Questions 4.1 – 4.4

4.1 (5%)
Calculate whether it would be profitable for Lehrmann Brød A/S to choose an external distributor.

The information you need can be found in Appendix 5 of the Excel file.

4.2 (4%)
Calculate the annual transport need where the annual costs of using an external distributor and the costs for the company of distributing the goods itself are equal.

4.3 (5%)
Discuss whether logistics efficiency is improved if Lehrmann Brød A/S chooses to use an external distributor.

4.4 (4%)
Assess how Lehrmann Brød A/S’s cost structure is affected if Lehrmann Brød A/S chooses to use an external distributor.

Assignment 4

Logistics and costs

Lehrmann Brød A/S is a Danish food company that produces bread and cakes. It is the largest Danish-owned bakery in Denmark. The company’s customers are retail stores throughout the country.

Environmental considerations are important for Lehrmann Brød A/S, and they have a bearing on the company’s entire logistics system in terms of the choice of raw materials and packaging as well as production and distribution. The company therefore uses Danish flour which is grown without the use of plant-growth inhibitors or glyphosate. At the same time, the company’s carbon emissions are reduced because the flour does not have to be transported as far.

The company has its own trucks which distribute bread and cakes to customers throughout Denmark. However, the management is uncertain whether this is the optimum solution for the company, financially and environmentally. This is because in some areas, trucks travel around half-empty in certain periods, which is both costly and harmful to the environment. The logistics manager has therefore obtained a quote from a large Danish distributor which already delivers goods to the same retail chains as Lehrmann Brød A/S. The logistics manager expects the annual transport need to be 625,000 km. The quote from the distributor is DKK 16.00 per km driven.

The finance manager has calculated the costs of the company’s own distribution, which vary depending on the amount of driving, as averaging DKK 9.00 per km driven. In addition, there are certain capacity costs related to the distribution department; these are shown in Appendix 5.

Questions 3.1 - 3.6

3.1 (4%)
Explain the reason for the investment.

3.2 (4%)
Present the net cash flow of the proposed investment.

The information you need can be found in Appendix 4.

3.3 (4%)
Assess whether the investment is profitable.

3.4 (4%)
Calculate the minimum sales volume required for the investment to be profitable.

3.5 (4%)
Discuss whether Bageriinventar A/S should start manufacturing and selling Heat.

3.6 (4%)
Discuss whether Bageriinventar A/S should finance a possible investment in a new production plant with loan capital.

Assignment 3

Investment and financing

Bageriinventar A/S produces a wide range of mixers and ovens which are sold to bakeries, cafés and canteens in Scandinavia. The company tries to keep costs down by, for example, not having travelling salespeople, but instead having a showroom where customers can see the products and find inspiration. This makes it possible for the company to sell high-quality products at reasonable prices.

So far, Bageriinventar A/S has only sold to business customers, but various TV programmes, including Den Store Bagedyst (or ‘The Great Danish Bake-off’), have boosted Danes’ interest in baking and cooking. For some time, the management has therefore been thinking about starting to sell ovens etc. to private consumers. The product development department has almost finished developing a small, high-quality oven called ‘Heat’, which is suitable for domestic kitchens. The company has so far spent DKK 400,000 on developing Heat, and it will cost a further DKK 100,000 to finish. However, before it is possible to start manufacturing Heat, it will be necessary to invest in a new production facility. The production manager has obtained a quote for the production plant, which totals DKK 12,500,000. Installation of the plant is expected to cost DKK 150,000. The service life of the production plant is an estimated six years, after which the expected scrap value is DKK 800,000.

As the market for domestic ovens is a new business area for the company, there is some uncertainty about the level of sales. However, the sales manager has estimated sales of 900 ovens a year over the next six years. The selling price per oven is DKK 11,999. The price is slightly high compared to competing ovens on the market, as it is a high-quality oven. The production manager has prepared a pre-calculation for Heat. According to this, the variable unit costs amount to DKK 6,879.

The company’s annual cash capacity costs are expected to increase by DKK 1,535,000 when it commences production of Heat, as additional marketing, for example, will be needed. The company uses a discount rate (required rate of return) of 12% per annum.

The finance manager has calculated the following key figures for Bageriinventar A/S for the latest financial year:

Return on investment (ROI)           10%
Cost of debt ratio                           3%
Solvency ratio                                 22%

Questions 2.1 - 2.3

2.1 (5%)
Assess whether KornMøllen A/S should maintain the selling price of DKK 16.00 for the chocolate cake baking mix.

The selling price/sales chart is shown in Appendix 3.

2.2 (4%)
Explain whether the increases in the price of grain, energy and packaging affect KornMøllen A/S’s capacity costs (fixed costs).

2.3 (4%)
Explain whether an increase in the company’s capacity costs affects the optimum selling price. See question 2.1.

Assignment 2

Activity optimisation and costs 

KornMøllen A/S can trace its roots back to 1899, when the company was founded. It started with flour production for Danish bakeries, but over the years the business has evolved to include speciality flours, bread mixes, cake mixes, breakfast cereals, seeds and grains as well as a wide range of gluten-free products.

