ACCT11059
USING ACCOUNTING FOR DECISION MAKING
ASSIGNMENT 2
NAME: Ian Eisenhuth STUDENT ID: s0274317
Step 1: Chapter 4
KCQ’s
Chapter 4: ‘Analysing
financial statements’
‘Capital
markets’… Insert chapter reading notes
Step 2: Restated Financial
Statements
Commentary: I began with
restating the statement of changes in equity only to realise I was a little
unsure as to where to begin with it all. After going back through the chapter
reading I decided to start with restating my firm Salmats statement of
financial position. I initially misunderstood what was required with this task
as I took all of the current assets from this financial statement and put them
in the spreadsheet as operating assets, I put all the non-current assets in the
spreadsheet as financial assets, all the current liabilities in the spreadsheet
as operating liabilities and I put all the non-current liabilities in the
spreadsheet as financial liabilities. Upon completion I realised something
definitely wasn’t right. I decided to email Martin my spreadsheet and asked him
for some guidance. He pointed out one error I had, which was putting ‘borrowings’ under operating obligation
rather than a financial one. He also suggested I liase with students on the
Facebook page and the forum on Moodle because I had quite a bit of work to do
on m spreadsheet. I decide to go back through the chapter reading and it was
then everything kind of clicked and I realised I had made many other errors. In
fact I had pretty much done the restating wrong from start to finish.
I took a step back and spent quite some time going through each
individual item on the Salmat’s statement of financial position and referred to
the notes in their annual reports in order to fully understand what each item
was. I also googled some of the items/categories to get a better understanding
of what these were. After doing this it became clear to me that if I had of
been that thorough from the beginning this task of restating their financial
position would have been a hell of a lot easier and less frustrating, confusing
and stressful for me.
Upon finishing restating Salmat’s financial position I realised that for
the year 2013 my Total Net Financial
Obligations (NFO) + Equity didn’t equal my Net Operating Assets (NOA)
as it should have. After referring back to their financial statement and going
over all the numbers I realised my ‘trade
and other payable’ for 2013 was entered incorrectly as 58,808 rather than
59,808. After changing this value all my spreadsheet recalculated and my Total NFO + Equity = NOA. J
Because I had trouble with restating the statement of changes in equity
on my first attempt I decided to go through the ASS2 student forum on Moodle
and the Facebook group page to get some hints and ideas as to how other
students had attacked and managed this task. It was on the Facebook group page
I came across a very helpful post from Tash Muller. She added a link to one of
the lecture videos whereby the lecturer Maria Tyler went through ASS2 step by
step offering tips and hints along the way. After watching this video it became
much clearer as to what was required of me in restating the statement of changes
in equity. A task, which surprising in the end was quite easy and involved me
having to make very few changes to it at all.
I found the final task of restating Salmat’s financial performance to be
a lot more challenging than that of the statement of changes in equity and the
statement of financial position. I spent quite a lot of time going over Martins
example in the chapter reading to help me get my head around it all. After
understanding his Ryman Healthcare example I made a start on my own but found
it rather challenging and confusing. I decided to take a break from it all and
by chance later that day I saw an ex personal training client of mine on the
street. After some small talk of telling each other how we had been he asked me
what I was doing with myself these days. I mentioned the study I was doing and
this assignment I was currently working on. After I spoke of my troubles with
the assignment and being a fund manager he offered to have a quick look at it
for me and offer some guidance where he could. Even though he wasn’t 100% sure
of everything he told me his thoughts on how he interpreted the task and which
items he saw as ‘operating’ and ‘financing’. I found this to be of great
help and the little kicker I needed to get the ball rolling and restate the
financial performance of m firm Salmat. From here I proceeded fill out my
spreadsheet with all the different categories I needed which seemed fairly
straight forward. The only little hiccup I had was finding the interest
received in order to calculate their tax benefit as this figure was no where to
be seen on Salmat’s statement of comprehensive income. After looking back
through their annual report and the note section (note 3) I found they had
itemised their revenue and had the value of each year’s interest received only
it was labeled as ‘finance income’.
