Level 7 Strategic Financial Management Project Report - Unit 05

This project report, prepared for a Level 7 Strategic Financial Management course, delves into various aspects of financial management. It begins with a memo analyzing a company's financial performance using ratio analysis, focusing on profitability, asset efficiency, liquidity, capital structure, an...Read More

Running Head: Strategic Financial Management
1
Project Report: Strategic Financial Management

Strategic Financial Management 2
Contents
Task 1: Memo...................................................................................................................3
Task 2................................................................................................................................5
Introduction...................................................................................................................5
Source of funding.........................................................................................................5
Recommendation and conclusion.................................................................................8
Task 3................................................................................................................................9
Introduction...................................................................................................................9
Cost verified from financial statement.........................................................................9
Importance of cost accounting....................................................................................10
Tools of costing design and costing system...............................................................10
Recommendation........................................................................................................11
References.......................................................................................................................13
Appendix.........................................................................................................................15
Question 1...................................................................................................................15
Question 2...................................................................................................................18
Question 3...................................................................................................................20

Strategic Financial Management 3
Task 1: Memo
To client,
42, south down lane, UAE
Dear Sir,
Hope you are doing well!
On the basis of your demand about investment, “National Takaful Co” has taken into
consider. The financial statement of the business has been studied and a ratio analysis study
has been performed over the business to calculate the financial performance of the company.
Ratio analysis is a financial analysis method which interprets the financial statement in brief
manner to depict about the key areas of the organization.
Firstly, profitability ratio study has been applied over the company and it has been measured
that return on capital employed position of the business has improved from 26.61% to
35.37%. Also, return on assets and net profit margin from 1.9% to 3.1% and 4.7% to 6.1%
respectively (Morningstar, 2019). It depicts that the profitability position of the business is
quite improved which would improve the return from the company in short term as well as
long term.
Further, asset efficiency ratio study has been applied over the company and it has been found
that creditors turnover ratio and debtor’s turnover ratio from 1.60 days to 1.26 days and 1.77
days to 1.19 days respectively. It depicts that the efficiency position of the company has
reduced from last year and company is required to improve the turnover days to manage the
efficiency level (Weygandt, Kimmel and Kieso, 2009).
Liquidity ratios of the company depicts about better liquidity position in current year which
will be managed by the company in future years as well. Further, capital structure ratio of
business defines that liabilities of the corporation are quite higher which has improved the
solvency risk of the company. the risk level of the corporation is higher but it has improved
the return of the company as well (Madura, 2011). Lastly, the market ratio defines about
better market position from last year.
To conclude, it has been investigated that the investment in the company would offer higher
return along with higher risk. An investor should invest into the funds of the company for
long term.

Strategic Financial Management 4

Strategic Financial Management 5
Task 2:
Introduction:
It is necessity for a business to manage all the funds and the financial stability of the
business to maintain the operations of the company. Short term and long term funds are the
main source for an organization to run the business. In the report, “National Takaful Co” has
decided to make investment in the new stock worth AED 3,000,000. Company has planned to
purchase stock from the market and in order to do the same; funds are required in the
company. It is required by the company to raise the funds through short term and long term
funds. In the report, various sources available for the company to raise the funds have been
investigated so that the capital structure of the company could be maintained and solvency
risk of the company could be better.
Source of funding:
There are mainly 2 kind of sources through which funds could be raised by the
business i.e. short term finance and long term finance. Short term funds are those funds which
are required to be repaid by the company within the current year. Short term funds include
bank loan, creditors amount, cash and cash equivalent etc of the company whereas long term
funds are those funds which are required to be repaid by the company in more then 1 year.
Long term funds include bank loan, equity capital, debt fund etc.
Short term funds:
Short term funds are required in an organization to manage the working capital and
run the daily operations of the business smoothly. Short term funds are raised by the company
to meet the short term obligations (Nobes and Parker, 2010). It manages the production cycle
operating cycle working capital level, cash conversion cycle etc of the company to manage
the financial performance. Below are the main short term funds which could be used by the
company to raise the funds for purchase the new stock along with thr pros and cons of the
source:
Bank overdraft:
Bank overdraft is short term source to raise the funds. In this, company takes
overdraft from the bank for less than 1 year. It is quite easier for the company to raise the
funds from bank overdraft as no complex documentation and process is required. However,

Strategic Financial Management 6
the interest rate of bank overdraft is higher and also there is a limit of bank overdraft
(Williams, Haka, Bettner and Carcello, 2015). In case of “National Takaful co”, it has been
found that company could raise the funds through bank overdraft easily but higher rate of
interest would be paid.
Advance from customers:
Advance from customers could also be used by the company to raise the funds. It is
quite easier for the company to raise the funds from customers. No documentation and
process is required. However, it increases the cash flow of the company and there is huge risk
for the company to being stuck in debt cycle. In case of “National Takaful co”, it has been
found that company could take the advance from the customers but it would affect the
liability as well as goodwill of the company.
Overdraft agreement:
Overdraft agreement is also a good option to raise the funds for short term. There is
general easy approval process for overdraft agreement. No credit history is required to verify
the same. However, it affects over the cash flows of the company because of higher interest
rate and frequent payments (Kinsky, 2011). In case of “National Takaful co”, it has been
found that company could take the overdraft agreement but it would affect the cash flow and
profitability level of the company.
Treasury bills:
T-bills could also be used by the company to raise the funds. It offers a great amount
to the company for short term. It is quite easier for the company to raise the funds from T-
bills because of market simplicity and a good credit history (Baker and Nofsinger, 2010).
However, it is necessity for the company to repay the amount in shorter period and there is a
risk to being stuck. In case of “National Takaful co”, it has been found that company use the
T-bills to raise the funds without any additional impact over the financial performance of the
company.
Commercial paper:
Commercial paper is also one of the short term fund source which could also be used
by the company to raise the funds. It offers an access to the company to grab the opportunity
in the market. However, it affects over the cash flows of the company and interest rate of
commercial paper is also higher (Horngren, 2009). In case of “National Takaful co”, it has

