Financial Performance Management Report: FNN 6800 Assessment Analysis

This report analyzes the financial performance management of Ruislip plc, covering various aspects of cost accounting and budgeting. Question 1 focuses on calculating costs and profits per unit for lipstick, lip-balm, and lip-gloss, using both labor hours and activity-based costing to determine overhead absorption rates and profitability. The analysis includes sensitivity analysis to assess the impact of uncertainties. Question 2 delves into variance analysis, including material usage, mix, and yield variances, and discusses the application of a standard costing system, highlighting potential issues with outdated standards and the roles of different departments. Question 3 examines planning, coordination, and control through budgeting, comparing and contrasting zero-based budgeting and incremental budgeting approaches and their suitability for business planning.

FINANCIAL
PERFORMANCE
MANAGEMENT

Table of Contents
Question: 1...................................................................................................................................3
D) Sensitivity analysis role in uncertainties.................................................................................4
Question: 2...................................................................................................................................5
Question: 3...................................................................................................................................7
Planning coordination and control...............................................................................................7
REFERENCES................................................................................................................................1

Question: 1
Particulars Lip-balm Lip Stick lip-gloss
 No. Of units produced
 Per unit cost of direct material
 Direct labor hours per unit
 Labor cost per hour
 Per unit cost of direct labor
35000 30000 3000
10 5 10
2 3 2
5 5 5
10 15 10
Overhead costs
1. Cost of receiving orders 30000
15000
120000
65000
230000
2. Cost of dispatched orders
3. Set up cost
4. Machining costs
Total overhead cost
A) Calculating cost and profit per unit by labor hours.
Details Lip balm Lip stick Lip gloss
Manufactured Units 35000 30000 3000
DL hours/ per unit 2 3 2
DL hours of labour per product 70000 90000 6000
Total hours of labour 166000
Absorption rate of overheads through labour hr
= total overheads / total direct labour hours
=230000 / 166000
=1.39
1.39x2 =
2.78
1.39x 3 =
4.17
1.39x 2 =
2.78
Per unit cost
DM cost / unit 10 5 10

DL Cost / unit 10 15 10
Overhead cost / unit 2.78 4.17 2.78
Total cost per unit 22.78 24.17 22.78
Sales price/ per unit 26 22 24
Profit / (Loss) 3.22 -2.17 1.22
Particulars Basis of distribution Lip-balm Lip stick Lip-gloss
Receiving orders Cost Deliveries received 13636.36 13636.36 27,27.27
Set up cost Total set up 14
56%
67200
10
40%
48000
1
4%
4800
Cost of Machine Total Machine hours 140,000hr.
33,455.88
120,000 hr.
28,676.47
12,000 hr.
2867.64
Cost of despatch orders Orders despatched 20
40%
6000
20
40%
6000
10
20%
3000
Total overhead cost per
product
119850 96100 14050
Total Units produced 35000 30000 3000
Overhead rate/ per unit 3.44 3.210 4.46
Cost of DM 10 5 10
Cost of DL 10 15 10
Cost Per unit 23.44 23.21 24.46
Selling price 26 22 24
Profit / (Loss) 2.56 (1.21) (0.46)

D) Sensitivity analysis role in uncertainties
Sensitivity analysis is a financial model that determine how target variables are affected
based on the changes in input variables. This entire model is based on the uncertainties exist in
the market. As this model coverall factors impact over the outcome decision making is
conducted with the support of different variables. This model allows the management to identify
all the potential direct and indirect factors impact over the business operations and also over the
decision making. This tool further supports the management to deal with the uncertainties of
market situation. Business environment contain volatile nature that favor to plenty of uncertain
factor influence business activity of organization (Wang, Luo and Fan, 2020). Many elements are
precisely covered by this model like interest rate, market fluctuation and certain other elements
influence overall business activity of organization. The key advantage of this model is in form of
decision making.
Question: 2
i) Material usage Variance = (Standard quantity [SQ] – Actual quantity [AQ]) * Standard
price [SP]
For producing 4600 kg of output, standard quantity of three ingredients will be as follows:
Ingredients Standard quantity of 100
kg
Standard quantity of
4600 kg
Actual quantity
Alpha 40 1840 2200
Beta 60 2760 2500
Gamma 20 920 920
Total 120 5520 5620
Calculating usage variance,
SQ – AQ * SP
Alpha = 1840 – 2200 = 360 * 2 = 720 A
Beta = 2760 – 2500 = 260 * 5 = 1300 F
Gamma = 920 – 920 = 0 * 1 = 0
Total of variance = 1300 – 720 = 580 F

