Financial Management Exam: Activity Based Costing, Budgeting, CAPM, Sources of Finance, Stakeholder Approach

ONLINE EXAM-Financial
Management

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................3
Features of activity based costing and reason for its development.............................................3
Key decision taken under break even and cost profit volume....................................................3
QUESTION 2...................................................................................................................................4
Calculating capital asset pricing..................................................................................................4
Calculating weighted average cost of capital..............................................................................4
Evaluating CAPM and whether it is good way for determining the cost of equity....................4
QUESTION 3...................................................................................................................................5
a. Critically discussing how budgeting may be used as a tool to aid control and performance..5
Limitation of traditional budgeting and features of beyond budgeting.......................................5
QUESTION 4...................................................................................................................................6
Outlining the sources of finance for SME other than listing......................................................6
QUESTION 5...................................................................................................................................6
Discussing the requirement of stakeholder approach and related factors while appraising
corporate strategy........................................................................................................................6
REFERENCES................................................................................................................................8

QUESTION 1
a. Features of activity based costing and reason for its development
Activity based costing is being referred to as the tool which assist company in dividing
the cost and attributing to the product and services. This involves focusing on the identification
of activities for a particular job and different activities are grouped together and relates to single
cost driver (Liu, 2021). The features of ABC involves the following-
 The total cost is being divided in two different types that is fixed and variable cost.
 In addition to this another key feature of ABC is the there is proper distinction being
made within the cost behaviour pattern.
 Moreover, the cost driver needs to be identified in order to trace the overhead to the
product directly.
With the above analysis it is clear that the use of ABC is very important for the
companies in managing cost. The reason for the development of the ABC is that this method is
more accurate and assists in better costing of product and services. This costing method
highlights the most costly and the non- value adding activities more visible and this assist
manager in improving those areas.
b. Key decision taken under break even and cost profit volume
The break even or the cost profit volume is being defined as the level of production
wherein the company is at no profit no loss situation. This is necessary for the company to
analyse and take proper decision relating to the production level. This BEP or cost profit volume
in taking major decision that is the sales quantity where the company can be in no profit and no
loss situation.
On the other hand, there is some of the limitation relating to break- even point. The major
limitation of the break even or cost profit volume is that it assumed the fixed cost is constant
whether be it short run or long run production (Villasanti, Giraldo and Passino, 2018). Another
limitation of using the BEP or cost profit volume is that this method assumes that average
variable cost is constant per unit for at least quantity of sales.