Strategic Financial Management 7
been found that company use the commercial paper to raise the funds as it would offer good
opportunity to access the market.
Debtors:
Raising the amount from debtor’s is also a short term fund for the company. It is used
by almost each of the business to maintain the working capital cycle and operations of the
company (Arnold, 2013). It is quite easier for the company to raise the funds from debtors.
However, it is necessity for the company to repay the amount in shorter period and there is a
risk to being stuck. In case of “National Takaful co”, it has been investigated that company
use the debtors to raise the funds without any additional impact over the financial
performance of the company.
Long term funds:
Long term funds are required in a business to manage the long term operations,
financial feasibility and solvency position of the company. Long term funds are raised by the
company to meet the capital requirement, reduce the financial risk and manage the overall
performance of the company (Besley and Brigham, 2018). It helps the business to keep up the
financial performance and stockholder worth in the market. Below are the main long term
funds which could be used by the company to raise the funds for purchase the new stock
along with the pros and cons of the source:
Long term loan:
It is long term source to raise the funds. In this, company takes loan from bank or
other financial institution for more than 1 year. It is quite easier to raise because of a proper
process and line of credit. However it could affect the significance of ownership. A complex
documentation and process is required (Kaplan and Atkinson, 2015). Interest rate of bank is
higher and also company is required to pay the amount in specific time period. In case of
“National Takaful co”, it has been found that company could raise the funds through bank
loan easily but higher rate of interest would be paid.
Borrowings:
Borrowings from financial institution and capital market are long term source to raise
the funds. In this, company takes loan from financial institution for more than 1 year. It is
quite easier to rise because of easy availability of funds. However it could affect the
significance of ownership (Bierman, 2010). Interest rate of bank is higher and also company

Strategic Financial Management 8
is required to pay the amount in specific time period. In case of “National Takaful co”, it has
been found that company could raise the funds through borrowings easily but it will affect the
liability and cash flow of the company.
Debts:
Raise the funds through issuing the debentures in the market is also a long term
source. In this, company issues debentures in the market in a fixed % along with specified
time period (Higgins, 2012). It is quite easier to rise because of easy availability of funds.
However it could affect the cash flow level, risk level and solvency position of the company.
In case of “National Takaful co”, it has been found that company could raise the funds
through debts easily but it would affect the liability and cash flow of the company.
Equity and Retained earnings:
Lastly, equity and retained earnings are main and most used long term source to raise
the funds. In this, company sells its ownership in the market to raise the funds. It is quite
easier to rise because of interest of people in capital market. However it could affect the
significance of ownership (Hillier, Grinblatt and Titman, 2011). It enhances the cost of
capital and total risk of the company. In case of “National Takaful co”, it has been found that
company could raise the funds through equity easily but it would affect the stockholder
worth.
Recommendation and conclusion:
On the basis of overall study over the National Takaful Company and various sources
of funds, it has been found that AED 2,000,000 could be raised by the company through short
term funds. and in order to raise the AED 1,000,000 funds, company should use the long term
funds such as debt and equity. On the basis of the study, it has been found that current
WACC of the company is 1.26% out of which 3.33% is the cost of equity and 0.07% is the
cost of debt of the company. the capital structure explains that equity level of the company is
quite lower. Hence, the company is suggested to improve the funds through equity only. It
would improve the cost of capital of the company but along with that the solvency position
and the risk of company would also be lower (appendix). Hence, investment into equity share
is best option for the company.

Strategic Financial Management 9
Task 3:
Introduction:
In the report, cost evaluation and budgetary evaluation process has been done. Anglo
American plc is an international mining business which is based in United Kingdom. Main
products of the company are copper, iron ore, nickel, diamonds, platinum, thermal coal etc.
the cost of the company has been studied and evaluated from the previous financial statement
of the company. Further, the importance of cost accounting has been studied. Various tools of
cost design and cost system has been assessed to calculate the financial position of the
company.
Cost verified from financial statement:
Cost accounting assist the business to measure the associated cost to the production of
the company so that the business could identify the irrelevant cost and reduce it to reach over
the main objectives of the business (Deegan, 2013). Cost accounting helps the management
to manage netire activities and production cost of the factory perfectly. the main process of
cost accounting is to classify the record, evaluate and analyze it and allocate the cost is
various numbers to control over the operations of the company (Brealey, Myers and Marcus,
2017).
The cost accounting process has been applied over Anglo American plc. On the basis
of annual report (2018) of Anglo American plc, it has been recognized that the various
changes have occurred into the total cost of the company. these changes have occurred
because of the production cost in the company. Earlier, the total cost of revenue of the
company was USD 14,380,000 thousand which has been improved to USD 15,855,000
thousand. It defines that the total cost of the company has been improved to 10.26% because
of the new project and changes into the plants of the company.
2018 2017 Differences
Cost of revenue 15,855,000 14,380,000 10.26%
(Annual report, 2018)
The cost accounting process defines that the overall cost of the company has been
improved and along with that, revenue level of the company has also been improved
(Garrison, Noreen, Brewer and McGowan, 2010). Company’s annual report defines that a
better management over the cost has been done by the company to reach over a conclusion.

