New Zealand investment with a return payback period of 3 years and 3 months.

Obviously, the investment most attractive will be the expansion into the Australian market with marketing and supply to the NZ sector a possibility from the Australian warehouse with a lower setup cost and net present value.

The net present value is defined in Investopedia as; ‘What is 'Net Present Value - NPV'

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyse the profitability of a projected investment or project.’

The higher net present value of the New Zealand capital investment indicates its higher cost for dollar value as an investment with the Australian capital investment value less than half at $60.88 less than the $136 NPV of the New Zealand investment proposal.

The internal rate of return (IRR) is lower for the New Zealand investment accordingly at 27.9% where the Australian investment indicates a return of 39.7%.

The rate of return, lower payback period and lower net present value for the capital investment for the Australian operational investment for the market capture is an indicator of the best capital investment being to setup operations in Australia for the Australasian distribution of 4imprints products; printed promotional items.

References

1. Investopedia website page on terms, Net present value definition, viewed 9/10/2107, http://www.investopedia.com/terms/n/npv.asp

Assignment 2. Step 10.

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Feedback was asked for in forum and is listed as follows:

advice or feedback please

by Michael Booth - Wednesday, 4 October 2017, 9:57 PM

blog link; michaeldotbooth.wordpress.com/2017/10/04/accounting-assignment-2-step-7-and-8/

cannot get any resolve

Excel spreadsheet -1, 4 imprint restated - changes made by Telesia and edited by ,michael fc (3) FC bridget 1 draft 4 ass 27-10.xls

Word document step 7 accounting.docx

Re: advice or feedback please

by Wendy Armstrong - Thursday, 5 October 2017, 1:07 AM

Hi Michael

For Price Earnings per share you need to look on the internet for the price for your company. Your company will have a code number so mine, Qube Holdings is QUB, and then find out what the price of your shares are for each year. So it will need a bit of research.

Those Value words have me stumped too. It could be the formula. It could be you need to use the template Maria gave you at the bottom.

Economic profit is line 39 above -,cost of capital which you have in line 59. This can be an absolute if you put $ in front of the number,so $10 * net operating assets which will be in your restated statements line 57 I think NOA

Let me know if this helps or if you think this is not the answer.

Regards

Wendy Armstrong

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michael booth

Re: advice or feedback please

by Michael Booth - Sunday, 8 October 2017, 9:34 AM

thanks for the advice wendy the % 's were stuffing me up it looks better now i really appreciate that.

i have my company share price and it is in pence and pounds for some reason it is 38 and 6/13 p lol

i am not sure what that even is so this is heaps of fun for me i was sure it's american operations were and are the majority of its operations so i think it should be american traded anyway thats another issue.

anyway thanks for the advice i will get along with it some more now thanks to you and hopefully get some financial indicators of the strengths of the business operations.

thanks again and have a great day

Michael booth

Another post

Re: Extremely behind....feedback and help please

by Michael Booth - Sunday, 8 October 2017, 10:37 AM

your not the lone ranger with this fun time of the term

hi tiffany,

i am struggling with it 2 mate and i find that the lectures and the terms and ratios are best placed for reference from the glossary of terms as follows; https://martinturneraccounting.files.wordpress.com/2016/04/glossary-of-key-terms.pdf

i will get you some feedback when i finish mine hopefully by lunch on this beautiful sunday and i added my file if you feel like feedbacking me and i am sure when you look at how confused i am smile it will give you confidence.

step 7 i found the easiest as with products the costs are easy to guestimate and the sales price was found easily off my companies website i just struggle with the excel component.

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best of luck

michael booth

Excel spreadsheet -1, 4 imprint restated - changes made by Telesia and edited by ,michael fc (3) FC bridget.xls

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Feedback left for me listed as follows …………….

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