Questions 4.1 - 4.4

4.1 (4%)
Assess which type of freight is the most financially advantageous.

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

4.2 (4%)
Estimate the maximum number of days that sea freight can take for the two freight types to be equally financially advantageous. See question 4.1.

4.3 (4%)
Discuss which mode of transport Henning Christensen A/S should choose.

4.4 (4%)
Discuss whether Henning Christensen A/S should establish a warehouse in the USA.

Assignment 4

Logistics

The furniture company Henning Christensen A/S is an internationally recognised design brand founded on Bornholm 150 years ago.

In collaboration with several visionary Danish designers, the company has shaped the Danish design tradition. Together, they have created furniture classics in a quality that lasts a lifetime while the designs endure even longer. The company’s development of new furniture classics is based on its passion for Nordic minimalism and the collaboration it enjoys with today’s top designers.

Henning Christensen A/S has been contacted by an American furniture chain, Elysian Living, which sells exclusive furniture in New York, Washington and Los Angeles. Elysian Living is convinced that the furniture from Henning Christensen A/S will be a perfect fit for the company’s range and appeal to American customers. Goods with a total value of DKK 6.4 million therefore need to be shipped to the American furniture chain.

The CFO and the sales manager at Henning Christensen A/S are currently investigating the best way of transporting the furniture from Denmark to the Elysian Living warehouse in Los Angeles. Two quotes have been received from two distribution companies. Transporting the furniture by air freight costs DKK 75,000 and takes four days, while transporting the furniture by sea freight costs DKK 25,000 and takes 24 days. The company uses a stock interest rate of 11%.

Elysian Living is preparing its autumn campaign, and therefore wants to have the furniture transported to the USA as soon as possible. The American furniture chain has suggested that Henning Christensen A/S establishes a warehouse in the USA so that Elysian Living can deliver furniture quickly to its stores. Elysian Living has plans to expand rapidly across the USA, and the company expects to be represented in 12 of the largest US cities within the next 12 months.

Questions 3.1 - 3.4

3.1 (8%)
Prepare the optimum sales plan for the company’s existing six products for the coming quarter when taking the limited capacity into account.

The information you need can be found in Appendix 4 of the Excel file.

3.2 (4%)
Calculate the total contribution margin with the optimum sales plan. See question 3.1.

3.3 (4%)
Calculate how big a contribution margin Wood Supply A/S will lose in the coming quarter due to the scarce resources.

3.4 (4%)
Assess whether it is profitable to manufacture the series of custom-sized bed frames for the Norwegian customer.

Assignment 3

Scarce capacity

Wood Supply A/S is a Danish manufacturing company that specialises in making wooden bed frames that are sold to the furniture industry in Denmark, Germany and the Netherlands. The company’s customers primarily comprise manufacturers of beds and box spring mattresses, but the frames are also sold to sofa manufacturers etc. The company’s product range consists of six bed frames in the following widths: 80 - 100 - 120 - 140 - 160 and 180 cm, with the product names SR80, SR100, SR120, SR140, SR160 and SR180.

The production manager is planning production for the coming quarter. In the coming quarter, a total of 400 hours will be available on Wood Supply A/S’s production facility. Appendix 3 of the Excel file contains an overview of the six product variants and the corresponding product information.

Wood Supply A/S has received an enquiry for a small series of customised bed frames from a Norwegian manufacturer of luxury beds. The frames requested by the Norwegian company are extremely wide, and will require a major reorganisation of the production facility. The production manager estimates that the time needed to make the bed frames for the Norwegian customer will total 58 hours. The contribution margin on the order is DKK 80,000.

Questions 2.1 - 2.5

2.1 (4%)
Explain the reason for the investment.

2.2 (4%)
Present the net cash flow of the proposed investment.

The information you need can be found in Appendix 3 of the Excel file.

2.3 (4%)
Assess whether the investment is profitable.

2.4 (4%)
Assess whether the investment is profitable if the annual repair and maintenance costs are twice as high.

The information you need can be found in Appendix 3 of the Excel file.

2.5 (4%)
Discuss whether TableTop A/S should invest in the new production facility.

Assignment 2

Investment

TableTop A/S is a Danish production company that specialises in making wooden table tops which are sold to the furniture industry in Europe. The company is one of the largest in the market, and has seen its sales increase over the last many years, with revenue now totalling DKK 120 million. The company has managed to meet the growth in sales by first establishing two shifts, and later three shifts. Thus, it has not invested in new machinery for several years, so the level of automation in production is not particularly high.

Although sales and revenue have been increasing, it is difficult to generate a satisfactory profit because the competition has recently been intensifying. Two large competitors from Sweden are driving down prices in the market, partly because the SEK/DKK exchange rate is historically low, and customers can therefore save money by buying from Swedish manufacturers. This has forced TableTop A/S to lower its prices.