Strategic Financial Management 10
Importance of cost accounting:
Cost accounting’s main aim is to provide enough information and knowledge about
the different cost associated in the company to the concerned person so that the cost
accountant or other concerned person can evaluate the associated cost with the company and
make better decision accordingly. It offers various statistical methods to identify the
irrelevant cost in the company so that it can be reduced and profitability level of the company
could be improved. It helps the management to present the associated cost in presentable
manner in front of stakeholder (Hogarth and Makridakis, 2011). The main importance of cost
accounting is that it helps the business to run smoothly and business doesn’t require to
showcase the cost accounting data to public. It evaluates the cost occurred in the production
department of the company and other related department so that the overall cost of the
business could be occurred (Bierman, 2010).
On the basis of the cost accounting, an organization can easily forecast the future cost
and performance of the business. Organizations such as Anglo American plc take the help of
cost accounting to measure the cost performance and make better decision in the market.
Tools of costing design and costing system:
Costing design is a set which helps an organization or the management to administer
the various aspects and functions while taking decision about the cost system. It helps the
management to identify and record all the cost related aspect in presentable manner. Cost
design system helps the management to gather cost related information and present them to
internal stakeholders in such a way that quick decision could be made (Brown, Beekes and
Verhoeven, 2011). Cost design system is basically dividend into 2 parts:
Internal cost design system:
This cost design system takes the concern over the internal data of an organization.
This process is applied by Anglo American plc to evaluate about the profit, performance and
position of the company internally. It helps the business to make better polices and strategies.
In these tools, management evaluates the internal costing process of the company and make
better decision about the performance of the company accordingly. The internal design
system evaluates the controlling power of the company to decide the new policies and
performance (Brigham and Ehrhardt, 2013). It shows its concern about internal performance
of the company and makes the decision about overall improvement in the organization in

Strategic Financial Management 11
terms of production and profitability level. Internal cost design system also helps the
organization to make better decision, plan, policy, decision, strategy etc for the betterment of
the company. it also helps the company to make policies for stakeholders and governments.
External cost design system:
This cost design system takes the concern over the external data of an organization.
This process is applied by Anglo American plc to evaluate about the profitability level,
financial performance and market position of the business externally. It helps the business to
make better polices and strategies to improve the market position (Davies and Crawford,
2011). In these tools, management evaluates the external costing process of the company and
make better decision about the performance of the company accordingly. The external design
system evaluates the controlling power of the company to decide the new policies and
performance (Damodaran, 2011). It shows its concern about external performance of the
company and makes the decision about overall improvement in the organization in terms of
production and profitability level. External cost design system also helps the organization to
make better decision, plan, policy, decision, strategy etc for the betterment of the company. It
also helps the company to make policies for stakeholders and governments.
Budget and budgetary process:
Budgeting is a process in which future income and expenditure of the business is
determined on the basis of market changes, economical performance, industry demand
fluctuations and previous performance of the business. Initially company identifies the
relevant approaches of budgeting process such as top down budget and bottom up budget.
Further, the components of budget such as sales budget, production budget, ash budget etc
are determined. The budgeting process of the company is as follows:
1. Update budget assumption
2. Note available funding
3. Step costing points
4. Create budget package
5. Obtain revenue forecast
6. Obtain department budget
7. Validate compensation

Strategic Financial Management 12
8. Validate bonus plan
9. Obtain capital budget model
10. Update the budget model
11. Review the budget
12. Obtain approval
13. Issue the budget
Recommendation:
At the end, costing and pricing strategy of the company has been evaluated and it has
been found that the few changes are required by the company to improve the overall
performance at internal and external level. Company is suggested to look over the overhead
cost and indirect cost as this cost of the company could be controlled and it can help the
business to improve the overall performance of the company. Further, the control over these
costs would improve the internal and external position of the company. The cost accounting’s
main part is to evaluate about the relevant performance and cost information of the company.
In case of Anglo American plc, it has been recognized that the organization is
involving into various irrelevant cost such as additional depreciation and non-controlling
expenses of the company which would reduce the production cost and associated cost of the
company and improve the net profit of the company. To conclude, this process would
improve the market performance, capital position, financial performance etc of the company.
It would also help the business to make better planning to improve the stakeholder’s worth
and government interference level. The changes into cost design system would also help the
organization to make better decision, plan, policy, decision, strategy etc for the betterment of
the company. It would also help the company to make policies for stakeholders and
governments. Company is also recommended to use the master budget to forecast the future
performance of the company. Sample of master budget for anglo American has given in
appendix.

Strategic Financial Management 13
References:
Arnold, G., 2013. Corporate financial management. Pearson Higher Ed.
Annual report. 2018. Anglo American plc. (online). Accessed on:
https://www.angloamerican.com/~/media/Files/A/Anglo-American-PLC-V2/documents/
annual-updates-2019/aa-annual-report-2018.pdf [available at 6/5/19].
Baker, H.K. and Nofsinger, J.R. 2010. Behavioral Finance: Investors, Corporations, and
Markets. John Wiley & Sons.
Besley, S. and Brigham, E.F., 2018. Essentials of managerial finance. Thomson South-
Western.
Bierman, H., 2010. An introduction to accounting and managerial finance: a merger of
equals. World Scientific.
Brealey, R., Myers, S.C. and Marcus, A.J., 2017. FundamentalsofCorporate Finance. Mc
Graw Hill, New York.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice.
Cengage Learning.
Brown, P., Beekes, W. and Verhoeven, P., 2011. Corporate governance, accounting and
finance: A review. Accounting & finance, 51(1), pp.96-172.
Damodaran, A, 2011, Applied corporate finance,3rd edition, John Wiley & sons, USA
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Gapenski, L.C., 2010. Healthcare finance: an introduction to accounting and financial
management. Health Administration Press.
Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., 2010. Managerial
accounting. Issues in Accounting Education, 25(4), pp.792-793.
Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

Strategic Financial Management 14
Hillier, D., Grinblatt, M. and Titman, S., 2011. Financial markets and corporate strategy.
McGraw Hill.
Hogarth, R.M. and Makridakis, S., 2011. Forecasting and planning: An
evaluation. Management science, 27(2), pp.115-138.
Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education
India.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Kinsky, R. 2011. Charting Made Simple: A Beginner's Guide to Technical Analysis. John
Wiley & Sons.
Madura, J., 2011. International financial management. Cengage Learning.
Morningstar. 2019. National Takaful co. (online). Accessed on:
http://financials.morningstar.com/cash-flow/cf.html?t=WATANIA&region=are&culture=en-
US [available at 6/5/19].
Nobes, C. and Parker, R.H., 2010. Comparative international accounting. Pearson Education.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2009. Managerial accounting: tools for
business decision making. John Wiley & Sons.
Williams, J.R., Haka, S.F., Bettner, M.S. and Carcello, J.V., 2015. Financial and managerial
accounting. China Machine Press.

