POINTS to NOTE:

1. There are 100 marks for this assignment, which is 50% of the final course grade.
2. The word limit for this assignment is 2,500 words (+/-10%).
3. Use Arial or Times New Roman font size 12 and 1.5 line spacing.
4. Ensure you follow academic citation and referencing requirements, as failure to do so may invoke penalties. Use APA (7th ed.). A reference list is required.
5. You are also required to reference the use of any tools / software / application used. This includes the use of artificial intelligence (AI) to paraphrase or proofread, which requires a statement where applicable.
6. Upon submission your assignment will be checked for copied materials as well as the use of AI (artificial intelligence), with penalties to be applied where appropriate and if not appropriately referenced.
7. You may submit your assignment once as a draft submission (Moodle/Turnitin) to check similarity prior to making your final submission.
8. Late submissions incur a 5% penalty (5 marks) for each 24-hour period up to 96 hours (after that time, your mark will be recorded as zero).
9. An extension may be granted if, within the prescribed timeframe, you submit an ‘Assignment Extension Application’ form with supporting documentation (e.g., a medical certificate) to the Programme Administration Unit.
10. As part of pass requirements for this course, you are required to pass each learning outcome at least once in this course.

This assignment requires you to:

• LO1: Appraise the importance and relevance of accounting information to decision-making by managers and other stakeholders.
• LO2: Demonstrate competence in a range of tools/techniques to be able to undertake and interpret various financial statements, including preparation of financial statements.
• LO3: Justify and apply appropriate tools and techniques to moderately complex practical situations.
• LO4 Analyse, assess and compose appropriate reports assisting stakeholders to make appropriate decisions.

Case scenario: Tasman New Zealand Company (TNZ)

Introduction

Tasman New Zealand Company (TNZ) is a manufacturing company based in New Zealand that specialises in producing high-quality outdoor adventure gear. TNZ’s product range includes hiking equipment, mountain biking accessories, and water rafting safety gear, which are offered to adventure enthusiasts who seek stimulating experiences in the great outdoors. Each product is designed with durability and functionality in mind, ensuring that adventurers can rely on TNZ’s gear in the most extreme conditions. The company markets its products at $1250 + GST, attracting customers aged 20 to 50 who are passionate about outdoor activities and exploration. TNZ’s commitment to quality and safety has made it a trusted brand among outdoor enthusiasts, and the company continues to innovate to meet the needs of its adventurous customers.

You are a management accountant and a member of the Finance department. You have been asked to prepare a report for the CFO regarding the company’s financial performance, financial position, and cash flows. The report would include recommending whether the company can afford a new computer system in the 2025 budget. The financials would also include this investment and whether the company will need to borrow funds. The CFO will forward the report to the Board of Directors (BoD) for their final approval. Board papers must be sent to the board at least one week prior to the meeting, which is the due date on which this report must be submitted.

Background

The company believed they managed their variable costs well. Their variable costs are broken down as follows:

• Raw Materials and Components = 35%
• Direct Labour = 30%
• Packaging and Shipping Costs = 15%
• Manufacturing Supplies and Consumables = 20%

However, these costs have a GST component and are subject to annual inflation each year.

In 2023, TNZ Co. downsized operations due to a significant downturn in the financial year ending March 31, 2023, which had a very poor financial year compared to the prosperous years before COVID-19. Due to uncontrollable factors, its customer numbers declined by 25% in 2024. Despite these challenges, the company maintained its product price of NZ $1,250 per package, while the operational costs increased by only 4%, consistent with inflation. With some branches closing and other cost reductions, depreciation was 3% lower in 2024 than in 2023, and other overheads (such as salaries and rent) were reduced by 7% in 2024 from the previous year. However, the savings were a little less than 7% because of 4% inflation. The company had no debt in 2023.

The New Zealand company tax rate is 28% on profits. If there are losses, these are treated the same way as credit. GST is set at 15% for the tax on goods and services, and payroll tax on salaries and wages is 20% (employee tax). Income Tax, GST and PAYE are paid all together in the following year. The Tax liability is split evenly between the three taxes.

The 2024 year is not yet complete, but the forecast is the best estimate, and you are now working on the 2025 Budget. The company’s forecast for the year ending 31st March 2023 is to be a year of partial recovery, with annual customer numbers up 30% on 2023 levels. The company has not budgeted to increase its charges and expects inflation to lift all its costs (except depreciation) by 4%. The company believes that even allowing for inflation, it can save 7% of all its 2023 fixed overhead costs, including depreciation of assets, with another branch closure and other one-off savings. The company does not plan to buy any new (capital) assets in 2024 but is considering a new computer system in 2025 if the business recovers.

As TNZ Co. navigates through the post-pandemic recovery phase, management intends to revise the budget for 2025 based on the financial forecast from 2024. To account for economic fluctuations and market conditions, TNZ Co. plans to increase the pricing of its services by 20%. Despite this increase, it is projected that customers might decrease by 10% relative to the levels forecasted for 2024 due to price sensitivity observed in the market.