ii) Material mix variance = (Revised Standard Quantity [RSQ] – Actual Quantity [AQ]) *
Standard price [SP]
Calculating revised standard quantity for each three ingredients,
Ingredients Standard quantity of
100 kg
Actual quantity of
standard mix
Actual quantity of
actual mix
Alpha 40 40 / 120 * 5620 =
1873.33
2200
Beta 60 60 / 120 * 5620 =
2810
2500
Gamma 20 20 / 120 * 5620 =
936.67
920
Total 120 5620 5620
Calculating mix variance,
RSQ – AQ * SP
Alpha = 1873.33 – 2200 = (326.67) * 2 = 653.34 A
Beta = 2810 – 2500 = 310 * 5 = 1550 F
Gamma = 936.67 – 920 = 16.67 * 1 = 16.67 F
Total of variance = 913.33 F
iii) Material Yield Variance = (Standard Quantity [SQ] – Revised Standard Quantity [RSQ]) *
Standard Price [SP]
Particulars Standard
quantity of
4600 kg
Actual
quantity of
standard mix
Difference Standard rate /
kg
Variance
Alpha 1840 1873.33 33.33 A 2 66.66 A

Beta 2760 2810 50 A 5 250 A
Gamma 920 936.67 16.67 A 1 16.67 A
Total 5520 5620 333.33 A
b) Standard costing system refers to the technique where initially standards has been set by the
finance department and then the variations are calculated to determine the difference between
actual and standard performance (Paul, 2020). Here, in case of Kappa Co., where finance
department has a responsibility of setting various standards for the production of omega as they
have adopted the standard costing system; the various issue associated with the present system
are as follows:
 Firstly they are using five-year old standards which are not updated standards for
comparing with the current level of production activity.
 Secondly purchasing manager is actually responsible for all the variances that is
occurring in the current scenario, as the production manager can't hold responsible for
anything which is not under his control.
 Also, production manager never get involved in the decision-making activity where such
standard mix are determined, as such decisions are taken by finance department, so
without taking or considering production manager's views in these regards, the standards
would definitely be vague, as finance department may have less knowledge of actual
quantity and costs which is actually the concern of production manager who directly
associated with production activity (Drury,2018).
 Continuously changing price and quality requires continuous revision of standards which
is not at all considered here, which is an important factor responsible for causing
variances.
 Due to all these issues associated with the current system adopted by Kappa Co., there is
lacking of true picture which is important for assessing production manager's
performance. And these factors are not favourable for the overall performance of Kappa
Co.

Question: 3
Planning coordination and control
Budgeting is an important part of business as it covers system for planning, coordination
and control for management. Budgeting further create a huge challenge especially in case of big
organization where the final objectives of business entity is difficult to define in a quantifiable
way. Many intellectuals and professionals denied the use of ZBB technique of budgeting. They
predicted that this technique is more time consuming one for preparing budget in the
organization. Paper work is huge in this technique for the entity (Abor, 2017). It is precisely
stated that this technique is more helpful in short run but in longer context this technique does
not look suitable for the business. This technique further identified as resource intensive.
Incremental budgeting technique is also unflavored by many professionals on the ground that
this method does not favor to innovation. External factors of business do not consider efficiently
under this technique for making decision. Hence, on the ground of above mentioned factors both
these methods are unaccepted to use by professionals for planning coordination and control.

REFERENCES
Books and journals
Paul, D. D., 2020. STANDARD COSTING AND ABC: A COEXISTENCE. Strategic
Finance, 101(11), pp.32-39.
Drury, C., 2018.Cost and management accounting. Cengage Learning.
Fourie, H., Reynolds, A. and Erasmus, L., 2018. A framework for time-driven activity-based
costing implementation at small and medium enterprises. The Southern African
Journal of Entrepreneurship and Small Business Management. 10(1). pp.1-11.
Wang, S., Luo, K. and Fan, J., 2020. CFD-DEM coupled with thermochemical sub-models for
biomass gasification: Validation and sensitivity analysis. Chemical Engineering
Science. 217. p.115550.
Abor, J. Y., 2017. Evaluating Capital Investment Decisions: Capital Budgeting.
In Entrepreneurial Finance for MSMEs (pp. 293-320). Palgrave Macmillan, Cham.
1