Strategic Financial Management 15
Appendix:
Question 1:
NATIONAL TAKAFUL CO (WATANIA) PJSC (WATANIA) CashFlowFlag
INCOME STATEMENT
Fiscal year ends in December. AED in thousands except per share
data.
2017-
12
2018-
12
Revenues
Premiums 151023 189164
Investment income, net -414 -167
Realized capital gains (losses), net 511 86
Other income (loss) 9885 12481
Total revenues 161005 201564
Benefits, claims and expenses
Policyholder benefits and claims incurred 92303 108858
Selling, general and administrative 3889 4437
Other expenses 57197 75926
Total benefits, claims and expenses 153389 189221
Income before income taxes 7616 12343
Net income 7616 12343
Preferred dividend
Net income available to common shareholders 7616 12343
Earnings per share
Basic 0.05 0.08
Diluted 0.05 0.08
Weighted average shares outstanding
Basic 150000 150000
Diluted 150000 150000
NATIONAL TAKAFUL CO (WATANIA) PJSC (WATANIA) CashFlowFlag
BALANCE SHEET
Fiscal year ends in December. AED in thousands except per share
data.
2017-
12
2018-
12
Assets
Loans, total
Short-term investments 12353 42464
Cash and cash equivalents 27500 33276
Premiums and other receivables 68385 70665
Deferred policy acquisition costs 12571 10989
Property and equipment 310 1331
Goodwill 614 770
Other assets 284447 240320

Strategic Financial Management 16
Total assets 406180 399815
Liabilities and stockholders' equity
Liabilities
Unearned premiums 147955 137703
Taxes payable 524
Other liabilities 173148 165723
Total liabilities 321103 303950
Stockholders' equity
Common stock 150000 150000
Retained earnings -64010 -52901
Accumulated other comprehensive income -913 -1234
Total stockholders' equity 85077 95865
Total liabilities and stockholders' equity 406180 399815
NATIONAL TAKAFUL CO (WATANIA) PJSC (WATANIA) Statement of CASH
FLOW
Fiscal year ends in December. AED in thousands except per share
data.
2017-
12
2018-
12
Cash Flows From Operating Activities
Investments (gains) losses -3293 -4506
Depreciation & amortization 610 650
Receivable 7479 -4973
Prepaid expenses -4801 2199
Payables 8455 2935
Other assets and liabilities 22690 5810
Other operating activities 9039 18665
Net cash provided by operating activities 40179 20780
Cash Flows From Investing Activities
Sales/maturities of fixed maturity and equity securities 3699 15323
Purchases of investments
-
49266
Property, and equipments, net -197 -1827
Other investing activities
-
10625
-
28500
Net cash used for investing activities
-
56389
-
15004
Cash Flows From Financing Activities
Net change in cash
-
16210 5776
Cash at beginning of period 43710 27500
Cash at end of period 27500 33276
Supplemental schedule of cash flow data

Strategic Financial Management 17
Ratio calculations of National Takaful company
Ratio Calculations 2017 2018
Profitability Ratios: 2017 2018
Return on Capital employed
Operating profit / 68,702 92,706
Capital employed (total assets - current
liabilities)
258,22
5
262,11
2
Answer: % 26.61% 35.37%
Return on assets
Net profit / 7,616 12,343
Total assets
406,18
0
399,81
5
Answer: 1.9% 3.1%
Net profit margin %
Net profit / 7,616 12,343
Sales Revenue % 161,005 201,564
Answer: 4.7% 6.1%
Asset Efficiency Ratios 2016 2017
Creditors turnover days
Accounts payable/ 147,955 137,703
Cost of sales 92,303 108,858
Answer: (note the above needs to be x 365) # days 1.60 1.26
Debtors Turnover (days)
Average trade debtors / 284,447 240,320
Sales revenue (note used operating revenue) # days
161,00
5
201,56
4
Answer: (note the above needs to be x 365) 1.77 1.19
Liquidity Ratios 2016 2017
Current Ratio
Current Assets / 121,733 159,495
Current liabilities
147,95
5
138,22
7
Answer: 0.82 1.15
Quick ratio
Current Assets - Inventory / 121,733 159,495

Strategic Financial Management 18
Current Liabilities
147,95
5
138,22
7
Answer: 0.82 1.15
Capital Structure Ratios 2016 2017
Debt equity ratio
Total liabilities / 321,103 303,950
Total equity 85,077 95,865
Answer: % 3.77 3.17
Debt ratio
Total debt / 173,148 165,723
Total assets 406,180 399,815
Answer: % 0.43 0.41
Interest Coverage Ratio
EBIT / 68,702 92,706
Net Finance Costs (used net interest expense) 9,885 12,481
Answer:
times
p.a 6.95 7.43
Market value Ratios 2016 2017
Earnings per share
Net income 7,616 12,343
Weighted average shares outstanding 150,000 150,000
Answer: 0.05 0.08
Question 2:
Before:
A) Book Value Weights
Book Value Weights (Amt in AED)
Debt Equity Total
Equity shares
95,865.
00
Value of debt (short term
borrowings+ long term
borrowings)
165,723.0
0
Total
165,723.0
0
95,865.
00
261,588
.00
D. Weights 63.35% 36.65%

