(solved) Managing Financial Resource and Decisions : Assignment

Managing Financial
Resource and Decisions

TABLE OF CONTENTS
Introduction......................................................................................................................................4
Task 1...............................................................................................................................................4
(a) Preparing the Cash Budget (3.1):...........................................................................................4
(b) Cash budget analysis (3.1):....................................................................................................5
Task 2 ..............................................................................................................................................5
(a) [I] Calculating selling price per unit (3.2)..............................................................................5
(a) [ii] Total profit on the sale of 300 units (3.2).........................................................................6
(b) [I] Calculating cost and selling price with a markup of 40% (3.2)........................................6
(b) [ii] total profit earned on selling of additional 100 units (3.2)...............................................6
Task 3...............................................................................................................................................7
(a). Analysis of budgets and making appropriate decision (3.3).................................................7
(b). Recommendation (3.3)..........................................................................................................9
Task 4...............................................................................................................................................9
(a). Main financial statements and Comparing the formats of financial statements for the
different types of business organization (4.1 and 4.2 )................................................................9
(b) Assessing the information needs of different users of financial
statements (2.3).........................................................................................................................15
(c). Interpretation of the financial statements using appropriate ratios & comparisons (4.3). . .15
Task 5.............................................................................................................................................17
5a [i] Different sources of finance available for business (1.1):................................................17
5a (ii) Assessment the implication of different sources of finance and most appropriate source
of finance for business (1.2 and 1.3)..........................................................................................18
5a (iii) Explanation the cost of sources of finance (2.1)............................................................19
5a (IV) Impact of sources of finance on financial statements of business (2.4)........................20
5a (v) the importance of financial planning (2.2)......................................................................21
Conclusion.....................................................................................................................................23
Reference.......................................................................................................................................24

INTRODUCTION
Appropriateness of the format of financial statements depends on for which purpose it is
developed (Bose and Horgren, 2010).
The main purpose of this assignment is to develop the knowledge of finance in the
application area considering the different cases. If the requirement is to know the assets and
liabilities of a business then balance sheet is appropriate whereas an income statement reports on
income and expenses.
To get the information of day to day cash flow of the organization, cash flow statement
would be the best source of such information. Business is becoming complicated day by day. For
carrying out the operation in the most efficient way, accounting, reporting, finance and
regulations are needed to be understood firstly. That is why the assignment consists of all types
of problems & exercises.
TASK 1
(a) Preparing the Cash Budget (3.1):
Cash budget is very vital for evaluation liquidity also to determine of inflows and out flows of
funds. For the purpose of cash budget of an organization of six months period is analysis on the
table below:
Months
details
First
month
Second
month
Third
month
Fourth
month
Fifth
month
Sixth
month
Opening
balance (840,000) (440,000) 0 680,000 1,480,000
Income
from sales 600,000 600.000 840,000 840,000 840.000
Total cash
inflow -240,000 160,000 840,000 1,520,000 2,320,000
Rent 10,000 10,000 10,000 10,000 10,000 10,000
Plant and
machinery 580,000
3

Initial
investment 250,000 160,000 120,000 120,000
Operating
cost 30,000 30,000 30,000 30,000 30,000
Total of
cash
outflow 840,000 200,000 160,000 160,000 40,000 40,000
Cash
balance at
end (840,000) (440,000) 0 680,000 1,480.000 2,280,000
(b) Cash budget analysis (3.1):
From the above cash budget so far has prepared based on the forecast information given,
it can be easily derived that there will always be cash deficit in the 1st 6 (Six) months. It is a very
alarming situation. The manager who is responsible for this cost allocation, budgeting and
forecasting, should prepare another forecast which will definitely have a huge amount to be
concerned in receipts. Another problem may be the opening balance being absent. I hope logical
projections will be made with corrections.
TASK 2
(a) [I] calculating selling price per unit (3.2)
Given that,
Variable cost per unit £ 40
Fixed cost per unit 20
Total per unit cost £ 60
(+) Markup 40% 24
Selling price per unit £ 84
4

(a) [ii] Total profit on the sale of 300 units (3.2)
‘Unit X’, Northampton
Total profit earned when 300 units of products are produced:
Particulars Amount Amount
Selling price (£ 84 × 300) £25,200
Less: Production costs
Variable cost (£ 40× 300) £12,000
Fixed cost (£ 20× 300) 6,000
Total cost (18,000)
Profit £7,200
(b) [I] Calculating cost and selling price with a markup of 40% (3.2)
Given that,
Variable cost per unit £ 40
Fixed cost per unit 00
Total per unit cost £ 40
(+) Markup 40% 16
Selling price per unit £ 56
(b) [ii] total profit earned on selling of additional 100 units (3.2)
‘Unit X’, Northampton
Total profit earned when additional 100 units along with the first 300 units of products are
produced:
Particulars Amount Amount
Selling price{(£ 84 × 300) + (£ 56× 100)} £30,800
Less: Production costs
Variable cost (£ 40 × 400) £16,000
Fixed cost (£ 20 × 300) 6,000
5

Total cost (22,000)
Profit £8,800
TASK 3
(a). Analysis of budgets and making appropriate decision (3.3)
Net present value calculations: Is effective way for processing investment assessment for
approximate of cash inflows and outflows at a reduced price as regard to inflation rate of the
economy so that money value technique can be measures in order to evaluate current value of
future cash flow (Drake and Fabozzi, 2012). .
Formula-
NPV = R ×, 1 − (1 + i)-n, − Initial Investment.
Table 2: NPV Investment for A
Yr Cash Inflow for
Option A (£) (R) D.F at 12%
(one) Present
Value(£)
1st yr 24,000 0.892 21,408
2rd yr 24,000 0.797 19,128
3rd yr 24,000 0.711 17,064
4th yr 24,000 0.6355 15,252
The Total of Present
Value 72,852
Less: Initial Investment 75,000
N/P/ Value -2,148
Table 3: NPV Investment for option B
Yr Cash Inflow for
Option B(£) D.F at 12% Present
Value(£)
1st yr 25,000 0.892 22,300
2nd yr 25,000 0.797 19,925
3rd yr 25,000 0.711 17,775
4th yr 25,000 0.6355 15,887.5
The total of Present Value 75,887.5
Less: Initial Investment 80,000
N/P/ Value -4,112.5
Table 4: NPV Investment for option C
Yr Cash Inflow for
Option C (£) D.F at 12% Present
Value(£)
1st Yr 36,000 0.892 32,112
6