Financial Resource Management: CVP, Cash Budget, and Credit

This report provides a comprehensive overview of financial resource management, focusing on key concepts and practical applications. It begins with an introduction to the importance of financial resources in organizations, followed by an explanation of Cost-Volume-Profit (CVP) analysis, including its definition, graphical representation, and calculations such as the break-even point. The report then delves into cash budgeting, outlining its purpose and significance in financial planning. It also examines the implications of credit sales and credit purchases on a company's financial position, including their impact on cash flow and profitability. The report includes a cash budget example and concludes by emphasizing the role of effective financial management tools like CVP analysis and cash budgets in ensuring business sustainability. The report provides a foundation for understanding and applying these tools in real-world financial decision-making.

Managing
Financial
Resources

Cover Content
• Introduction
• CVP definition and CVP graph
• CVP Calculations
• Cash Budget
• Credit Sales and Credit Purchases
• Conclusion
• References

Introduction
Financial Resources a re a very crucial part of any business as
well as organisation. If the organisation would not be able to
manage its financial resources in an effective way, it will be very
difficult for the organisation to survive for a longer period of
time Going forward. Financial resources includes All assets of
the organisation like cash, Land and building, other intangible
resources etc.

CVP definition and CVP graph
CVP chart is commonly known as Break-even point chart.
It display a graphical presentation of sales, costs and
volume of units produced and profit made. CVP graph
interpreted the relationship between cost-volume-profit by
using total sales, variable costs and fixed costs. Total cost
and total revenue plays a crucial role in interpretation of
Cost-volume Profit analysis

Chart
units Fixed
20000 600000
22000 660000
22666.6667 680000
23333.3333 700000
24000 720000

Continue…

CVP Calculations
BEP in units= Fixed cost / contribution per unit
where, fixed cost= Rent+ marketing + salaries
= 160000+300000+140000
= £600000
and Contribution per unit= Selling price per blouse- variable expenses per blouse
= 80 – 50
= 30 per unit
Therefore, BEP in units = £600000 / 30
= 20000 units
BEP in pound = Fixed cost * S. P per unit / Contribution per unit
= 600000 * 80 /30
= £ 1600000

Cash budget
Cash budget is basically a statement of the actual cash that
the company may have to pay or receive in the future and
what will be the balance left thereafter for the purpose of
other activities of the business including growth. It is the
responsibility of the finance manager to make sure that
effective budget is prepared that will lead to proper
management of finances

Credit Sales
These are sales made to individual customers on credit
basis. Usually the credit sales is made for a specific credit
period ranging from 3 to 6 moths within which the debtor
has to make the payments. It is basically a sale made to
customers on the terms that price will be paid later on

Credit Purchase
This is the purchases made by the Organisation from the
suppliers on credit basis. There is no need to pay the cash at
the time of making the purchase rather a credit period is
extended to company that will allow it to pay cash after a
specific period of time

Impact
Credit Purchase will increase the payables of company,
hence will reduce the profits. Credit sales will increase the
sales as well as profits of the organisation.

Calculation
Particulars January February March
Opening Amount 25000 98000 44000
Receipts
Cash Receipts 75000 80000 90000
Received from debtors 300000 285000 282000
Total A 400000 463000 416000
Payments
Payment to suppliers 180000 196000 200000
Miscellaneous expenses 122000 123000 123000
Purchase of Commercial Vehicle 100000
Total B 302000 419000 323000
Net Closing balance of cash (A-B) 98000 44000 93000

Conclusion
Thus, From the above discussion it can be said that effective
management of financial resources is required to carry out the
business activities. For this purpose it is important to have a
proper knowledge of different aspects of accounting. The tools
of Cash Budget and CVP Analysis is used to effectively
disseminate the information regarding the current situations of
the business and where it is heading in the future.

References
Altenburg, T. and Pegels, A., 2012. Sustainability-oriented
innovation systems–managing the green
transformation. Innovation and development. 2(1). pp.5-22.
Conway, J. B., 2013. A course in functional analysis (Vol. 96).
Springer Science & Business Media.
Cowling, A. and Mailer, C., 2013. Managing human resources.
Routledge.

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