Strategic Financial Management 19
B) Cost of Equity and Debt
Cost of Equity: CAPM model Cost of debt:
A. Risk free rate 2.75%
Net finance
cost 167.00
B. Market rate of return 8%
Less: Tax
@35% 58.45
C. Beta 0.11
After tax
cost of debt 108.55
D. CAPM 3.33%
Borrowings
amount 165,723.00
After tax
cost of debt
(%) 0.07%
C) Weighted Average Cost of Capital
Debt
Ordinary
Shares Total
Cost of Finance 0.07% 3.33%
Market Weights 0.63 0.37
WACC 0.04% 1.22% 1.26%
After raising the funds through equity:
A) Book Value Weights
Book Value Weights (Amt in AED)
Debt Equity Total
Equity shares 96,865.00
Value of debt (short term
borrowings+ long term
borrowings)
165,723.0
0
Total
165,723.0
0 96,865.00 262,588.00
D. Weights 63.35% 37.03%
B) Cost of Equity and Debt

Strategic Financial Management 20
Cost of Equity: CAPM model Cost of debt:
A. Risk free rate 2.75%
Net finance
cost 167.00
B. Market rate of return 8%
Less: Tax
@35% 58.45
C. Beta 0.11
After tax
cost of debt 108.55
D. CAPM 3.33%
Borrowings
amount 165,723.00
After tax
cost of debt
(%) 0.07%
C) Weighted Average Cost of Capital
Debt
Ordinary
Shares Total
Cost of Finance 0.07% 3.33%
Market Weights 0.63 0.37
WACC 0.04% 1.23% 1.27%
Question 3:
Budget:
Monthly sales revenue budget (Amt in AED)
Sales Units
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Copper
1,50
0
1,20
0 1,300
1,00
0 400 500 400 200
1,30
0
1,20
0
1,20
0
1,50
0
Diamond
1,20
0
1,10
0 1,160
1,00
0 600 700 500 400
1,16
0
1,10
0
1,10
0
1,20
0
Iron ore 400 300 260 140 80 40 40 40 260 300 300 400
Platinum 200 180 160 120 60 40 40 40 160 180 180 200
Selling unit
Copper
$
100.
00
$
100.
00
$
100.0
0
$
100.
00
$
100
.00
$
100.
00
$
100
.00
$
100
.00
$
100.
00
$
100.
00
$
100.
00
$
100.
00
Diamond
$
75.0
0
$
75.0
0
$
75.00
$
75.0
0
$
75.
00
$
75.0
0
$
75.
00
$
75.
00
$
75.0
0
$
75.0
0
$
75.0
0
$
75.0
0

Strategic Financial Management 21
Iron ore
$
45.0
0
$
45.0
0
$
45.00
$
45.0
0
$
45.
00
$
45.0
0
$
45.
00
$
45.
00
$
45.0
0
$
45.0
0
$
45.0
0
$
45.0
0
Platinum
$
65.0
0
$
65.0
0
$
65.00
$
65.0
0
$
65.
00
$
65.0
0
$
65.
00
$
65.
00
$
65.0
0
$
65.0
0
$
65.0
0
$
65.0
0
Sales
Revenue
Copper
$
1,50
,000
$
1,20
,000
$
1,30,0
00
$
1,00
,000
$
40,
000
$
50,0
00
$
40,
000
$
20,
000
$
1,30
,000
$
1,20
,000
$
1,20
,000
$
1,50
,000
Diamond
$
90,0
00
$
82,5
00
$
87,00
0
$
75,0
00
$
45,
000
$
52,5
00
$
37,
500
$
30,
000
$
87,0
00
$
82,5
00
$
82,5
00
$
90,0
00
Iron ore
$
18,0
00
$
13,5
00
$
11,70
0
$
6,30
0
$
3,6
00
$
1,80
0
$
1,8
00
$
1,8
00
$
11,7
00
$
13,5
00
$
13,5
00
$
18,0
00
Platinum
$
13,0
00
$
11,7
00
$
10,40
0
$
7,80
0
$
3,9
00
$
2,60
0
$
2,6
00
$
2,6
00
$
10,4
00
$
11,7
00
$
11,7
00
$
13,0
00
Total Sales
Revenue
$
2,71
,000
$
2,27
,700
$
2,39,1
00
$
1,89
,100
$
92,
500
$
1,06
,900
$
81,
900
$
54,
400
$
2,39
,100
$
2,27
,700
$
2,27
,700
$
2,71
,000
Cash collection budget
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Total Sales
Revenue
271
000
227
700
23910
0
189
100
925
00
106
900
819
00
544
00
239
100
227
700
227
700
271
000
Total cash
sales
542
00
455
40 47820
378
20
185
00
213
80
163
80
108
80
478
20
455
40
455
40
542
00
Credit sales
(1st month
amount)
162
600
136
620
14346
0
113
460
555
00
641
40
491
40
326
40
143
460
136
620
136
620
162
600
Credit sales
(2nd month
amount)
108
400 91080
956
40
756
40
370
00
427
60
327
60
217
60
956
40
910
80
910
80
Total Cash
collection
216
800
290
560
28236
0
246
920
149
640
122
520
108
280
762
80
213
040
277
800
273
240
307
880
Production budget in units
Budgeted
sales
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18

