STRATEGIC MANAGEMENT ACCOUNTING
Academic Year 2020/21
Module Code: BF3307
Module Name: STRATEGIC MANAGEMENT ACCOUNTING
Module Leader: SARA SAYNOR / RICHARD KENYON
Your coursework has two tasks:
Task 1: Boots PLC Strategic Report based on case study data (pages 3-13 and Excel spreadsheet)
Task 2: CIMA case analysis
GRADUATE JOB IMPACT:
Researching a sector, analysing data and writing a formal report are very common requirements for graduate roles. Previously a student used this coursework to support an assessment centre for a major travel company which involved assessing whether to open a new retail outlet.
Module Learning Outcomes Assessed:
- Implement and evaluate the use of management accounting tools from a strategic perspective in a variety of organisational contexts
- Analyse and communicate management accounting information using a range of appropriate mediums and language to decision makers in organisations.
Format: an appropriate, professional report format must be used.
Word Count: 3,000 words maximum (+/- 10%)
Font Style: Arial
Font Size: 11 or 12
Line Spacing: 1.5 lines
Submission Date & Time:
Date 12:00 noon MONDAY 11th JANUARY 2021
Assessment Weighting for the Module:
The coursework makes up 40% of the overall module mark.
Case study (see pages 3-13 and Excel spreadsheet for Boots and Blackboard for CIMA)
You will be required to provide answers to the questions set in the case studies for Boots and CIMA. It is expected that you will draw on information in the case and additional research conducted around the industry and the techniques in the case.
No primary data will be required for this report. All data will be secondary, obtained from information freely available in the public domain.
TASK 1 CASE STUDY INFORMATION FOR BOOTS PLC INVESTMENT PROJECT
You have been hired as a consultant to Boots PLC to advise Senior Management on whether the company should undertake significant capital investment and open a new physical store: The ‘Edge of Town’ investment project in December 2021 or an alternative retail investment. Despite Covid 19 and the recent store rationalisation programme, Boots PLC still has a number of store opening opportunities.
Please refer to APPENDIX 1 & 2 for the preliminary data for the project. Boots PLC currently uses Net Present Value (NPV) and Internal Rate of Return (IRR) to make their project capital investment business decisions.
You have been asked to make recommendations as to whether Boots should make a new retail investment and which OPTION they should adopt based on:
- your own strategic analysis of Boots and the retail sector (you can use any tool ie PESTEL, Porters, SWOT etc) plus
- calculating the Net Present Value (NPV) and Internal Rate of Return (IRR) for the following 2 options:
- Option 1 – new store standard offering without a Premium Beauty offering
- Option 2 – new store standard offering Option 1 PLUS the addition of a Premium Beauty offering
- Option 3 NO CALCULATIONS NEEDED – discussion of an alternative investment to opening a physical store which has the aim of developing sales via alternative customer channels to grow online sales
A Placement student has been involved in the project to date and has produced preliminary incomplete data (based on Option 1) for you to review. Please refer to APPENDIX 2 for their preliminary data analysis for the project – this is an EXCEL SPREADSHEET and can be found on Blackboard.
You will have the opportunity to clarify your understanding of the preliminary financial data and the placement student’s spreadsheet provided and to request further information. This will enable you to finalise your Option 1 analysis during the lecture workshop session scheduled in your lecture plan for BF3307.
Please see Requirements below for more details regarding your coursework assessment.
Part 1: Preliminary work ready for the lecture workshop.
- a) Review the initial financial analysis of the project prepared by the placement student and read through the project briefing information in this document. (APPENDIX 1 & 2)
- b) Compile a list of any clarifications needed and/or missing items or errors from the initial financial analysis.
Lecture workshop task:
The aim of the lecture workshop is primarily the correction and completion of the financial analysis prepared by the placement student. You will then be in a position to calculate the Net Present Value (NPV) and Internal Rate of Return (IRR) analysis for Option 1. You will need to keep a note of all the adjustments and changes you make and the reasons why you made them because this will form part of your report.
You will then produce NPV and IRR for Option 2 after the workshop and research a potential alternative retail investment for Option 3.
Part 2: Completion of Individual Coursework report for Boots PLC
Prepare: Formal Report for the Senior Management of Boots PLC
There is no set format for a formal business report, but we recommend that you follow the guidance below to organise your findings. Blackboard (Turnitin) will only accept ONE DOCUMENT for submission so please use Word / pdf for your report format and screenshot or copy and paste any data from Excel into your report.
SECTION 1 – this should contain an Executive Summary including your final decision whether to make a new retail investment AND, if so, which option you would recommend:
- A new store with the standard offering (Option 1) OR
- A new store with Premium Beauty (Option 2) OR
- An alternative investment (Option 3) to support retail sales growth
IMPORTANT: There is no right answer and your report will be marked on the basis of the quality of your financial analysis, valid research and justification for your decision. Your report will also be judged on the quality of your communication ie appropriate style, language, organisation and clarity.
SECTION 2 – Strategic Analysis of Boots PLC in the retail market using appropriate tools.
For OPTIONS 1 & 2 ONLY provide revised financial analysis, NPV and IRR calculations and sensitivity analysis as appropriate. You should also provide a rationale considering the attractiveness of each option. Any adjustments to the original financial data and their justification should be clearly shown in a table (this can be part of your Excel analysis).
SECTION 3 – OPTION 1 – STANDARD OFFERING (supported by your Appendix 1)
SECTION 4 – OPTION 2 – STANDARD OFFERING plus PREMIUM BEAUTY (supported by your Appendix 2)
SECTION 5 – OPTION 3 – ALTERNATIVE INVESTMENT – this DOES NOT require you to do NPV/IRR calculations and will focus on the quality of your research, written arguments and justified consideration of this option. You can analyse any potential relevant idea here, more convincing ideas will be anchored in published articles, industry and academic reports.
SECTION 6 – Identify and fully explain two significant macro-economic / retail sector factors you think should be taken into account before a final decision is made to invest in a new retail investment (relate these to Options 1, 2 and 3 in your explanation). Draw on your retail sector research here, and consider the economy in the UK and use Harvard referencing.
SECTION 7 – Discussion of the relative merits of Options 1, 2 and 3 drawing on the information and analysis in in Sections 3 to 6 and decide which retail investment to make or even to make no retail investment. This section should include persuasive justification of a final recommendation based on all the information presented in Sections 2 to 6 above.
PLEASE NOTE: If you decide not to make a retail investment ie reject Option 1, 2 or 3 then you have to justify this too.
SECTION 8 – Boots currently use NPV and IRR to make project investment decisions. The Senior Management would like you to produce an evaluation of the appropriateness of these tools supported by academic references cited using Harvard referencing. Your response should refer to relevant professional and academic literature. This links to your module delivery and so your engagement is vital to perform well in section 8.
APPENDICES – your report should be supported by detailed calculations in appendices. Ideally you will have a spreadsheet for each option as well as a list of your key adjustments and any assumptions you have made. You can screenshot your Excel spreadsheet / copy and paste it into your Report Word document or use the Snipping tool.
- APPENDIX 1 Spreadsheets for Option 1 plus adjustments
- APPENDIX 2 Spreadsheets for Option 2 plus adjustments
- No calculations required for alternative investment Option 3
Word limit: 3000 words which refers to your main discursive sections (excluding financial analysis, calculations, tables and appendices 1 and 2).
The marking allocation is provided on the next page.
|REPORT SECTION||MARK ALLOCATION GUIDE|
|OVERALL REPORT QUALITY AND QUALITY OF LITERATURE USED||5 MARKS|
|SECTION 1: EXECUTIVE SUMMARY||5 MARKS|
|SECTION 2: BOOTS STRATEGIC ANALYSIS
|SECTION 3: OPTION 1
Marks are awarded for correct application of relevant cost principles to calculate NPV and IRR plus clear assumptions
|SECTION 4: OPTION 2 PREMIUM BEAUTY
Marks are awarded for analysis of the Premium Beauty sector and suitability for Boots and calculation of the impact of the additional revenues and costs of this option
|12 MARKS – maximum 2 marks for revised NPV / IRR calculations with up to 10 marks for your discussion.|
|SECTION 5: OPTION 3 ALTERNATIVE INVESTMENT
Marks are awarded for your consideration of an alternative investment which does not include opening a new physical store. You need to build a well researched and balanced analysis to support this option.
|10 MARKS – No calculations needed|
|SECTION 6: MACRO SENSITIVITY
Marks are awarded for the depth of analysis of 2 factors including quality of data and evidence / potential impact on Boots
|12 MARKS – 6 marks for each factor
|SECTION 7: FINAL DECISION OPTION 1,2 OR 3?
Marks are awarded based on the quality of your rationale and a clear final decision which may not be limited to the options outside the box.
|SECTION 8 ACADEMIC REVIEW
This is an important section and marks are awarded based on the quality of the literature review and structure of your critique
|TOTAL MARKS FOR TASK 1||90 MARKS|
APPENDIX 1 – CASE DATA
The Boots PLC Edge of Town (‘EOT’) Investment Project
Boots PLC has an opportunity to open a new physical store of 650m² at the Big Town Retail Park. The Retail Park is an established retail destination, anchored by a B&Q and Smyths Toy Superstore. Complementary retailers to Boots include Next, Argos and Halfords. Boots is interested in a unit which will be ready for fit out on 1st September 2021 to benefit from winter trading and will aim to commence trading on 1st December 2021. Preliminary analysis has identified a total project investment cost which is made up of the following items:
|Fit-out description||Cost £’000|
|Enabling and Structural Works||450|
|Shopfittings and Internal Signs||325|
|New shopfront and External Signs||115|
|Boots Opticians Works||N/A|
|Mechanical Installations & Sprinklers||79|
|Preliminaries (including but not limited to contractors site works, supervision, inspections, insurance)||87|
|Construction consultant fees||91|
|Total Capital expenditure||1,685|
|Internal project management costs (reallocated from Group)||130|
|Additional Professional and legal fees||200|
|Total Fit Out Cost||2,015|
|Feasibility Study (already completed in 2019)||150|
|Prepaid option on plot which was paid December 2019 (option has now expired)||750|
|PRELIMINARY PROJECT COSTING||2,885|
Assume that all preliminary project costs are eligible for accounting capitalisation and depreciation is based on this and calculated over 10 years.
The retail park is located on a busy route into the Big Town town centre with good access from the motorway network and will provide free parking. Shopping in the existing town centre is difficult due to the heavy traffic congestion and parking charges. Taking this unit potentially creates an opportunity to capture sales and increase market share. This proposal assumes an opening date of 1st December 2021.
Retail Park information
The Big Town Retail Park is situated approximately 2.5km from the main town centre. The current tenant line-up includes Next, Argos/Sainburys, Halfords, Smyths Toy Superstore, B&Q, M&S Food and Costa Coffee. The park totals 157,705 sq ft and provides 700 free car parking spaces, limited to 3 hours.
The proposed store customer catchment was based on attracting people within a 10-minute drive time from the retail park. This was reduced to reflect the belief that heavy traffic in this area will mean that a standard 10-minute drive-time might be over-estimating the size of the catchment that can reach the retail park. The proposed catchment has a total resident population of 200,000.
The demography of the catchment is weighted towards the lower-income demographic group. In the proposed catchment area 52% of potential customers are in this group compared to the UK average of 40%.
Boots currently has a 15% market share within the local catchment area which is below their national average of 20%.
A preliminary review has identified that there is no established store offering a standard store offering nor Premium Beauty services within the immediate vicinity of the retail park. The competition is all located in the local town centre. The nearest competitor pharmacy is the Lloyds Pharmacy which is located approximately 2km away.
The Option 1 STANDARD OFFERING new store:-
- Will provide a sales area of 650m2
- Will not include Premium Beauty (this could be added as OPTION 2)
- Will not include Photo or Optics (adding this is not an option for consideration)
Operationally the new store:-
- Will generate an average gross margin of 50% on sales revenues for the standard OPTION 1 offering.
- Will operate a standard pharmacy contract with the NHS (revenue and margin for this has been incorporated already in the draft financial analysis and is factored into the 50% margin above).
- Will incur the following annualised store operational fixed costs (stated at year 1 values).
|Other property costs||100,000|
|Other store costs||100,000|
|Logistics/ Distribution costs||50,000|
|Property lease rental**||300,000|
*Inflation is typically 3% per annum which should be applied for year 2 values onwards.
**The property lease has been signed for an initial 5 year period with an option to extend for a further 5 years. Boots are not considering alternative premises. This would be subject to a renegotiation and the expected revised lease cost is £400,000 per year from year 6 onwards.
Takings Forecast Assumptions
The projected sales for the new store are £52,000 average weekly takings (AWT) in year 1. The sales forecast provided by the placement student in Appendix 1 here, assumes 3% takings growth on standard sales for the 10 year period. However these have since been revised. Please refer to the table below for the revised weekly sales taking forecast and presumed growth rates over the 10 year period.
Weekly sales and items growth predictions for OPTION 1.
|Trading Year||Weekly Takings
|Takings Growth %|
*The year 1 trading period will be 39 weeks rather than 52 weeks. The placement student had not received these final figures when the preliminary spreadsheet was created.
OPTION 2 – ADDING PREMIUM BEAUTY
The addition of Premium Beauty could potentially provide the following sales with an average margin of 57% ie in addition to OPTION 1 weekly sales data.
|Potential sales per week Year 1||Probability given by Marketing|
There would be additional fixtures and fittings costs to factor in. High quality beauty counter units are typically £100,000.
OPTION 3 – AN ALTERNATIVE RETAIL INVESTMENT
There is no financial data available for this option as the aim is that you research this option yourself using the library databases, quality news and your own findings on the retail sector and its development in the recent years and Covid times. Remember to back up your discussions with evidence, quality information and data sources and there is no right answer but we will be considering whether your suggestion is relevant and feasible.
This is typically 10% of total forecast sales.
CANNIBALISATION – Other Boots Stores Affected by this Proposal
Boots Store X (large high street with a standard Health & Beauty offering) which is located 1.6km from the proposed store. There are two further Boots stores which might also be affected. These are Store Y in ‘Another Town’ and Store Z in ‘Nearby Town’ as although they are over 10km distant, their core catchments do overlap with the proposed catchment for the new store.
The estimated cannibalisation of sales from these neighbouring stores is gross sales of £10,000 per week. This would not increase for Option 2 as the neighbouring stores do not have a Premium Beauty offering.
Investment date 1st September 2021
Completion of shell and handover 30th September 2021
Completion of fit-out 1st November 2021
Target Opening date 1st December 2021
Refer to the excel spreadsheet produced by the placement student which you can find on BLACKBOARD under the coursework assessment section.
You will revise this to calculate the NPV and IRR of OPTIONS 1 and 2.
TASK 2 – CIMA CASE STUDY – HINTON INDEPENDENT NEWS – 10 MARKS
CIMA will be co-presenting a lecture session on this case study which supports Task 2. Attendance at this session is recommended to perform well. If you are unable to attend the session (due to illness / interview) you will still be able to complete this task from undertaking your own analysis of the case document which will be on Blackboard and deciding on your main recommendations.
- Recommend TWO ways the use of big data could help improve HINTON’s revenues following the business transformation process with appropriate justification.
YOUR COURSEWORK OVERALL SCORE IS WORTH 40% OF THE MODULE SCORE:
|TASK 1||90 MARKS|
|TASK 2||10 MARKS|