Financial Planning and Analysis (FPA) for Capriccio Ltd

Assessment Brief
Background Information
Capriccio Ltd (Capriccio) is a manufacturer of classical guitars. The company was founded 20 years ago by a couple of friends who met at University, Evangelos Nikolaidis and Ana Vidovic. They are both classically trained guitarists, and their vision was to make music more accessible  by producing instruments that are of good quality but are also affordable. They continue to be passionate about making music available to all and they run a local community music school which is partly funded by the company they own, Capriccio Ltd.

 

The company (Capriccio) is well established within the classical guitar market and has a good reputation for producing quality classical guitars at a reasonable price. Evangelos and Ana are pleased that they have achieved what they set out to do. Capriccio has grown significantly since it was formed, and it now employs around 150 people at its manufacturing site. As well as a good manufacturing and production team, the company has well-defined and well-structured support functions, in terms of sales, marketing and finance. n addition to her strong musical background, Ana has an MBA (Masters in Business Administration), which she completed over 10 years ago, and she oversees the administrative side of the business, whilst Evangelos is heavily involved in the production of the guitars.

 

More recently the company has started to face strong competition from guitars imported from abroad. These products tend to be cheaper and are not of the same quality as those produced by Capriccio. In an attempt to more closely control the administrative and manufacturing costs of the company, Ana has decided to adopt a tighter and more disciplined approach to budgetary control and setting of standard costs. Ana prepares the budgets on an annual basis along with the finance manager (Andrew Firkin), and has compiled the budgets for the financial year of 2021. The finance manager provided Ana with supporting historical information, which And then adjusted to allow for any changes to their volumes, given the latest impact from competition, as well as inflation.

 

These budgets were then communicated to the various departmental managers, that have been tasked to achieve these budgets. This approach has been met with some concern and disillusionment, as the budgets that have been set are generally regarded to be very demanding and not always achievable. The motivation of staff throughout the organisation has not been as high as it has been in the past, due to the adoption of this approach, but Ana has stated that costs must be reduced to allow Capriccio to compete with the cheaper imported guitars that its competitors are selling.

The Task
You are the Financial Planning and Analysis (FPA) team that provide financial counsel to the Senior Management Team (SMT) at Capriccio Ltd. You are required to prepare a business report covering the assignment requirements detailed below.

 

Specific Requirements of Assignment Brief
1. Using the financial data provided in the scenario above, you are required to prepare an operating statement for quarter 3, calculating a full range of variances. This should be prepared and submitted as a MS Excel document. (30% of mark)
2. You are also required to write a business report to the owners and directors of Capriccio Ltd. This report must:
a. Provide an explanation and analysis of the variances and operating statement that you have calculated in requirement 1.
b. Evaluate the benefits and disadvantages of involving staff across the business in budget preparation, and how budgets can be used in performance measurement and evaluation.
c. Recommend and discuss alternative budgeting approaches that Capriccio Ltd could adopt.
Use relevant textbooks, professional technical articles and academic literature to support your discussions.