Strategic Financial Management 22
18
Copper
1,50
0
1,20
0 1,300
1,00
0 400 500 400 200
1,30
0
1,20
0
1,20
0
1,50
0
Diamond
1,20
0
1,10
0 1,160
1,00
0 600 700 500 400
1,16
0
1,10
0
1,10
0
1,20
0
Iron ore 400 300 260 140 80 40 40 40 260 300 300 400
Platinum 200 180 160 120 60 40 40 40 160 180 180 200
Add: desired
ending
inventory
Copper 750 600 650 500 200 250 200 100 650 600 600 750
Diamond 600 550 580 500 300 350 250 200 580 550 550 600
Iron ore 200 150 130 70 40 20 20 20 130 150 150 200
Platinum 100 90 80 60 30 20 20 20 80 90 90 100
Total needs
Copper
2,25
0
1,80
0 1,950
1,50
0 600 750 600 300
1,95
0
1,80
0
1,80
0
2,25
0
Diamond
1,80
0
1,65
0 1,740
1,50
0 900
1,05
0 750 600
1,74
0
1,65
0
1,65
0
1,80
0
Iron ore 600 450 390 210 120 60 60 60 390 450 450 600
Platinum 300 270 240 180 90 60 60 60 240 270 270 300
Less:
Beginning
Inventory
Copper 750 600 650 500 200 250 200 100 650 600 600
Diamond 600 550 580 500 300 350 250 200 580 550 550
Iron ore 200 150 130 70 40 20 20 20 130 150 150
Platinum 100 90 80 60 30 20 20 20 80 90 90
Required
production
Copper
2,25
0
1,05
0 1,350 850 100 550 350 100
1,85
0
1,15
0
1,20
0
1,65
0
Diamond
1,80
0
1,05
0 1,190 920 400 750 400 350
1,54
0
1,07
0
1,10
0
1,25
0
Iron ore 600 250 240 80 50 20 40 40 370 320 300 450
Platinum 300 170 150 100 30 30 40 40 220 190 180 210
Total
Required
production
4,95
0
2,52
0 2,930
1,95
0 580
1,35
0 830 530
3,98
0
2,73
0
2,78
0
3,56
0
Direct Material and cash purchase budget
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18

Strategic Financial Management 23
18
Budgeted
production
units
Copper
225
0
105
0 1350 850 100 550 350 100
185
0
115
0
120
0
165
0
Diamond
180
0
105
0 1190 920 400 750 400 350
154
0
107
0
110
0
125
0
Iron ore 600 250 240 80 50 20 40 40 370 320 300 450
Platinum 300 170 150 100 30 30 40 40 220 190 180 210
Material
units needed
for
production
Copper
225
0
105
0 1350 850 100 550 350 100
185
0
115
0
120
0
165
0
Diamond
180
0
105
0 1190 920 400 750 400 350
154
0
107
0
110
0
125
0
Iron ore 600 250 240 80 50 20 40 40 370 320 300 450
Platinum 300 170 150 100 30 30 40 40 220 190 180 210
Add: desired
inventory
level
Copper
112
5 525 675 425 50 275 175 50 925 575 600 825
Diamond 900 525 595 460 200 375 200 175 770 535 550 625
Iron ore 300 125 120 40 25 10 20 20 185 160 150 225
Platinum 150 85 75 50 15 15 20 20 110 95 90 105
Total
material
units
required
Copper
337
5
157
5 2025
127
5 150 825 525 150
277
5
172
5
180
0
247
5
Diamond
270
0
157
5 1785
138
0 600
112
5 600 525
231
0
160
5
165
0
187
5
Iron ore 900 375 360 120 75 30 60 60 555 480 450 675
Platinum 450 255 225 150 45 45 60 60 330 285 270 315
Less:
Beginning
inventory
Copper
112
5 525 675 425 50 275 175 50 925 575 600
Diamond 900 525 595 460 200 375 200 175 770 535 550
Iron ore 300 125 120 40 25 10 20 20 185 160 150

Strategic Financial Management 24
Platinum 150 85 75 50 15 15 20 20 110 95 90
Material
units to be
purchased
Copper
337
5 450 1500 600
-
275 775 250 -25
272
5 800
122
5
187
5
Diamond
270
0 675 1260 785 140 925 225 325
213
5 835
111
5
132
5
Iron ore 900 75 235 0 35 5 50 40 535 295 290 525
Platinum 450 105 140 75 -5 30 45 40 310 175 175 225
Material cost
Raw material
1
Copper
632
81.2
5
843
7.5 28125
112
50
-
515
6.2
5
145
31.2
5
468
7.5
-
468
.75
510
93.7
5
150
00
229
68.7
5
351
56.2
5
Diamond
843
75
210
93.7
5 39375
245
31.2
5
437
5
289
06.2
5
703
1.2
5
101
56.
25
667
18.7
5
260
93.7
5
348
43.7
5
414
06.2
5
Iron ore
236
25
196
8.75
6168.
75 0
918
.75
131.
25
131
2.5
105
0
140
43.7
5
774
3.75
761
2.5
137
81.2
5
Platinum
112
50
262
5 3500
187
5
-
125 750
112
5
100
0
775
0
437
5
437
5
562
5
Raw material
2
Copper
455
62.5
607
5 20250
810
0
-
371
2.5
104
62.5
337
5
-
337
.5
367
87.5
108
00
165
37.5
253
12.5
Diamond
810
0
202
5 3780
235
5 420
277
5 675 975
640
5
250
5
334
5
397
5
Iron ore
472
5
393.
75
1233.
75 0
183
.75
26.2
5
262
.5 210
280
8.75
154
8.75
152
2.5
275
6.25
Platinum 675
157.
5 210
112.
5 -7.5 45
67.
5 60 465
262.
5
262.
5
337.
5
Total cost of
direct
material
241
593.
75
427
76.2
5
10264
2.5
482
23.7
5
-
310
3.7
5
576
27.5
185
36.
25
126
45
186
072.
5
683
28.7
5
914
67.5
128
350
Cash
Purchase
724
78.1
25
128
32.8
75
30792
.75
144
67.1
25
-
931
.12
5
172
88.2
5
556
0.8
75
379
3.5
558
21.7
5
204
98.6
25
274
40.2
5
385
05
169
115.
29943
.375
718
49.7
337
56.
-
217
403
39.
129
75.
885
1.5
130
250.
478
30.1
640
27.2

