Financial Analysis of Cost for Golf Equipment Company Report

This report provides a detailed cost and financial analysis for a golf equipment company. It begins with a depreciation adjustment analysis, using the reducing balance method to calculate depreciation on initial investments in infrastructure and accessories. The report then addresses overhead recovery and allotment, detailing the allocation of factory overheads such as rent, depreciation, indirect materials, and labor across assembly and finishing departments. The analysis includes a breakdown of overhead allocation based on various factors like area, hours consumed, and machine value, followed by the identification of a market research budget, outlining the steps and considerations for setting an appropriate budget of $8000 for a new product range. Finally, the report explains the meaning and calculation of financing costs, covering interest, loan charges, and the factors involved in different financing scenarios like mortgages and car loans. The report emphasizes various aspects of financial decisions, including costs, interest rates, and repayment strategies.

COST AND ANALYSIS

TABLE OF CONTENTS
Question 1........................................................................................................................................3
1.1 Depreciation adjustment........................................................................................................3
1.2 Overhead recovery and allotment.........................................................................................4
1.3 Identifying market research budget.......................................................................................6
1.4 Meaning of Financing costs and its calculation....................................................................7
Question 2........................................................................................................................................9
Supply and demand analysis and explanation to consumer and producer surplus.....................9
REFERENCES..............................................................................................................................15

Question 1
1.1 Depreciation adjustment
The present scenario is giving description about marketing manager of a manufacturer of
golf equipment, as for increasing growth and production proposal was planned but there was
absence of some adjustments which are mandatory for accomplishing goals and objectives. In the
below mentioned illustration 100000 has been taken as assumption as initial investment which
has discounting payback of 30% DCF return. In the specific case, it has invested in its
infrastructure, basic utilities, coach and its accessories which had generated approximate cost of
$100000. It had created policy in which its investment had been depreciated for 3 year by 25%
on basis of reducing balance method as its pay back period is been analysed as 30% along with
discounting cash flow return.
Discounted cash flow 30.00%
Initial investment (Assumption) 100000
Depreciation 25.00%
It has been assumed that 100000 is an initial investment for this specific golf company. In
this specific reducing balance method, it had charged depreciation on fixed rate as it is also
considered as method of fixed installment. Its depreciation will be calculated on asset's book
value which is obtained by reducing depreciation from its cost. Usually book value decreases on
aspect of charging depreciation (Walras, 2013). The rate percent of depreciation is applicable on
decreasing asset's balance as it is also termed as diminishing or reducing balance method. The
depreciation has been calculated in this specific method has been elaborated below:
Year Cost of asset 100000
Depreciation
1 Less: 25% of 100000 -25000
Book value 75000
2 Less: 25% of 75000 -18750
Book value 56250
3 Less: 25% of 56250 -14062.5
Book value 42187.5

In the reducing method, amount of depreciation is not always same, it gradually
decreases. While buying its accessories, it had also purchased various assets with long life such
as plant and machinery, clubs, furniture etc. are depreciated in this specific scenario. In this
method, real cost of its applicability of asset is amount of depreciation along with repair
expenses as it provides outcome in very efficient manner due to less repair expenses and on
contrary side, more depreciation. If assets gets repair charges in older aspect then it will
gradually increase and depreciation will decrease. The aggregate effect of this specific cost ob
both will be constant on income statement of every year. The limitation of this method can be
stated that huge time will be taken for writing off a specific asset as it might become nil if high
rate of interest is not applied.
The formula for calculating rate of depreciation plays very important role in this method:
r = 1 – (S/C)^1*/n
r = Depreciation rate
n = Useful life of asset
S = Residual value
C = Asset's original cost
1.2 Overhead recovery and allotment
Overhead is replicated as cost which is unavoidable in both production and service
oriented business. The direct cost such as wages of employee and materials which can be
applicable on delivery of production and service as well. For recovering most of indirect expense
is to incorporate all cost of overhead in terms of factory products and services strategy of pricing.
The below table is giving brief description about allocation of its overheads along with its
overheads recovery rate in context of direct production cost.
Assumption Budgeted cost Amount
Factory rent 75000
Depreciation 42187
Indirect materials 85000
Direct labour 125000

Electricity expense 50000
Indirect labour 55000
All the above expenses are taken in assumption in context of golf company, in which
depreciation amount has been extracted from question 1 on basis of reducing method. The below
table is depicting segregating portion of assembly and finishing overheads of factory in context
of all factory overheads. The value of machine has been taken from assumption number 1 in 1 st
question. The number of employees are 85 in which 354 are contributing in assembly and rest in
finishing. There is also representation of budgeted indirect labour and material which is allocated
in very appropriate manner. The below mentioned chart is depicting proportion in each head.
Assumption Assembly Finishing Total
Area 15000 20000 35000
Hours consumed 20000 30000 50000
Machine value 60000 40000 100000
Employees 35 50 85
Hours of direct labour 22000 28000 50000
Budgeted indirect material 40000 45000 85000
Budgeted indirect labour 22000 33000 55000
In the same series, there is now representation of overhead analysis sheet which has been
properly analysed by given working note. The major contribution has been gained nu indirect
material which is of 85000 as an overhead (Overhead recovery, 2018.). The most important
concept which had been analysed that direct labour is not considered as an overhead so cost has
not been allocated in given table.
Overhead analysis sheet
Overhead Basis of allotment Assembly Finishing Total
Indirect material W. N 1 40000 45000 85000
Factory rent W. N 2 32142.85 42857.14 75000
Direct labour W. N 3
Electricity expense W. N 4 20000 30000 50000

Depreciation W. N 5 25312.2 16874.8 42187
Indirect labour W. N 6 22000 33000 55000
Working
note
1 Directly allocated to specific department
2 Rent 75000
Total occupied area 35000
Assembly 32142.85
Finishing 42857.14
3
It is not considered as an overhead so it will be not
allocated
4 Total electricity cost 50000
Total hours consumed 50000
Assembly 20000
Finishing 30000
5 Depreciation
Total depreciation 42187
Total value of machine 100000
Assembly 25312.2
Finishing 16874.8
6 Directly allocated to specific department
Recovery of factory overheads
Assembly Finishing Total
Total overheads cost 139455 167731 307186
Employees 57422.64 98665.29 156087.94
Sub total 196877.64 266396.29

In the above table factory overheads are recovered on basis of cost which has been
allocated above. In the above scenario assembly recovery rate has been identified as 60% then its
sub total will be directly multiplied then organization will be able to get addition in 118126
which has been incurred in context of overhead and it will operate in very normal capacity. And
in same series, finishing overheads recovery rate is 40% then it will get 106558 as recovery
amount.
1.3 Identifying market research budget
In the context of launching any organization which is small or big then there is
requirement of identifying budget for market research which has been considered. In the same
series there are various factors for considering and setting a budget in very appropriate manner in
which it will be having ability for meeting its requirement but not with over spending. In this
scenario $8000 has to be charged for project of marketing research which should be able to
conducted for assessing market size for specific new range. It should be applicable by following
these 4 steps:
 Overall budget should be considered: It is considered as initial step for identifying
market research budget and allocating it properly. If this has been set properly then
appropriate allocation of percentage of specific budget to that market research. For
identifying amount of percentage next three steps are mandatory as an overall budget.
 Available research for taking financial decisions: As it is said that, one amount of
budget is not fit for every department. There is presence of massive amount which is
helpful in syndicating research among all types of topics. The most important step is to
set budget on realistic mode as inventory research is already published but commission
should be considered for creating custom research.
 If there is presence of customised budget then preparation of budget should be
accordingly: If all answers are not present in syndicate reports then it will be providing
significance to considering budget. As there is requirement of commission for custom
research then budget should be adjusted accordingly. There is always presence of projects
in customised manner and its process will be termed as very time consuming. If
expenditure are greater in market research i.e. more than $8000 then it will be incurring
its benefits in very substantial aspect. The customised reports are designed in such