Once I had this I found it was just a matter of punching numbers into the
spreadsheet and following the formula Martin gave in the chapter notes to
calculate the tax benefit. This involved me working out Salmat’s ‘net interest expense’. I did this by
adding their ‘financial expenses’ and
‘financial income’ and then
multiplying the net interest expense by 0.3. I used 0.3 because being an
Australian Company their tax rate is 30%.
Step 3: Identify 3 products
or services of firm and estimate selling price and variable cost
Even though my firm Salmat’s Annual Reports does have segment
information, this segment information does not contain details on individual
product lines or services. It merely displays costs allocated for geographical
and major areas so for the purpose of this assignment I have made assumptions
about the pricing and various costs involved in some of the products and
services they offer.
1. SMS
marketing for retailers like Mitre 10 Hardware
Selling price: $1.50 per SMS
Variable cost: IT costs-30%, cost of line rental-30%, and people
costs-15%
Contribution margin*: 15% or 22.5 cents per SMS
2. Traditional
direct mail of catalogues and brochures
Selling price: $ 1 per brochure
Variable cost: cost of materials-30%, property rental-10%, printing
costs-40%, people costs/wages-15%
Contribution margin*: 5% or 5 cents per brochure sold
3. Speech
recognition based call booking for clients like Auckland Taxi Services
Selling price: $1 per min/call
Variable cost: IT costs/software enhancements-20%, people
costs/wages-15%, Office costs-10%, cost of line rental-30%
Contribution margin*: 15% or 15 cents/min per call.
*Contribution Margin = Sales
– Variable Costs
- Discuss how contribution margins might
differ or be similar
I feel like the contribution margins for the SMS marketing and the
speech recognition services would be similar as they are very similar services,
which have similar variable costs. The contribution margin for the brochures on
the other hand could be lower because this service is more of a commodity so it
is harder to set a price and extract a profit.
- Why might your firm produce a
range of products/services with different contribution margins? Why not only
produce the one with the highest contribution margin?
Some benefits of Salmat offering these different products/services with
different contribution margins could not only be for them to potentially gain
greater exposure and be open to a broader market but for them to maximize their
profits and share the costs of the business over a greater area. For example
the head office or CEO costs can be spread across the various departments or product/service
areas. The reason behind producing services with different contribution margins
and not just the one with the highest contribution margin would be in order for
the to maximise profits across the company as a whole.
- Identify one or more resource constraint
and any market constraints you feel may impinge firm.
I feel the brochure service they offer may be susceptible to resource
constraints. This mainly being due to the fact that with aging technology
people are increasingly using brochures as a form of marketing and advertising
less and less. People seem to respond better to marketing and advertising
through other resources such as television and social media. Social media may
also act as a constraint on this area of Salmat’s business as people use it as
a way of promoting and marketing their businesses. Not only is this a free
service but it is a much more cost effective and efficient way to get a message
across and can reach a much broader audience in much quicker time frame when
compared to the distribution of brochures.
The speech recognition based call service for Auckland Taxis Salmat
offer may have some constraints in that being based in another country it may
require the company to pay to send people from Australia over to monitor and
gauge the performance of the business. They would also have to consider and
have the constraint of dealing with a different currency and having to manage
currency risk.
- What ways might these constraints be
relevant when deciding whether or not (or how much) these 3 products should
produce or sell?
These constraints would be relevant in that they would have to weigh up
the cost of say producing the brochures and contribution margins they receive.
Technological advances and other more effective ways of advertising and
marketing (ie social media) will probably see more and more businesses move
away catalogue and brochure distribution so Salmat would then have to determine
if keeping this aspect/department of their company open is a profitable one. This
would be the same for the speech recognition service they offer. They would
have to manage the different currencies and the currency risk involved and
determine is running an overseas service is a profitable and worthwhile
business decision. Along with this Salmat would continually have to look at the
variable costs involved and contribution margins of all the services they
provide to determine how they are performing (ie how many are being sold or
used) and whether or not they are making sufficient profits in keeping those
aspects of the business running.
Step 4:
Feedback for ASS#2 drafts
STUDENT #1:
STUDENT #2:
STUDENT #3:
