What recommendations would you make to the owners for improving profitability of the departments?

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Analyse the above data and comment on the profitability of Unfocused Books’ three departments


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Question 1.

The financial statements of Voyager Productions Ltd are shown below:


a. Calculate the following ratios for both years and comment on what the results say about the company’s financial performance and position. [ENSURE YOU SHOW YOUR CALCULATIONS]:
i. Return on investment (ROI)
ii. Return on capital employed (ROCE)
iii. Operating margin
iv. Gross margin
v. Sales growth
vi. Working capital to sales
vii. Gearing
viii. Asset turnover


b. Explain the purpose of each measure, who would be the most likely users of each measure and what decisions that would likely make using each measure.


Question 2.

Corollary Ltd is a stock exchange listed company that manufactures and sells office furniture to business customers. A ratio analysis of its Income Statement and Balance Sheet over the last four years has identified the following trends:


a. Explain how ratio analysis can be used to interpret business performance, with an emphasis on the different types of ratios that can be used.

b. Use the above ratios to explain the strengths and weaknesses of the financial performance of Corollary Ltd over the last four years.

c. Outline the limitations of ratio analysis and explain what, if any, additional information should be sought in order to improve the interpretation of ratios.


Question 3.

Unfocused Books is a discount retail bookshop that has three departments: fiction, non-fiction and children’s books. Sales and cost of sales for each department are shown below. In addition, each department has its own fixed
costs for staffing and takes a one-third share of rental and management costs for the Bookshop as a whole.

a. Analyse the above data and comment on the profitability of Unfocused Books’ three departments.

b. What recommendations would you make to the owners for improving profitability of the departments? Ensure you consider and discuss all options available and recommend your preferred option.


Question 4.

Greentown Industries sells its transport services at a range of prices to five different customer groups. The company has fixed costs of $150,000 per year. The average variable costs for each transport service, irrespective of customer
group, is $7. The Table below shows the prices charged to each customer group and the quantity of transport services that are currently sold at that price.

a. If the average selling price is $21, calculate the breakeven point in quantity and money terms and draw a rough sketch of a costvolume- profit (CVP) graph that shows the relationships between the elements of CVP.

b. Ignoring any market demand or capacity limitations, calculate the optimum selling price for Greentown Industries and identify which customer group is most profitable.


Use the following information to answer part (c)

Assume that the maximum market demand for each customer group is 20,000 transport services at the same price as currently charged (see Table above). Also assume that Greentown’s capacity limitation is 60,000 transport services.

c. Based on the calculation of optimum selling prices in (b) above but with the capacity and demand assumptions taken into consideration, calculate the maximum profits that Greentown can earn and the customer mix and quantity by which that profit can be achieved.

d. Explain other pricing approaches Greentown Industries could consider and why you think they would or would not be applicable.


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