INVESTMENT, BUDGETING AND APPRAISAL

Costing Techniques, Budgeting and Investment Appraisal



Question: 1

Rationale behind the selection of the company

Gregg's Plc

Gregg's Plc is the leading bakery in the United Kingdom with more than 1,480 retail outlets across United Kingdom. The company has employed over 19,000 people and serves more than six million customers on weekly basis. (Gregg's Plc Annual report 2010, Pp. 2-45) The company is operating since 1939 and is famous for its high quality bakery products such as sandwiches as well as selling freshly baked savories such as Cornish pastries and sausage rolls, local items are also very popular.

Financial highlights for the year 2009 and 2010

 

2010

2009

 

£'m

£'m

Turnover

662.3

658.2

Like-for Likes sales growth

0.2%

0.8%

operating profit

52.4

48.4

Pre-tax profit

52.5

48.8

 

 

Pence

Pence

Diluted earnings per share

37.3

34

Dividend per ordinary share

18.2

16.6

The company has performed exceptionally well in the past few years and more over the management of the company is planning to extend its operations by opening further 600 stores across the United Kingdom. Therefore, the analysis of the company will provide with in-depth knowledge and practical experience.

Greggs share Price

(As of June 8 2011)

Price

534.5

Bid

532

Ask

534.5

Change

-1.38%

Volume

196,817

Open

539

High

539.5

Low

532

Close

534.5

Currency

GBX

Market Capitalization

£ 540.68 million

Shares in issue

101.16 million

52 week High (On 7 June 2011)

545.5

52 week Low (On 11 March 2010)

414.9

Company overview

Gregg's Plc is planning to open around 600 more stores in the near future and it will create around 6,000 new retail jobs. More over the company is planning to extend the serving capacity of the existing retails outlets. (Gregg's Plc Annual report 2010, Pp. 2-45)The financial performance of the year 2010 shows a positive growth in the overall business activity of the company and the earning per share of the company has increased from 16.6 pence to 18.2 pence. The company has shown a steady growth over the past years and has more than 1,500 retail outlets and shops, with many city centers and towns having multiple stores. In the year 2009, the company announced the extension program for its existing outlets and has become bigger than the famous fast food chain “Mc Donald's”, with in United Kingdom.

Costing technique used by Gregg's Plc

Gregg's Plc uses an ABC costing technique (activity based costing). (Srinivasan 2008, Pp. 17-31)The innovative practice, Activity based costing commonly known as ABC costing recognizes the fact that, in present day modern factories, majority of the manufacturing costs are identified by the amount of 'activities' and the key to successful effective cost control is therefore maximizing the efficiency of these activities. The other common name of activity based accounting is cause and effect accounting. Both innovative accounting practices recognize that in a typical modern organization the cost of quality failures and machine breakdown is way more significant than the cost of raw materials. Activity based costing concentrates on the activities that drives cost such as production of a product component, instead of direct labor as a cost driver.

Activity based costing technique

The Activity based costing is a method which assigns the cost to the activities first and then assigns the cost to the products with respect to the ...