Financial Services: Preparing Financial Forecasts

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1. Introduction2
2. Tricol Plc Flexed budged2
3. The calculation of the variances and the variance rate2
4. Variance analysis and report3
5. Recommendation4
6. Analysis of two investment appraisal technique5
Assumption5
7. Calculation of net present value5
8. Calculation of the payback period method6
9. Recommendation for investment decision6
10. Consideration of other factors that management should consider7 11. Conclusion7

1. Introduction

This report for Tricol plc which is now considering the development of its own distribution arm involved the interrelated issue about the investment appraisal. It includes 4 parts, assumptions, application of payback period and NPV, evaluation and recommendation and other factors to be considered, which could has important significance for assessing the rationalization of investment.

2. Tricol Plc Flexed budged

It shows the Appendix 1.

3. The calculation of the variances and the variance rate

It shows the Appendix 2.

4. Variance analysis and report

Considering the policy of Tricol plc, the criterion that need to analyse the variance is more than a rate of significance of 3%, as a result, it need to analyse all variances.

Based on the information above, the variance of this company is adverse in June, there are some reasons which caused of this situation, including these below:

• Based on the upgraded the production machinery of Tricol plc, it improved the material usage which can saving large amount of material of about 800kg. At the same time, due to employees of the company who can not operate the new machines masterly to produce a product, then the time of produce a products will require more than the original hours for 12 minutes, the time changes from 3200 hours to 3520 hours. The changeable of the machine have made some adverse result for the company.

• According to switched suppliers of Tricol plc currently, it is using the higher-grade material now, moreover the material price must increase from original £10 per kg to £11 per kg. But the higher-grade material can save the amount for this products, even the price for ont unit is increased, the cost of direct material is still favorable for this company.

• With the updated machines, this company need to provide the higher grade workforces and employeed higher-grade employees. Also Tricol plc has recently concluded a higher-than-expected wage settlement for production operations. That made the labour rate become £10 per hour, which is higher than standard labour rate for £1 per hour. In a conclusion, the cost of direct labour is adverse for this company.

• Seeing on overhead, caused by the difficult trade condition, this company need to pay much more money on products' promotion, and the insurance is rising. These reasons must caused insurance cost and administration cost increased for £200, so this company will has £400 adverse.

5. Recommendation

To sum up, the company's actual spending is much higher than the standard spending, in order to change this situation, it has some recoomendation for Tricol plc.

• Improve the labour efficiency may be a good solution for the adverse situation. Because the variance of direct labour is main problem, and the employees spend much more time to produce a product. As a result this company can provide some training classes for them to improve their skill and knowledge about using upgraded machines and materials, then they can operate the new machineries easily to save the time and money.

• Use inferior quality materials. Because the high price of the high quality material will lead this company can not achieve the target standard for the difficult trade condition, which may result in a large number of stocks and then the cash flow will appeared some problem too.

• Reduce labour rate, this company can employ some lower grade workforce, so this...
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