Strategic Financial Management 25
625 5 625
2.62
5 25 375 75 25 5
724
78.1
25
181
948.
5
60736
.125
863
16.8
75
328
25.
5
151
15.6
25
459
00.
125
167
68.
875
646
73.2
5
150
749.
375
752
70.3
75
102
532.
25
Direct Labour budget
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Budgeted
production
units
Copper
337
5
157
5 2025
127
5 150 825 525 150
277
5
172
5
180
0
247
5
Diamond
270
0
157
5 1785
138
0 600
112
5 600 525
231
0
160
5
165
0
187
5
Iron ore 900 375 360 120 75 30 60 60 555 480 450 675
Platinum 450 255 225 150 45 45 60 60 330 285 270 315
Total Direct
Labour hour
needed
Copper (1
hour)
337
5
157
5 2025
127
5 150 825 525 150
277
5
172
5
180
0
247
5
Diamond
(.75 hour)
202
5
118
1.25
1338.
75
103
5 450
843.
75 450
393
.75
173
2.5
120
3.75
123
7.5
140
6.25
Iron ore (.6
hour) 360 150 144 48 30 12 24 24 222 192 180 270
Platinum (.4
hour) 270 153 135 90 27 27 36 36 198 171 162 189
Direct labour
cost per
hour
Copper
945
00
441
00 56700
357
00
420
0
231
00
147
00
420
0
777
00
483
00
504
00
693
00
Diamond
567
00
330
75 37485
289
80
126
00
236
25
126
00
110
25
485
10
337
05
346
50
393
75
Iron ore
100
80
420
0 4032
134
4 840 336 672 672
621
6
537
6
504
0
756
0
Platinum
756
0
428
4 3780
252
0 756 756
100
8
100
8
554
4
478
8
453
6
529
2
Total Labour
cost
168
840
856
59
10199
7
685
44
183
96
478
17
289
80
169
05
137
970
921
69
946
26
121
527

Strategic Financial Management 26
Manufacturing Overhead Budget
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Units to be
produced
Copper
337
5
157
5 2025
127
5 150 825 525 150
277
5
172
5
180
0
247
5
Diamond
270
0
157
5 1785
138
0 600
112
5 600 525
231
0
160
5
165
0
187
5
Iron ore 900 375 360 120 75 30 60 60 555 480 450 675
Platinum 450 255 225 150 45 45 60 60 330 285 270 315
742
5
378
0 4395
292
5 870
202
5
124
5 795
597
0
409
5
417
0
534
0
Variable
Overhead
cost
Indirect
Material
120
60
611
8.5
7285.
5
489
6
131
4
341
5.5
207
0
120
7.5
985
5
658
3.5
675
9
868
0.5
Indirect
Labour
603
0
305
9.25
3642.
75
244
8 657
170
7.75
103
5
603
.75
492
7.5
329
1.75
337
9.5
434
0.25
Total
Variable
Overhead
cost
180
90
917
7.75
10928
.25
734
4
197
1
512
3.25
310
5
181
1.2
5
147
82.5
987
5.25
101
38.5
130
20.7
5
Fixed
Overhead
cost
Indirect
Material
148
50
756
0 8790
585
0
174
0
405
0
249
0
159
0
119
40
819
0
834
0
106
80
Indirect
Labour
742
5
378
0 4395
292
5 870
202
5
124
5 795
597
0
409
5
417
0
534
0
Utilities 550 550 550 550 550 550 550 550 550 550 550 550
Insurance 200 200 200 200 200 200 200 200 200 200 200 200
Repair
and
maintenance 625 625 625 625 625 625 625 625 625 625 625 625
Rent
700
0
700
0 7000
700
0
700
0
700
0
700
0
700
0
700
0
700
0
700
0
700
0
Depreciation 750 750 750 750 750 750 750 750 750 750 750 750
Total fixed
Overhead
cost
314
00
204
65 22310
179
00
117
35
152
00
128
60
115
10
270
35
214
10
216
35
251
45

Strategic Financial Management 27
Total
overhead
cost
494
90
296
42.7
5
33238
.25
252
44
137
06
203
23.2
5
159
65
133
21.
25
418
17.5
312
85.2
5
317
73.5
381
65.7
5
Less:
depreciation 750 750 750 750 750 750 750 750 750 750 750 750
Cash
payment for
overheads
487
40
288
92.7
5
32488
.25
244
94
129
56
195
73.2
5
152
15
125
71.
25
410
67.5
305
35.2
5
310
23.5
374
15.7
5
Monthly operating cost budget
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Expenses:
Utilities 50 50 50 50 50 50 50 50 50 50 50 50
Insurance
600
0
600
0 6000
600
0
600
0
600
0
600
0
600
0
600
0
600
0
600
0
600
0
Administrati
on Staff
Wages
250
0
250
0 2500
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
General
Office
Expenses
150
0
150
0 1500
150
0
150
0
150
0
150
0
150
0
150
0
150
0
150
0
150
0
Rent
140
0
140
0 1400
140
0
140
0
140
0
140
0
140
0
140
0
140
0
140
0
140
0
Total
monthly cost
budget
114
50
114
50 11450
114
50
114
50
114
50
114
50
114
50
114
50
114
50
114
50
114
50
Inventory Budget for the finished goods
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Copper
225
0
105
0 1350 850 100 550 350 100
185
0
115
0
120
0
165
0
Diamond
180
0
105
0 1190 920 400 750 400 350
154
0
107
0
110
0
125
0
Iron ore 600 250 240 80 50 20 40 40 370 320 300 450
Platinum 300 170 150 100 30 30 40 40 220 190 180 210
Desired
inventory
level for