manner as they provide very specific and particular answers to questions and it will be
helping in receiving detailed and extensive as per requirement.
 Understanding on basis of cost which is expected and information which has been
obtained: The biggest investment is considered as a market as it considers all pros and
cons of entering in industry, it competitors and so on. It should be determined in both
aspect time and money as well. If there is requirement to dive into blindly then there is
need for educating themselves on basis of realistic expectations on which report range
has been justified, its knowledge will be leafing toward perfect market research report
and for that there is need of budget.
1.4 Meaning of Financing costs and its calculation
Financing cost is also known as cost of finance which is related to interest, cost and other
charges that are required to be fulfilled by the company. The involvement is generally in the
form of borrowing of money with the aim to purchase or build a particular asset. There are
various other costs that are required to be settled down by the individual or an entity, which can
be inclusive of taking finances to mortgage a house, financing a car loan through bank or initiate
finances for student loan as well. Cost may comprise of interest on loan, bank overdraft charges,
etc. There are other expenses as well, that are present and associated to security of funds or
business management, such as, financing fees and interest payments charged by intermediary
financial institutions. The individual or enterprise involved in it, are required to fulfil these
requirements (Canto, Joines and Laffer, 2014).
The overall cost of financing a mortgage is quite different from financing a small loan for
any type of asset, having lower value. With most of the loans, one has to pay back the principle
with that of interest and amount borrowed. The payment of interest is generally made monthly or
yearly. A down payment or initial payment is required to be made. Further, as one individual or
the corporation reaches to the end of repayment period, it is then switched to paying most of the
principal in that period. There is other cost of financing a mortgage in paid, such as, closing fees,
interest charges as well as escrow charges.
In case of smaller purchases, such as, vehicles, a set amount of payment is required to be
made each month and only a small amount of interest is required to be paid, which is generally
called as simple interest loan (Dosi, Pereira and Virgillito, 2018). The interest that is paid on
vehicle is based on Annual Percentage Rate (APR). It is the set month amount which is required

to be paid each month. So, as to perform this function, annual payment is divided on monthly
basis where interest and principle amount is paid by the individual who have indulged in taking
loan. There is certain car loan which can be paid off faster, without any type of penalties.
However, there are certain others who believe that the amount must be paid in set number of
years. Further, borrower sometimes also get the option of extending the term loan, as per the
suitability, but ultimate decision lies in the hands of loan payer. One can also opt for lower
monthly payment with overall longer term which increases overall amount of interest to be paid
in the end.
Every company requires capital to conduct the business. It is generally contributed either by
the shareholders or promoters of the company in the form of equity or preference share capital.
Under ideal condition, prudent decisions are made by the management where a mix of equity and
debt is initiated. It is not required to be returned to the one who invested in the particular period.
Rather, one can opt for giving away the invested amount in the form of interest, as and when
entity tends to generate profits (Fernández-Villaverde, Guerrón-Quintana and Rubio-Ramírez,
2014).
There is belief that, finance cost is only applicable to debt capital. However, it is important
for the accountants to opt for accounting norms and analyse that through what methods they
issue cost of finance for the company. It helps them in ensuring that finance cost is appropriately
captured as per the stated accounting norms. Issue of number of share can be enhanced as per
increased requirements of Annual investment when the company may be planning for expansion.
It helps in ensuring that all the important functions of the company have been fulfilled and
investment made in it. It will help the company to move towards growth and stability for longer
period so that aim and objectives of the entity can be fulfilled (Guerzoni and Raiteri, 2015).
There are various types of costs that are included in finance cost. These are, amortization of
discounts or other premium that are directly or indirectly related to borrowings. Further,
amortization with respect to ancillary cost can also be incurred in relation with connection with
borrowings or arrangements. Finance charges with respect to finance leases are also included in
the charges related to cost of borrowing. Difference in exchange rate of currency is related to
other charges as well as it can be the exchange rates involved in in converting from one
exchange rate to the other (Murfin, 2012). There can be two types of accounting treatment that