The company’s CFO Lars Møller has suggested that TableTop A/S should invest its way out of the problems. By investing in a new production facility with a very high level of automation, the company would be able to achieve significant savings on labour costs. The savings would be achieved because the new production facility has so much capacity that the company would only need to operate during the day, allowing it to do away with the evening and night shifts. There are 10 employees on the evening shift, who are paid an average annual salary of DKK 350,000. There are also 10 employees on the night shift, who are paid average annual salary of DKK 378,000.

The acquisition cost of the new plant is DKK 27.4 million, on top of which it will cost DKK 1.6 million to install the plant, and DKK 400,000 to train the operators. The annual cash capacity costs are expected to increase by DKK 900,000 due to repairs and maintenance of the plant. The lifetime of the plant is an estimated 7 years, and its scrap value is expected to be DKK 2.5 million. The company has set the discount rate (required rate of return) at 10%.

The production manager has looked at the figures from the supplier of the new production facility, and wonders about the repair and maintenance costs, which he believes should be twice as high.

Questions 1.1 - 1.7

1.1 (10%)
Based on the accompanying material, explain which factors have impacted Hjort Knudsen A/S’s financial development from 2021 to 2023.

1.2 (10%)
Analyse how these factors influenced the development in the index figures for earnings and asset use efficiency (capital adjustment) from 2021 to 2023. 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 2021 to 2023.

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

1.4 (5%)
Explain why the return on equity increased from -8.9% in 2022 to 22.1% in 2023.

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

1.5 (4%)
Explain why the changes in inventories and trade payables have negatively impacted Hjort Knudsen A/S’s cash flow from operating activities.

The cash flow statement can be found in Appendix 2 of the Excel file.

1.6 (4%)
Assess the competitive strategy pursued by Hjort Knudsen A/S.

1.7 (6%)
Assess why Hjort Knudsen A/S has chosen the production strategy ‘make’.

Assignment 1

Company analysis

Hjort Knudsen A/S is a family-owned Danish group that designs, manufactures and markets modern armchairs, sofas, beds and other furniture. The products are characterised by good quality, Scandinavian and timeless design with a modern aesthetic look. The company’s products are sold to customers in the B2B market, to furniture stores in many parts of the world.

The company was founded by Ina and Arne Hjort Knudsen in 1968. The company started out by producing satchels and pencil cases, and production took place at their home address. Both the product range and sales grew steadily throughout the 1980s and 1990s, after which the company moved to larger production facilities and began manufacturing armchairs on swivel bases with reclining backs. In 1997, a generational change took place, and since then the company has been run by Klaus Hjort Knudsen, son of the founders. To optimise production and reduce production costs, Hjort Knudsen A/S established production in Poland in 2000. Since then, production has also been established in Ukraine, the UK, the USA and India.

Production takes place exclusively at the company’s own production facilities, and is based on an artisanal approach where manual labour accounts for a relatively large part of the production process. Hjort Knudsen A/S’s strategy is to produce the components for the furniture itself, which ensures the desired quality and reliability of delivery. In addition, there is a strong focus on quality control. In the industry, Hjort Knudsen A/S is recognised as a highly innovative furniture manufacturer that holds patents on a number of techniques that improve user comfort.

Watch a video about Hjort Knudsen A/S’s production:

At Hjort Knudsen A/S, we work with CSR with a number of different focus areas. Through a constant focus on resource consumption, the company is seeking to reduce its environmental impact to a minimum. This has been done, for example, with chromium, which is used for tanning leather. In addition, all wood is sourced from European forests that focus on having a long-term plan for healthy forestry growth. Hjort Knudsen A/S not only sets high standards for its own activities, but also requires its subsuppliers to meet the same high standards. The company’s CSR work includes supporting the SOS Children’s Villages charity in several of the countries where Hjort Knudsen A/S operates. In addition, the company supports the Red Cross.

In 2023, Hjort Knudsen A/S had approx. 2,300 employees, and posted revenue of DKK 810,944 thousand, and a profit before tax of DKK 54,085 thousand.

This assignment comes with the following material:

Articles:

• Hjort Knudsen posts large losses due to the war in Ukraine, Ugeposten Skjern, 12 July 2023
• Large furniture manufacturer posts record revenue: – People are choosing us, wood-supply.dk, 25 April 2024

Key figures:

• Prepared accounting and key figures for Hjort Knudsen A/S for the years 2021 to 2023. See Appendix 1 of the Excel file.
• Cash flow statement for Hjort Knudsen A/S for 2023. See Appendix 2 of the Excel file.

Instructions

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 to your computer before you start to use them.

Communication with anyone else during the exam is not permitted.