Accounting for Decision Makers – Component 1 : Individual report (3000 words)

Module Title : Accounting for Decision Makers

Component 1 : Individual report (3000 words)

Learning Outcomes:

LO1.Demonstrate an understanding of the role and purpose of accounting techniques useful for management planning, control and decision making.

LO2. Apply the appropriate interpretation of financial statements, costing, budgeting, short-term decision making and investment appraisal.

LO3. Present reasoned arguments and recommendations by engaging with the theory underlying each concept and explore the value of each technique to the management of organisation as a whole.

Assignment

Case Study: You are the financial controller of SolaraTech Ltd is a UK-based company specializing in advanced photovoltaic coatings for solar panels. It designs proprietary nanocoating solutions that enhance solar efficiency and durability. The company manufactures in the UK and exports to renewable energy firms across Europe and North America

The managing director has asked for your help in connection with a number of decisions the company is facing:

Part A: Long Term Investment

SolaraTech is considering investing in a new automated coating and curing system to meet rising demand and improve production quality.

Currently, it uses an older system that assembles 1,000 panels per week. The proposed system will increase production capacity to 2800 units per week. The new equipment will cost £600,000. Dismantling the old setup and refurbishing the production area will cost £35,000.

The new system requires additional storage space that was originally intended to be rented to a third party for £15,000 per annum, paid annually in advance.

SolaraTech has already spent £28,000 on a market research report to evaluate potential sales growth. Demand is expected to rise to 2,500 panels per week for the next four years, after which a newer product model will likely be launched. The company plans to sell the equipment in year 5 for £55,000.

Each panel sells for £200 with a contribution margin ratio of 0.4. The company operates for 50 weeks per year. SolaraTech expects investment projects to pay back within 3 years and applies a discount rate of 10% per annum.

Prepare a report (2000 words) to the Board of the Company which includes:

(a) Calculations of the payback and the net present value for the investment, based on the information given.

(b) A summary of the advantages and disadvantages of both the payback and NPV methods of investment appraisal, as applied to this case.

(c) A recommendation, with reasons, whether the new assembly system should be purchased, including any reservations or non-financial considerations you may have about your recommendation.

Part B: Budgeting Memo

The managing director has expressed concern about the lack of accuracy in the company’s financial budgets over the last two years. Actual performance has consistently deviated from forecasts. Traditionally, the budgeting process has followed a “top-down” model, led solely by senior executives.

You are asked to provide your view on whether wider participation in the budgeting process would be beneficial.

Prepare a memo to the managing director (1000 words), summarise the main advantages and disadvantages of wider participation in the budgeting process, supporting your analysis with examples of current corporate practice.  Please follow the format given below:

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