can related to finance cost, which is included under, IAS 23, Borrowing Cost. These are
mentioned as under:
The preferable treatment can be recognizing fiancé cost as an expense in the period in which it
has bee incurred. When this treatment is actually recognized and used, then in that case, it must
be stated as an expense in the financial statements regardless of the fact that show I has been
applied.
There is alternative treatment available which is related to finance cost where the organization or
individual can opt for capitalising it if it is the part of production, construction or acquisition
related to quantifying of asset. In all the cases, it is not allowed to capitalise the cost. Rather, it
will only be included in the case, where, it will result in to generation of future economic
benefits for the company. The reliability of the same is required to be measured before
capitalizing it.
Question 2
Supply and demand analysis and explanation to consumer and producer surplus
Supply-and-demand
Supply is a fundamental economic concept that helps in describing total amount of
specific goods and services that is made available to the consumer. It can be related to amount
available that is available at specific price or it can also be available across a range of prices, if it
gets the chance to be displayed on a graph. The concept is closely related to demand available in
the market for specific goods and services at specific prices. The overall supply provided by the
supplier will rise if there is any increase in demand aspects of the company. It helps in enhancing
overall profitability aspects of the business (Pieper, Mkandawire and Van der Hoeven, 2016).
Supply and demand are the two common trends of overall modern economy. Although
each and every goods and service can have their own patterns of demand and supply which is
based on personal preference, prices and utility. As and when there is any increase in supply
aspects, the prices tend to fall, there is equal increase in demand as well, which helps in reaching
to supply equals demand aspect. It helps in enhancing consumer utility and overall profitability
of the producer can also be maximized.
The concept of demand and supply is quite complex in nature, where, practical
applications and contributing factors attached to it are taken into consideration. Supply can then
be referred to as, anything which is in demand at competitive marketplace. If there is any

increase in prices of goods, then it will also help in enhancing supply aspect from the side of
producers as well. It is also significant to understand that there is high dependence of demand
factor, when it comes to supply for particular product and services. Also, market expectations
tend to define the area in which demand and supply factor is required to be made by the
organization for its better output (Curme and et.al., 2014).
The concept of demand and supply is related to macroeconomics, where, supply and
equation formula has been developed by the researcher so as to come up with appropriate
relationship between demand and supply. There are various factors that can have impact on it.
These are, inflation rate, interest rates and other market influences. A supply and demand curve
is responsible for addressing the relationship better price of goods and quantity supplied or
demanded. The information can be gathered with the help of movement along the supply and
demand curve and shift in demand or supply curve.
The law of demand and supply is considered to be one of the fundamental concepts of
economics as it is said to be backbone of economy. Demand is referred to how much / many
quantity of products and services are desired or required by the individual. Quantity demanded is
the number of product that people are willing to buy at certain specified prices. The relationship
established between price and quantity demanded helps in defining demand relationship between
he two. Changes in any of the two factors initiate alteration in overall demand aspects as well.
Supply is the representation of how much amount the market can actually offer (Hall and
Lieberman, 2012). Supply relationship can be defined as quantity supplies and price of the
products offered for sale.
Law of demand helps in stating the relationship between quantity demanded and Prices.
As and when there is increase in prices, there is adequate decrease in quantity demanded by the
customers. On the other hand, a decrease in prices leads to bring elevation in quantity demanded.
It is quite natural and human nature, that, people will avoid buying those products that will force
them to forgo consumption of products that may value more.

Law of supply is also present, which helps in demonstrating supply aspects of quantities
which can affect certain prices at which the product is actually sold. It can be stated that with an
increase in overall prices, there will be increase in number of quantities supplied in the market.
Hence, any increase in supply will thereby increase in prices of quantity demanded. Producers
tend to supply more when prices are higher with the hope of earning increased revenues
(Ljungqvist and Sargent, 2012).
Unlike demand relationship, supply relationship is related to time. Whether any type of
changes in prices will bring temporary and permanent changes in demand and supply aspect of
product and services or not.
When demand and supply aspects are equal, then in that case, the economy is said to be
at equilibrium state. At this point, it is important to have effective allocating of goods and