Financial Planning and Cost Analysis

This assignment provides a dataset containing financial information over several periods. The data includes sales revenue, half of sales revenue, sales revenue received, direct labor cost, direct material cost, and variable cost. Students are expected to analyze this data to understand key financial metrics and potentially perform calculations such as profit margins or cost breakdowns.

Financial Planning and Control

Table of Contents
1...................................................................................................................................................3
(i) Commenting the length of time required for achieving the objectives...................................3
(ii) Stating the extent to which strategic and medium term objectives differ from operational
planning.......................................................................................................................................3
(iii) Stating the importance of the type planning required in the oil exploration and retail
clothing business..........................................................................................................................3
a. Explaining the source which Board of Directors should undertake for raising funds or
finance..........................................................................................................................................4
b. Evaluating the viability of project by using investment appraisal technique..........................4
c. Writing a brief report to Board members whether they should undertake risk or not.............5
3. Plotting graphs by using table 1, 2 and 3.................................................................................6
a. Determining the maximum profit and optimum volume of sales..........................................12
b. Commenting on the below mentioned aspects......................................................................13
4.................................................................................................................................................13
(i) State the proportions of fixed interest and ordinary shares are required for minimizing the
risk and maximization of returns...............................................................................................13
(ii) Stating the source of information which in turn helps in framing suitable investment
strategy.......................................................................................................................................13
(iii) Stating the possible consequences of other fund managers vein........................................13
(iv) Stating the name of companies which will offer high return to the investors....................13
5. Preparing cash budget from the period of January to March................................................14
REFERENCES..............................................................................................................................16

1.
(i) Commenting the length of time required for achieving the objectives
On the basis of the cited case situation, there are mainly two objectives which Board of
Directors wants to achieve. Hence, one of the main objectives of firm is become a market leader
and thereby makes contribution in the attainment of organizational success (Koleva and
Gorgieva-Trajkovska, 2016). Hence, through the means of sound and competent policy
framework business unit can fulfill its objective within the period of 1-2 years.
(ii) Stating the extent to which strategic and medium term objectives differ from operational
planning
Aspects of strategic and operational planning differ from each other to a great extent.
Moreover, in strategic planning manager places more emphasis on setting future directions.
Hence, in this, higher management makes effort to fulfill the aims by devising highly competent
policies. On the other side, operational planning is highly concerned with the enhancing the
performance of employees (Manly, Wells and Bettencourt, 2017). For instance: To attain leading
position in the market field business unit places high level of emphasis on promotional aspects
and framing discounting policies. In contrast to this, manager provides direction to the personnel
about the manner in which they need to deliver services to the customers. In this way, both
operational and strategic planning differs significantly.
(iii) Stating the importance of the type planning required in the oil exploration and retail clothing
business
Planning is significant for every kind of business but its level is highly influences from
the kind of risk involved in the business. Hence, in the business of oil exploration high level of
strategic planning is required to assess the area where high petroleum is available. On the other
side, in the clothing business, retailer faces high level of competition (Vyas and et.al., 2016).
Along with this, changing customer’s needs, wants and expectations are another risk which is
involved in such kind of business. In this, by making continuous assessment of market trend and
aspects clothing retailers can meet their objectives.

2.
a. Explaining the source which Board of Directors should undertake for raising funds or finance
The given case situation situations presents that both debenture and shares account
for .5:.18 times in the capital structure. In accordance with the ideal capital structure aspect
business unit should issue 1 debenture in against to the 2 equity shares. This in turn helps
company in developing highly optimal capital structure. Hence, by considering the current
situation, it can be stated that Carling Ltd should raise £1 million by issuing ordinary shares to
the potential investors (Manly, Wells and Bettencourt, 2017). Moreover, if firm raises funds
from debenture then it will place negative impact on capital structure. Further, debentures also
impose fixed financial burden in front of the company in the form of interest. Hence, it is advised
to Carling Ltd to enhance fund by issuing ordinary shares to the people.
b. Evaluating the viability of project by using investment appraisal technique
(i) Payback period:
Project A 1 + 400 / 1200 = 1.3 years
Project B 3 years
The above mentioned table presents that Carling Ltd should select project A which in
turn helps it recovering the initial investment within the period of 1 year 3 months. In contrast to
this, business unit will have to wait for 3 years in the case of project B. Thus, it can be stated that
A will opportunity to the firm in relation attaining profit after 1.3 years as compared to other
proposal. However, such method is criticized because it does not consider time value of money
concept (Phillips, 2016). Hence, business unit should take decision on the ground of NPV.
(ii) Using discounted cash flow or NPV technique for assessing the returns associated with the
proposed project
Year
Pr
oje
ct
1
Cumula
tive
cash
inflow
PV
factor
@
12%
Discounted
cash inflow
of project A
Pr
oje
ct
2
Cumula
tive
cash
inflow
Discounted
cash inflow
of project B
1 60 600 0.893 535.7 10 100 89.29

0 0
2
12
00 1800 0.797 956.6
15
0 250 119.58
3
15
0 1950 0.712 106.8
75
0 1000 533.84
4
25
0 2200 0.636 158.9
45
0 1450 285.98
5
35
0 2550 0.567 198.6
15
0 1600 85.11
6
20
0 2750 0.507 101.3
20
0 1800 101.33
Total discounted
cash inflow 2057.9 1215.1
Initial investment 1000 1000
NPV (Total
discounted cash
inflow – initial
investment) 1057.9 215.1
Outcome of NPV entails that business unit will get £ 1057.9 return after the period of 6
years in the case of project A. On the contrary to this, NPV of project B is £215.1 respectively.
Hence, in accordance with the results of NPV, Carling Ltd should select project A which will
offer higher return to the firm.
c. Writing a brief report to Board members whether they should undertake risk or not
To,

