Task Number One (1) – 2750 Words:
You work for a company that provides financial advisory and consultancy services to its
clients. Your manager has provided you with the following brief about a new client.
Aesthetics4U is a large wholesaler of cosmetic products. The company sources its products
directly from various manufacturers and sells on to large retail stores as well as
supermarkets. The company’s average annual turnover over the past 5 years has been
approximately £9 million.
Nine months ago the head of the credit control department resigned. There was no
succession plan in place and the company has still not yet been able to find a permanent
replacement. As a consequence, the company’s credit control function has been neglected.
Poor credit control has had a serious effect on the company’s overdraft, which currently
stands at $5 million, compared to $1 million at the same time last year. Interest cover has
deteriorated as a result of higher interest costs.
From speaking to the Finance Director, it appears that the management of working capital
has never been a priority. Prior to the problems with credit control, the company’s working
capital cycle was 4 times longer than the industry norm.
Your line manager has asked you to produce a report which will:
i. Discuss the importance of working capital management;
ii. Analyse the factors which influence the level of working capital a business holds;
iii. Discuss the nature and functions of a good credit control department.
(Total marks: 100)
Task Number Two (2) – 2750 Words:
BF Co manufactures and sells leather goods including, footwear, briefcases, handbags and luggage.
Each year it produces budgets on an incremental basis. Detailed budgets for sales, materials and
labour are always generated and, if appropriate, the departmental managers are allowed to revise their
budgets for planning errors. Quite often, several budget revisions are made to the extent that the final
budget bears no resemblance to the original numbers. Variance analyses undertaken always seem to
produce favourable operational variances but lower overall profits than the original estimates.
The management team is also considering a re-structuring exercise as they feel that there are many
people who “who don’t seem to do much”.
i. Discuss the traditional budgeting system that the company currently uses and the
necessity of controls with regard to budget revisions.
ii. Propose alternative approaches to budgeting that may be more suitable for the
company. Your proposal should include an explanation of the alternatives you have
(Total marks: 100