In response to the financial strain caused by the pandemic, the government introduced the free Covid Cashflow Loan (CCL), an interest-free financial aid designed to support businesses in New Zealand struggling with the economic impacts of COVID-19. No repayments are required until the end of the term. TNZ Co.’s Board of Directors has strategically utilised this program to ensure a stable and positive cash balance, emphasising the importance of maintaining liquidity. However, they are concerned about cash flows and have requested some modelling to ensure they can cover cash commitments. None of the shareholders want to inject any further funds into the company.

The company has been cautious with its cash flow management, particularly since the beginning of the fiscal year on April 1, 2022, when it reported a modest bank balance in credit. The stable conditions of the company’s accounts receivable and payable suggest these factors need not be heavily emphasised in financial projections or decision-making processes and, therefore, can be ignored.

CAPEX Acquisition

TNZ Co., the current computer system is aging and becoming a business risk, and a decision needs to be made regarding a total upgrade – including both the hardware and the operating systems. Only the BOD can approve this decision.

The following background information for the analysis has been compiled by the team to date:

• The traditional computer system was very time-consuming and labour-intensive. The new computer system should be more integrated, easier to use and more efficient.
• TNZ Co. is investigating the possible use of an integrated computer system built in the UK. The major quantitative benefit of the system is expected to be savings in annual salary costs. These savings are expected to be $650,000 per annum for the five-year time horizon of the project. However, offsetting this salary reduction will be a one-off cost for staff redundancy and redeployment costs of $550,000 in Year 1.
• The purchase price for the new equipment is quoted in pound sterling (£/GBP), with no GST applicable on imports.
• The hardware can be purchased outright and will have a resale value of 15% of the total cost at the end of five years.
• The company will enter into a licence agreement for the software, upgrades and maintenance of the system. The proprietary software required is only available under a licence agreement. Any increase in licence fees is guaranteed not to be more than 4% per annum (software upgrades are included in the licence fee).
• TNZ Co. normally requires a return on its capital asset investments of 12% per annum.

Other quantitative data:

• Current exchange rate pound sterling (£/GBP) 1 to NZD 2.20
• Customs duty 3%
• Installation Costs are NZ $60,000.
• Savings in net working capital during Year 1 NZ $45,000.

Additional notes:

• With the exception of the purchase cost of the machine, all other cash flows are quoted in New Zealand dollars.
• Ignore GST for this analysis and evaluation.
• The Inland Revenue straight line depreciation rate for computer systems is 20% per annum. This company uses this method and rate.
• The project has a five-year investment horizon.

Assignment Requirements:

(in your report, include any detailed workings as an appendix and table of contents)

1. In the Excel template provided (25 marks, LO2):
   • a) Prepare the financial statements (Income Statement, Cashflow Statement, and Balance Sheet) from 2023 to 2025 (15 marks).
   • b) Complete variance analysis both in dollars and between the 2024 forecast and 2025 budget (5 marks).
   • c) Calculate the breakeven points (BEPs) in units and revenue. Analyse the institution’s situation using tools/techniques such as the margin of safety percentage (MoS %) for all years. (5 marks).
2. In a Word processing file, write up a management report including (25 marks, LO1):
   • a) Identify key accounting information that is relevant in the decision-making of senior management, investors, employees, and customers (5 marks).
   • b) Your interpretation of the company’s financial performance, financial position, and cash flows from 2023 to 2025 (15 marks).
   • c) Justify why the BEPs and MoS can be useful in analysing an institution’s situation (5 marks).
3. Analysis of CAPEX acquisition (25 Marks, LO3)In the Excel template provided, complete the cashflow calculations and analysis of the proposed proposed CAPEX Acquisition. This includes the relevant (incremental) cash flows, the NPV, IRR, Payback, and Average Accounting Rate of Return.
4. Preparation and recommendation of CAPEX acquisition (25 marks, LO4)As part of your management report, evaluate and recommend whether the company should purchase the new machine. The report should provide a full analysis of the project, financial and non-financial risks, and a summary of your recommendation and justification for your commitment to this new machine.

Additional Information and Data:

Tasman New Zealand Company (TNZ) – Additional information and data

• Revenue – 2023: NZ$ 14,250,000
• NPaT/Revenue (%) – 2023: 4%
• Managers and admin salaries: NZ$ 1,900,000
• Rent/Lease Exp.: NZ$ 1,300,000
• Bank Balance (Ending balance – 2022): NZ$ 750,000
• Fixed Assets: NZ$ 4,500,000
• Current liabilities (tax): NZ$ 2,700,000
• Equity (Total assets – Total liabilities): NZ$ 2,550,000
• Licence agreement (first year): NZ$ 210,000
• Depreciation – SL method: 20%
• Purchase price of new equipment: £/GBP 435,000