Board of Directors,
Date: 23rd March, 2017
It is reported to the board of directors to take risk which in turn helps them in attaining high level of profit
margin. Moreover, risk and return aspects are highly associated with each other. In this regard, company
should undertake risk management tools and techniques. In this regard, investment appraisal is highly
effectual tool which in turn helps in evaluating the attractiveness of project in an effectual way. On the
basis of current analysis, it is recommended to the higher management to employ money in project A. By
this, company would become able to generate high return by managing the risk level. In addition to this,
by making continuous monitoring of the business activities Board of Directors can manage risk in the best
possible way.
Sincerely
Financial analyst
3. Plotting graphs by using table 1, 2 and 3
(i)
a. ‘Total sales revenue’ against ‘volume of sales’
Table 1
20 21 22 23 24 25 26
740
760
780
800
820
840
860
880
900
920
Total sales revenue
Total sales revenue

Table 3

20 21 22 23 24 25 26
740
760
780
800
820
840
860
880
900
920
Total sales revenue
Total sales revenue
b. ‘Total costs’ against ‘volume of sales’.
Table 2
20 21 22 23 24 25 26
660
680
700
720
740
760
780
800
820
840
Total cost
Total cost
Table 3

20 21 22 23 24 25 26
660
680
700
720
740
760
780
800
820
840
Total cost
Total cost
(ii)
a. ‘Marginal cost’ against ‘volume of sales’
Table 2
21 22 23 24 25 26
0
5
10
15
20
25
30
Marginal cost
Marginal cost
Table 3

21 22 23 24 25 26
0
5
10
15
20
25
30
Marginal cost
Marginal cost
B. ‘marginal revenue’ against ‘volume of sale
Table 1
20 21 22 23 24 25 26
-10
-5
0
5
10
15
20
25
30
35
40
Marginal revenue
Marginal revenue
c. ‘Price’ against ‘volume of sales’.

20 21 22 23 24 25 26
0
10
20
30
40
50
60
70
80
90
Price
Price
Table 2
20 21 22 23 24 25 26
0
10
20
30
40
50
60
70
80
90
Price
Price
Table 3

20 21 22 23 24 25 26
0
10
20
30
40
50
60
70
80
90
Price
Price
a. Determining the maximum profit and optimum volume of sales
Table 3
20 21 22 23 24 25 26
0
20
40
60
80
100
120
140
Profit
Profit
By considering the above chart, it can be stated that business unit will earn high profit
such as £128 when volume of sales are 23. Hence, by maintaining such sales volume business
unit can get high profit margin.

b. Commenting on the below mentioned aspects
 Marginal cost and marginal revenue lines: The above mentioned charts present that
high sales and marginal revenue can be found when volume of sales are 21. Such line
will help company in getting £836 sales and £36 as marginal revenue.
 Total cost and total revenue curves at maximum profit: In accordance with the given
case situation, at maximum profit level such as £128, total costs and sales revenue
accounts for £756 & £884 respectively.
4.
(i) State the proportions of fixed interest and ordinary shares are required for minimizing the risk
and maximization of returns
From assessment, it has been identified that ratio of debt and equity must be 60% and
40%. Hence, by following such strategy return can be maximized by reducing the risk level.
Moreover, debentures offer fixed returns, whereas equity shares offer opportunity to earn high or
extra ordinary returns. By this, being a manager by using passive investment policy proper
balance can be ensured between risk and return aspect.
(ii) Stating the source of information which in turn helps in framing suitable investment strategy
By using research report investors can get information about the shares which will offer
high return. Moreover, such reports having information about the movements of shares which in
turn helps in making selection of suitable securities for investment purpose. Hence, by
considering suitable investment strategy can be developed.
(iii) Stating the possible consequences of other fund managers vein
By doing assessment it has been identified that other fund manager will also use similar
kind of strategy with the motive to get high return at low risk.
(iv) Stating the name of companies which will offer high return to the investors
Sector Company name Beta value
Retail Sainsbury 0.69
Banking Barclays bank 1.13
Pharmaceuticals Astra Zeneca .97
Oil & Gas British Petroleum 1.26

Mining Antofagasta 0.94
Hence, by considering the above table it can be stated that investors should invest money
in Antofagasta which in turn offers suitable return to the firm (Kiso and Hershey, 2016).
5. Preparing cash budget from the period of January to March
Cash budget from January to March is as follows:
Particulars January
Februar
y March
Opening balances 5500 22400 31700
Receipt 1 8000 8000 9600
Receipt 2 8000 6400 8000
Total income 16000 14400 17600
Total cash inflow 37500 51200 66900
Direct labor 4000 7500 8750
Direct material 5000 4000 7500
Variable cost (1) 1600 3000 3500
Variable cost (2) 3000 3500 2800
Fixed cost 1500 1500 1500
Total cost 15100 19500 24050
Net total for month 22400 31700 42850
Working note
Price per Octob Novem Decem Janua Februa Mar Apri

unit er ber ber ry ry ch l
Sales 1400 1000 800 1000 1000 1200 1000
Selling price 16 16 16 16 16 16 16
Sales revenue 22400 16000 12800 16000 16000
1920
0
1600
0
Half of sales
revenue 11200 8000 6400 8000 8000 9600 8000
Sales revenue
received 16000 14400
1760
0
1250 1200 1000 800 1500 1750 1400
Direct labor cost 5 6250 6000 5000 4000 7500 8750 7000
Direct material
cost 5 6250 6000 5000 4000 7500 8750 7000
Variable cost 4 5000 4800 4000 3200 6000 7000 5600