a.       Report analysis:

Ans. according to given financial statements, it can be seen that the company performance is getting low in 2019 as compared to 2018. The gross profit of 2018 is less as compared to 2019 which is 115 but the net profit of 2018 is 21 which are higher than in 2019 that is 19. The current assets of the company explained that has a less current asset in 2019 as compared to 2018. And also the total assets. Its current liabilities also less in 2018 as compared to 2019.  

Operation profit ratio explains that the company has the same operating profit in both years.

Gross margin ration explains that less gross margin is having in 2019 as compared to 2018. However, analysis shows that the gross profit margin ratio is slightly decreased for the company from 50% to 49% which will not have a huge impact on the future operations and financing side of the company. Higher profitability ratios are a positive indicator for potential investors in the market. However, a slight decrease will not discourage them.

Net profit margin explains that the company has less profit in 2019 as compared to 2018. The net profit ratio calculated by the company is 10% for 2018 that is decreased by 2% in a one-year duration. The key reason behind this decrease is an increase in cost (CGS). Thus, this indicates the poor efficiency of management to control operational cost at the workplace.

Return on asset ratio explains that it has less rerun in 2019 as compared to 2018. The decrease in the return on asset ratio from 7% to 5% shows that the company's assets are not used efficiently to generate sales revenue and net profit. Better utilization of fixed and non-current assets could be beneficial for the company.

Return on equity also explains that the company has less profit to cover its equity in 2018 as compared to 2019. The calculated ratios for 2019 and 2018 are10% and 11% respectively. A slight decrease in return ratio also indicates a lower dividend and profit for the shareholders for this fiscal year (Tracy, 2012).

Due to high current assets, in 2019 the company has higher current ratio as compared to 2018.

Quick ratio explains that the company has more convertible assets in 2019 as compare to 2018 to manage its liabilities. The increase in current ratio and quick ratio over the one-year duration shows that the company is getting stronger for its liquidity condition. However, ratios higher than 2 show that the company has more current assets than a requirement. As a result of this, liquidity ratios are higher than the calculated return on assets ratios for the same years.

Cash ratio explains that the company has enough cash to manage its current liabilities in 2019 as compared to 2018.

So the company has strong assets and its balance sheet explain that company has no high debts or liabilities but due to its expenses company has earned less income in 2019 as compared to 2018 but its financial position is more strong in 2019.

[reference is added at the end of solution file]

Q 2. Part A.

Required:

a.       Calculate the break-even volume. At the expected price to retailers.

Ans. variable cost= 40p

Capacity = 200000 drinks

Fixed cost = 100000 per year

Sale price = 95p

Break-even volume = total fixed cost/(sale price-variable cost per unit)

Break-even volume = 100000/(95-40)

Break-even volume = 1818.18 drinks

b.      Calculate the breakeven sales price

Break-even sales= fixed cost/ contribution margin

Contribution margin= sales –variable cost

Contribution margin = 190000-80000= 110000

Break-even sales price= 100000/110000= 0.90p

Part B:

Required :

Calculate the sale price at which the profit of the company will be maximum

At 1 price the company earn maximum profit and also at 0.9.

Part C.

Required:

d)     Access whether the Foamy Ltd should accept this special order and calculate the company’s profit or loss if the order is accepted.

Ans. according to order the production limit of company will be 100000 at the price of 0.8 and total earn 80000. An according to its own capacity which is 130000 at the price of 1.10 and company earn 143000. so if the company accept the order the company face the loss of 63000 due to low sale price and low capacity. So the company should not accept the order. Analysis present that if company take this order they will have to make changes in its current production plan. Moreover, the offered price is also not a higher amount. the major health food chain is looking for a huge discount by lowering the price of each drink which is not beneficial for Foamy Ltd. Moreover, Foamy Ltd will have a short term contract with this company. As stated in the case, the company is only interested in 100,000 drinks. Thus, there is very limited opportunity for the expansion of order in future. Conclusively, by considering all these factors the most suitable option for Foamy Ltd is to not accept this order. Instead, they should negotiate for a better option such as an increase in price or increase in quantity. 

e)       Discuss other factors Foamy Ltd should consider before accepting the order

Ans. company has to discuss that what is the production limit of the factory, what are the costs which company is going to bear in both capacity of production, how much fixed cost company has to pay , what cost of sale company has to face in both capacity limitations. Who much per unit cost company has to face and it company minimize its costs how can company cover its expenses which are necessary for the company.

Other than all these companies Foamy Ltd should also consider the following factors before accepting the order:

1. What possible monetary and non-monetary benefits are associated with the order? The company should not only focus on monetary benefits as sometimes non-monetary benefits can also indirectly cause to increase the revenue stream for the company. For instance, if a company make a contract with a famous restaurant at relatively lower prices for each drink but encourage them to advertise this product then the company would have financial benefits later on. Moreover, a fixed sales contract will also provide them with long term benefits. 
2. Foamy Ltd should also consider transportation expenses while accepting orders. A retailer far away from the company’s warehouse or production plant can also increase the cost of transportation for the company. 

References

Tracy, A. (2012). Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet. RatioAnalysis.net.