QUA301 Foundations: Quantitative Literacy – Introduction to Data Analysis

Assignment 1

Answer all questions showing all your calculations

Question 1

Green Apparel, a large clothes retailer with high street shops and an online shopping site, has a different

dress code policy for its admin and operational staff. The dress code for admin staff is suit and shoes and for operational staff is top, trousers, and shoes, all provided by the company. Green Apparel employs 330 staff as shown in the left side of Table 1. The right side of the table shows the cost of each clothes item by purchase quantity (which is not affected by clothing size). Although different types of shoes are available, their cost is assumed to be the same, as given in Table 1.

a. Calculate the total cost for Green Apparel to purchase the appropriate items for all their staff. [5 marks]

b. How much would Green Apparel save if, instead, the company adopted the operational dress code for all their staff? [2 marks]

c. What is the total cost of clothing the staff of one of the company’s warehouses, where 2 senior, 20

office employees plus 2/3 of the delivery and half of the warehouse employees are based, in a new

specific colour (same cost per item applies)? [3 marks]

d. If shoes of the operational staff need changing twice a year and of admin staff only once a year, how

much does Green Apparel spend on shoes per year? [2 marks]

e. Green Apparel is considering updating its logo and has budgeted £10,000 for uniform changes. The

logo is embroidered only on the jacket (2/3 of the cost of the suit) and top. Has the company budgeted

enough to pay for the cost of replacing these two items for all their staff? Justify your answer carefully.

[3 marks]

f. The delivery staff have suggested the introduction of a (sun) cap. Green Apparel has found two

suppliers: supplier “Best caps” offers a fixed £2 price per cap, and supplier “Caps for you” offers a

£2.50 price on the first 50 caps ordered and a discount of 50% on the rest of the order. Which supplier

would you recommend and why? [3 marks]

g. If Green Apparel hires 5 admin and 25 operational new staff, how much is the (separate) uniform bill?

[2 marks]

Question 2

“Pretty Sunglasses” sells three ranges of own brand sunglasses, basic, classic and designer, which are

priced at £99, £150 and £220, respectively. Last Spring, it sold 650 basic, 910 classic and 585 designer

sunglasses and, in the Summer, sales went up to 1040, 1430 and 1170, respectively.

a. Produce a table summarising the above information on the sales of each range of sunglasses in Spring

and Summer. Include the price information as a separate row/column. [6 marks]

b. What is the percentage increase of sales of all three ranges sunglasses from Spring to Summer? And

what is the percentage increase in total sales? [4 marks]

c. A new basic range will be introduced in the Autumn by Pretty Sunglasses, so it was decided to offer a

25% discount on the price of the current basic range. What is the new retail price? If 35% of the basic

range were sold at this price and the rest at the original price in the Summer, what was the total value

of the sales of this range in the Summer? [4 marks]

d. VAT is charged at 20%. What is the pre-VAT price (price excluding VAT) of designer sunglasses? What

was the total VAT revenue collected by Pretty Sunglasses on designer sunglasses sales in the Spring?

[3 marks]

e. Use a chart(s) of your choice to analyse the sales of Pretty Sunglasses over the two seasons. [3

marks]

Question 3

Renoir plc is considering investing in a new machine for its packaging plant.

a. The company is considering two machines that meet its needs. They both have an expected life of 5

years. Machine A costs £5,500 and is expected to have a scrap value of £600. Machine B costs £5,000

and is expected to have a scrap value of £1,000. Their expected cashflows are given in Table 2.

Calculate and compare the Accounting Rate of Return (ARR) and Payback Period (PP) for both

machines. [10 marks]

Table 2: Expected cashflows (before depreciation) of machines A and B

Year Machine A Machine B

0 (£5,500) (£5,000)

1 £2,000 £1,400

2 £2,000 £1,600

3 £2,000 £2,000

4 £2,000 £2,000

5 £2,000 £1,800

5 £600 £1,000

b. Is there a case for investing in any of these machines? Using a discount rate of 10% and the

appropriate calculations, can you help the management of Renoir plc to make a decision about this

new machine they want to invest in? [10 marks]

c. The company is also considering machine C which has an expected life of 5 years and is expected to

generate annual cashflows of £2,500. Using a discount rate of 10%, what is the maximum amount the

company should pay for the machine if it is not to suffer a net loss as a result of the investment? [5

marks]

Question 4

Monet plc has an opportunity to invest in a plant for the manufacture of reusable water bottles, the demand

for which is estimated to be 500,000 bottles a year for five years. The following data relates to the decision.

ګ The machine is estimated to cost £2,800,000 (payable immediately) and to have no residual value

ګ The selling price per bottle is planned to be £4.50

ګ The variable cost per bottle is estimated to be £2.90

ګ Overhead costs are not expected to be affected by the decision.

ګ The cost of capital for such a project is estimated to be 10% p.a.

ګ The project is not expected to require any additional working capital.

ګ In the interest of simplicity, taxation will be ignored.

ګ Assume, also in the interest of simplicity, that all cash flows occur at year ends

Required:

You are asked to undertake a sensitivity analysis of the above project for the following factors:

1. Initial investment [5 marks]

2. Sales price per bottle [5 marks]

3. Variable cost per bottle [5 marks]

4. Sales volume [5 marks]

5. Project discount rate [5 marks]

Summarise your results in a sensitivity analysis table advising the company on the most sensitive factor. [10

marks]