Term Paper on "International Accounting and Finance"

Term Paper 3 pages (1057 words) Sources: 1

[EXCERPT] . . . .

Accounting and Finance

The budget profit statement for March 2011of Holloway Ltd. is as follows:

Output (Sales & Production)

Calculation

Sales revenue (5000 units)

£5 x 5000

Materials (2830 kg)

£3 x 2830

Labour (1300 hours)

£5x 1300

Fixed overheads

Actual Profit

The results of the budget profit statement for the March 2011 are difference from the actual results that the company recorded for March, 2011. Based on the difference between the budgeted profit statement and actual results for March, 2011, the paper provides the variance.

Variance explains the differences between the actual and budgeted results for March, 2011.

Budget

Actual

Variance (Favorable)

Output (Sales & Production)

5000 units

5400 units

400 units

Sales revenue

25,000

26,460

1,460

Materials (2830 kg)

8,490

8,770

Labour (1300 hours)

6,500

6,885

Fixed overheads

6,000

6,350

Actual Profit

£ 4,010

£4,455



£445

Based on the figure above, it is revealed that Holloway Ltd. recorded a favorable variance in March, 2011 because the company recorded the increase in the profits for March, 2011. Typically, the budgeted profits for March, 2011 was £4,010, however, the actual profits that the company made was £4, 455 revealing favorable variance for the company profits in March 2011. The company recorded favorable variance of £445 in profit.

The company was able to record a favorable variance for the profits because the budgeted sales was 5,000 units at £5 per unit while the actual sales were 5,400 units £5 per unit making the company to record a favorable variance of sales revenue of £1,460. There also a variance in material. The material budgeted was £8,490, however, the company recorded actual results of £8,770 revealing variance of £280. The variance in labor was also £385.

Answer to Question 2

I. Current Ratio

Current ratio provides the liquid assets that a company could be readily turn into cash. Formula to calculate current ratio is as follows:

Current Ratio= Current Assets / Current Liabilities

The Jameson plc current ratio is as follows:

2009= 65,121,000/24,716,000

2009=2.63

2010=70,169,000/24,045,000

2010= 2.92

Acid test

Acid test is similar to current ratio. However, acid test reveals a more stringent form of liquidity because it is generally being argued that inventory could not be easily converted into cash.

Formula:

Acid Test = "Current Assets (excluding inventories) / Current Liabilities"

2009= (65,121,000- 9,172,000) / 24,716,000

2009=2.2

2010= (70,169,000- 9,211,000) / 24,045,000

2010=2.53

III. Return on Capital Employed (ROCE)

Return on Capital Employed measures returns that a company generates from capital.

Formula to calculate ROCE is as follows:

ROCE = "Profit before Interest, Tax and Dividends / (Total assets - Current Liabilities) x 100"

2009= 15,629,000 / (108,036,000-24,716,000) x100

2009=18.76%

2010= 17,381,000 / (110,878,000 -24,045,000) x100

2010= 20.01%

Gross profit margin

Gross profit margin is calculated by dividing Gross Profit by Revenue.

Formula

Gross Profit Margin= Gross Profit / Revenue x 100

2009= 63,493,000 / 127,222,000 x 100

2009=49.9%

2010= 65,362,000/128,760,000 x100

2010= 50.7%

Operating Profit Margin

Operating profit margin is being calculated by dividing operating profits by revenue.

Formula: Operating Profit / Revenue

2009 = 15,629,000 / 127,222,000

2009= 12.28%

2010=16,407,000/128,760,000

2010= 12.74%

Inventory Holding Period

Formula for Inventory Holding Period is as follows:

Inventory Holding Period = (inventory… READ MORE

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