Danes’ enthusiasm for baking during the COVID-19 pandemic resulted in growth in both revenue and profit at KornMøllen A/S. On the other hand, the company is now facing sharply increasing grain, energy and packaging prices as a result of the war in Ukraine. The executive board is therefore considering whether the increasing costs should result in higher selling prices for the company’s products. The company’s range includes a chocolate cake baking mix, which currently has a selling price of DKK 16.00. The sales department has conducted a market analysis to establish the relationship between price and sales, which has resulted in a selling price/sales chart, as shown in Appendix 3

The variable unit costs for the chocolate cake baking mix have increased from DKK 8.50 to DKK 11.75.

Questions 1.1 - 1.7

1.1 (10%)
Based on the accompanying material, explain which factors have impacted Dan Cake A/S’s financial development from 2019 to 2021.

1.2 (10%)
Analyse the development in the index figures for earnings and asset use efficiency (capital adjustment) from 2019 to 2021 based on these factors. See question 1.1.

The key figures can be found in Appendix 1 of the Excel file.

1.3 (5%)
Assess how the development in the index figures affected the profit margin ratio and the asset turnover ratio from 2019 to 2021.

The key figures can be found in Appendix 1 of the Excel file.

1.4 (5%)
Explain why changes in the working capital items have negatively affected Dan Cake A/S’s liquid assets in 2021.

The cash flow statement can be found in Appendix 2.

1.5 (5%)
Assess which production layout Dan Cake A/S uses.

1.6 (5%)
Assess whether Dan Cake A/S’s goals as regards its environmental and climate-related impacts are operational i.e. usable.

1.7 (5%)
Discuss whether Dan Cake A/S should increase its selling prices due to the increasing prices of wheat and gas.

Assignment 1

Company

Dan Cake A/S develops and produces a wide range of cakes, jam rolls and other bakery products which are marketed and sold via retailers primarily in northern and eastern Europe. The company was founded in 1931 by Jens Eskildsen. Today, Dan Cake A/S is owned by the Givesco Group, of which one of Jens Eskildsen’s grandsons, Kenneth Eskildsen, is the CEO, while two other grandsons are members of the Board of Directors.

The Dan Cake Group consists of the parent company Dan Cake A/S, which has a factory in Give, and the subsidiaries Dan Cake Polonia in Poland and Dan Cake GmbH and Hanina GmbH in Germany. In addition, the company co-owns two companies in Norway (28%) and Bangladesh (25%). The group is based in Give in Jutland.

According to its website, Dan Cake A/S’s values are to:

• ensure a good taste and quality experience every time a DAN CAKE product is purchased;
• make DAN CAKE inspiring, reliable and to provide a good and sound workplace with interest in the individual employee;
• ensure a high level of food safety following HACCP principles;
• maintain constant focus on development and innovation;
• always insist on using the best raw materials with respect for our surroundings.

Watch a video showing the company’s production in Bangladesh here:

Dan Cake A/S’s most significant social impact relates to the procurement of raw materials, including the social conditions and working conditions at its suppliers. Social conditions and conditions for Dan Cake A/S’s own employees are also important areas.

Dan Cake A/S’s policy is that the group’s companies must, as a minimum, comply with all relevant laws and regulations in the countries in which they operate. One of Dan Cake A/S’s most important values is responsibility, and accordingly the company seeks to take responsibility to the greatest possible extent.

In order to minimise the risk of human rights violations by the company’s suppliers, Dan Cake A/S asks its suppliers of raw materials and packaging to sign the company’s Code of Conduct.

Dan Cakes A/S’s goal in relation to environmental and climate-related impacts is to minimise its negative impacts on the environment and climate to the greatest possible extent. The company is actively working to reduce food waste, and is continuously initiating projects to reduce the amount of waste generated during the production process.

In the 2021 financial year, Dan Cake A/S had 731 employees, generated revenue totalling DKK 1,242 million, and posted a pre-tax profit of DKK 97.2 million.

This assignment comes with the following material:

Internal material:

• Extract of the management’s review 2021

Articles:

• Good news for coffee at the police station: Cake giant sold lemon half-moon cakes and other bakery products for more than DKK 1 billion last year, Dagbladet-Holstebro-Struer.dk, 9 July 2021 Article 1
• Every week, approx. 400 tonnes of cake are produced in Give, and last year it resulted in record revenue: “Taste is king”, Frdb.dk (Fredericia dagblad), 11 March 2022 Article 2
• Cake manufacturer: “Hurry up and buy a lemon half-moon cake”, Jyllands-Posten, 14 March 2022 Article 3

Key figures:

• Prepared accounting and key figures for Dan Cake A/S for the years 2019 to 2021. See Appendix 1 of the Excel file.
• Cash flow statement for Dan Cake A/S for 2021. See Appendix 2 of the Excel file.

Intructions

This material consists of four assignments. Each assignment has a number of questions which have all been given an approximate weighting. The weightings are used in the overall exam assessment.

All the assignments must be completed independently of each other. The assignments come with an accompanying Excel file, which has a number of appendices containing data and templates. In addition, there is a Word document containing all the questions.

Download:

The Word document with all the questions can be downloaded here: Word-file

The Excel document with all the appendices can be downloaded here: Excel-file

Remember:

Save the files on your computer before you start to use them.

Communication with anyone else during the exam is not permitted.