Strategic Financial Management 28
finished
goods
Copper
112
5 525 675 425 50 275 175 50 925 575 600 825
Diamond 900 525 595 460 200 375 200 175 770 535 550 625
Iron ore 300 125 120 40 25 10 20 20 185 160 150 225
Platinum 150 85 75 50 15 15 20 20 110 95 90 105
Total
inventory
247
5
126
0 1465 975 290 675 415 265
199
0
136
5
139
0
178
0
Cost of sales budget
Sales Units
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Copper
150
0
120
0 1300
100
0 400 500 400 200
130
0
120
0
120
0
150
0
Diamond
120
0
110
0 1160
100
0 600 700 500 400
116
0
110
0
110
0
120
0
Iron ore 400 300 260 140 80 40 40 40 260 300 300 400
Platinum 200 180 160 120 60 40 40 40 160 180 180 200
Selling unit
Copper 100 100 100 100 100 100 100 100 100 100 100 100
Diamond 75 75 75 75 75 75 75 75 75 75 75 75
Iron ore 45 45 45 45 45 45 45 45 45 45 45 45
Platinum 65 65 65 65 65 65 65 65 65 65 65 65
Sales
Revenue
Copper
$
1,50
,000
$
1,20
,000
$
1,30,0
00
$
1,00
,000
$
40,
000
$
50,0
00
$
40,
000
$
20,
000
$
1,30
,000
$
1,20
,000
$
1,20
,000
$
1,50
,000
Diamond
$
90,0
00
$
82,5
00
$
87,00
0
$
75,0
00
$
45,
000
$
52,5
00
$
37,
500
$
30,
000
$
87,0
00
$
82,5
00
$
82,5
00
$
90,0
00
Iron ore
$
18,0
00
$
13,5
00
$
11,70
0
$
6,30
0
$
3,6
00
$
1,80
0
$
1,8
00
$
1,8
00
$
11,7
00
$
13,5
00
$
13,5
00
$
18,0
00
Platinum
$
13,0
00
$
11,7
00
$
10,40
0
$
7,80
0
$
3,9
00
$
2,60
0
$
2,6
00
$
2,6
00
$
10,4
00
$
11,7
00
$
11,7
00
$
13,0
00
cost of sales
$
4,70
,624
$
1,68
,778
$
2,48,5
78
$
1,52
,712
$
39,
698
$
1,36
,468
$
74,
181
$
53,
571
$
3,76
,560
$
2,02
,483
$
2,28
,567
$
2,98
,743

Strategic Financial Management 29
Monthly cash budget
Beginning
cash balance
48,2
50
-
36,4
58
-
53,84
8
21,8
40
77,
955
1,51
,968
1,8
0,5
32
1,8
7,2
67
2,05
,852
1,63
,731
1,56
,627
2,17
,498
ADD:
Budgeted
cash receipts
216
800
290
560
28236
0
246
920
149
640
122
520
108
280
762
80
213
040
277
800
273
240
307
880
Total cash
available
2,65
,050
2,54
,102
2,28,5
12
2,68
,760
2,2
7,5
95
2,74
,488
2,8
8,8
12
2,6
3,5
47
4,18
,892
4,41
,531
4,29
,867
5,25
,378
Less: cash
disbursemen
t
Direct
Material
724
78.1
25
181
948.
5
60736
.125
863
16.8
75
328
25.
5
151
15.6
25
459
00.
125
167
68.
875
646
73.2
5
150
749.
375
752
70.3
75
102
532.
25
Direct
Labour
168
840
856
59
10199
7
685
44
183
96
478
17
289
80
169
05
137
970
921
69
946
26
121
527
Overhead
487
40
288
92.7
5
32488
.25
244
94
129
56
195
73.2
5
152
15
125
71.
25
410
67.5
305
35.2
5
310
23.5
374
15.7
5
Operating
cost
114
50
114
50 11450
114
50
114
50
114
50
114
50
114
50
114
50
114
50
114
50
114
50
Total
disbursemen
t
301
508.
125
307
950.
25
20667
1.375
190
804.
875
756
27.
5
939
55.8
75
101
545
.12
5
576
95.
125
255
160.
75
284
903.
625
212
369.
875
272
925
Cash surplus
-
36,4
58
-
53,8
48
21,84
0
77,9
55
1,5
1,9
68
1,80
,532
1,8
7,2
67
2,0
5,8
52
1,63
,731
1,56
,627
2,17
,498
2,52
,453
Budgeted
ending cash
inventory
-
36,4
58
-
53,8
48
21,84
0
77,9
55
1,5
1,9
68
1,80
,532
1,8
7,2
67
2,0
5,8
52
1,63
,731
1,56
,627
2,17
,498
2,52
,453
Income statement Contribution margin per unit
For the year ended
31st Dec 2018
Cop
per
Dia
mo
nd
Iron
ore
Pla
tinu
m
Sales
price
$
100.
00
$
75.
00
$
45.0
0
$
65.
00
Operating
Revenue
Less:
variab
le cost
$
32.2
5
$
34.
25
$
31.5
0
$
26.
50
Net Sales $
22,2
8,10

Strategic Financial Management 30
0
Less:
Contri
butio
n
margi
n
$
67.7
5
$
40.
75
$
13.5
0
$
38.
50
Budgeted
cost of
merchandise
sold
$
19,7
8,59
0
Gross profit
on
operations
$
2,49
,510
Less:
Operating
Expenses
481
372.
5
Income from
operations
$
-
2,31
,863
Ney income
$
-
2,31
,863