University Finance for Managers (ACC00724) - Assessment 2 Report

This report, prepared for a Finance for Managers course, analyzes the financial performance of Grafton Pty Ltd. It begins by calculating and interpreting liquidity and financial stability ratios for 2018 and 2019, assessing the company's position relative to industry averages. The report then evaluates three investment proposals, comparing their impact on profit, profit margin, and break-even units to recommend the most beneficial option. Finally, it delves into cost accounting, estimating overhead allocation rates and analyzing the costs associated with a special order, including segmented overhead costs and minimum acceptable pricing strategies. The report references relevant academic literature to support its analysis.

Running head: FINANCE FOR MANAGERS
Finance for managers
Name of the student
Name of the university
Student ID
Author Note

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Table of Contents
Question 1........................................................................................................................................2
Answer (a)...................................................................................................................................2
Answer (b)...................................................................................................................................2
Answer (c)...................................................................................................................................3
Question 2........................................................................................................................................3
Question 3........................................................................................................................................5
1. Estimation of overhead allocation rate.................................................................................5
2. Total cost for the special order.............................................................................................5
3. Cost of the special order through using the machine time as overhead allocation rate........6
4. Minimum acceptable price per trailer...................................................................................6
5. Segmented overhead cost.....................................................................................................6
Reference.........................................................................................................................................7

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Question 1
Answer (a)
Answer (b)
Looking into the liquidity status of the entity it can be stated that both current ratio as
well as quick ratio of the entity is lower as compared to the industry average. Further, the
liquidity status of the entity in 2019 has been deteriorated as against 2018 (Garanina and Belova
2015). On the other hand, if the financial stability position is considered, it can be identified that
both debt ratio as well as leverage ratio of the entity is higher as compared to the industry
average. Further, the financial stability of the entity in 2019 has been deteriorated as against
2018 (Creel, Hubert and Labondance 2015).

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Answer (c)
As a potential investor for unsecured loans I will not lend money to the entity. Reason
behind the same is that the liquidity status and financial stability status of the entity is not as par
with the industry average. Moreover the situation deteriorated in 2019 as compared to 2018.
Question 2
Proposal 1 – Jim Jackson
From the above, it can be identified that in accordance with the proposal of Jim Jackson
the profit amount will go up to $375,000 from existing $300,000 and profit margin will go up to
13.39% from existing 11.54%. Further the break even units will be reduced from 14000 units to
13750 units.
Proposal 2 – Tim Walter

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From the above, it can be identified that in accordance with the proposal of Tim Walter
though the revenue will go up from $26,00,000 to $32,50,000, owing to advertising cost and
quality improvement cost the bottom line profit will not change from the existing 11.54%.
Further the break even units will be increased from existing 14000 units to 16,666.67 units.
Proposal 3 – Sandy smith
From the above, it can be identified that in accordance with the proposal of Sandy Smith
the though the profit amount will go up to $360,000 from existing $300,000 and profit margin
will reduced to 11.92% from existing 11.54%. Further the break even units will be increased
from 14000 units to 16,145.45 units.
Hence, from overall analysis it can be determined that the proposal provided by Jam
Jackson shall be accepted as it will enable Dunning Ltd to earn higher amount of profit with
lowest unit for break-even.

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Question 3
1. Estimation of overhead allocation rate
2. Total cost for the special order

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3. Cost of the special order through using the machine time as overhead allocation rate
4. Minimum acceptable price per trailer
5. Segmented overhead cost
For the purpose of analysing the total cost in context of overhead, segmented costs pools
is useful as it helps in analysing the costs associated with packaging, purchase of material, set-up
of machine, cleaning, maintenance and testing. Hence, cost pool can be used to recognize the
cost drivers those are used to analyse unit costs as well as total costs regarding each of the cost
drivers including tests, containers and purchase orders. On the contrary after evaluating the per
unit cost, it can be determined that activity cost shall be allocated to each of the product which in
turn will help to use the activity based costing. In addition, while cost in accordance with ABC
approach will be allocated, projected overhead cost per unit can be forecasted for each product.
Hence, for recognising cost per unit for each product that can generate higher sales as well as
profit, this approach is useful (Almeida and Cunha 2017).

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Reference
Almeida, A. and Cunha, J., 2017. The implementation of an Activity-Based Costing (ABC)
system in a manufacturing company. Procedia manufacturing, 13, pp.932-939.
Creel, J., Hubert, P. and Labondance, F., 2015. Financial stability and economic
performance. Economic Modelling, 48, pp.25-40.
Garanina, T.A. and Belova, O.A., 2015. Liquidity, cash conversion cycle and financial
performance: case of Russian companies.