Management Accounting Data in Business decision making - Learning Space PLC

Main objective: To demonstrate an understanding of the use of management accounting data in business decision making and to communicate that understanding in a professional manner using PowerPoint format.

Assessment description: Imagine you are a new graduate employed on a management training programme with a large company, producing educational toys, called Learning Space PLC. You are currently working in the management accounting section of the Finance Department, working on some budgeted figures of two proposed new products; a plastic toy called My Glittery Unicorn and an educational game, ‘How does your Garden Grow.’ Your company wants to invest in the equipment needed to produce a new toy for this session’s Christmas toy market, but it only has £7,000,000 of available capital to invest and so only one product can be chosen. Production will begin in June 2021 and Sales to retail customers will cease in December 2021.

Your manager, Mr Ahmed, has asked you to create a PowerPoint presentation to a maximum of 15 slides and include information on: The profitability, the cashflow implications and the investment return of both products. 

80% of ‘My Glittery Unicorn’ production each month will be sold to major toy retailers who demand a 60 day credit period, with the remaining items being sold on cash on delivery terms to small independent retailers. The opposite marketing strategy has been devised for ‘How Does Your Garden Grow’ which will be mainly sold to small independent retailers selling eco-products on a cash on delivery basis.

The purchase of raw materials for the first month’s production will commence in May 2021 with 30 days credit having been agreed with suppliers. Production will start in June 2021, when the direct labour and variable overheads will be incurred. These are paid for in the same month. Each month’s production will be sold in the following months with no items remaining in stock, e.g. November’s production will be sold in December, ect.

Fixed costs does not include the launch promotion costs of £500,000 which will be paid in September 2021.

The business has agreed to invest £7,000,000 in buying the equipment needed to set up the project and Mr Ahmed has also told you that all projects iN THE company (Learning Space PLC) have a cost of capital of 10% and must have a positive Net Present Value.

Create a 15 slide PowerPoint presentation for the senior management of Learning Space PLC, evaluating both product proposals in a professional way.

Your Presentation should include as a minimum:

A title slide

The importance of accounting information to business decisions

Any assumptions you have made in your analysis

Projected profitability of each product (from May to end of December 2021)

Projected break-even point for each product (between May and December 2021)

Cash budget for each product (from May 2021 to end of February 2022)

Assessment of the investment potential of each product using Net Present Value and payback period (from May 2021 to end of February 2022)