Managing Financial Principles and Techniques Assignment Sample

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Managing Financial Principles and Techniques

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Table of Contents

Introduction..................................................................................................................................... 1

Case 1.............................................................................................................................................. 1

LO1: Be able to apply cost concepts to the decision-making process............................................ 2

1.1 The importance of costs in the pricing strategy of Oak Tree Nursery...................................... 2

1.2 Cost System for Oak Tree Nursery........................................................................................... 2

2.2 Sources of funds available to Oak Tree Nursery for the possible increase in sales.................. 5

3.3 Actual expenditure and income to the master budget of an organization are compared ……. 7

3.4 Budgetary monitoring processes that can be used in Oak Tree Nursery ................................. 7

LO4 Be able to recommend cost reduction and management processes for an organization........ 8

4.1 Process that could be manage cost reduction in Oak nursery.................................................. 8

4.2 The potential for the use of activity based costing in Oak Tree Nursery ................................ 8

5.2 A justified strategic investment decision for Oak Tree Nursery using relevant financial

information..................................................................................................................................... 10

5.3 Appropriateness of a strategic investment decision using information from a post audit

appraisal. ........................................................................................................................................ 10

Case 2.............................................................................................................................................. 11

LO6: Interpreting Financial Statements.......................................................................................... 11

6.1 Financial statements to assess the financial viability of an organization.................................. 11

6.2 Financial ratios to improve the quality of financial information in an organization’s

financial statements......................................................................................................................... 11

References....................................................................................................................................... 13

Online references ............................................................................................................................ 13

Books and Journals ......................................................................................................................... 13





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Figures and tables

Figure 1 cost chart........................................................................................................................... 4

Figure 2 revenue chart.................................................................................................................... 5

Table 1 personnel plan.................................................................................................................... 1

Table 3 revenue forecast................................................................................................................. 5

Table 5 ratios Vodafone................................................................................................................ 11





INTRODUCTION

The true knowledge of financial information in today’s competitive scenario is very important so

that the companies will not only know about their financial position as well as compete with their

rivals. The present business environment is changing at a very fast pace so the corporate, now, strongly

feel that working on the same traditional principles would not be fruitful so there is a need to adopt newer

and modern strategies to gain profits (Drury, 2009).So, the financial data provides enough information on

the working conditions of the business. In this report, techniques such as capital budgeting, activity

based costing, budgets, forecasting techniques are discussed which helps to increase the

productivity (McMillan and Camara, 2012).

Case 1

This is a case about a person who has an experience of 17 years in the field of child management and

is now coming with a nursery named as ‘Oak tree Nursery’. For this, he will give £15000 and will arrange

£25000 form the bank. Around 13 admissions are expected in the first year with a minimal growth in first

year and will reach up to a capacity of 150 at the end of 2 years of business. The projected revenues are

£138,000 in the first year and £300,000 by 2015. The management is anticipating a drop in revenue

of 100 per month. Here is the table of financial years 2013, 2014 and 2015 which is being predicted.

FY 2014

£25,071

£61,440

£21,600

8

FY 2015

£26,324

£64,512

£22,680

8

FY 2013

£23,877

£21,760

£11,400

4

Nursery Director

F/T Nursery teachers

P/T Nursery teachers

Total People

Total Payroll

£113,516 £57,037 £108,111





LO1: Be able to apply cost concepts to the decision-making process

1.1 The importance of costs in the pricing strategy of Oak Tree Nursery

The main decision in front of any corporate is to decide over what pricing strategy it will apply on its

goods and services. And before deciding over any price it is necessary to have complete knowledge

about the cost incurred by it in the production process. Since the main aim of all the companies is to earn

profits and this will increase when the cost will be less than the price of its goods because then only they

will be able to generate a positive cash flow so cost is the main factor in deciding about the price

(Atrill and McLaney, 2002).

In the case give here, it can be said that the pricing strategy of ‘Oak tree Nursery’ will also depend on its

costs. For it, the main source of cash inflow is the fees from the students. The main expense will be

salary of part and full time staffs, purchasing stationery and toys, various learning instruments and

developing modern techniques of teaching in classes. So, the nursery has to decide its prices according to

the costs so that it will not incur losses and will be able to generate a positive cash flow. In this regard the

fees structure decided by it has a lot of importance so at the end of the year it can make profits (Amato,

2012).

1.2 Cost System for Oak Tree Nursery

There are mainly two types of costs, mainly fixed costs, which is on fixed assets and variable costs,

which is incurred on variable activities. There is another type also known as one time cost which is done

one time only (Chartered Institute of Management Accountants, n.d).

The costing system for ‘Oak tree Nursery’ will be as follows-

• Fixed costs – these will be

Rent

• Variable costs – these are

Stationery

Utility bills

Toys

Salaries and wages

• One time cost- these are

legal charges

Promotional expenses






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LO4 Be able to recommend cost reduction and management processes for an organization

4.1 Process that could be manage cost reduction in Oak nursery.

It is a fact that the master budget provides the true picture of the financial position of the company. In a

similar manner, the master budget of nursery also shows that it will have a loss during the first two

years. It is because its expenditure is more than its income so it has to work towards increasing its profits.

For this, it can apply the following solutions-

• Apart from the bank, it can raise funds from various sources like government securities and equity

shares.

• It should expect that it has to increase the number of admissions from 13 to a little more.

• It should either decrease the salary of temporary staff or reduce the number of permanent staff so the

expenditure can be reduced (Brookson, 2000).

4.2 The potential for the use of activity based costing in Oak Tree Nursery

Activity based costing is that when a company calculates the costs of each of its activity during the

production of its goods and services. Through this, it will be aware of the expenditure of individual

activity so that it can relate to the pricing of its production. This technique requires a lot of labor and is

too expensive so can be afforded by big corporate only (Berry and Jarvis, 2005).

Since, Oak Tree Nursery is a new establishment and does not have much funds so it will be difficult for it

to apply this type of costing so it will be advisable for the nursery to not to use this at so much early

stage because at present it neither has the man power nor the capital (Tysiac, 2013).






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References

• Drake, P. http://www.ouwb.ohiou.edu/stinson/Classes2009/fin_formulas.pdf >[Accessed on 16

February 2013].

• Financial Ratio Formulas. [pdf]. Available through <Parrott, W. 2009. Management Accounting –

Financial Strategy. [pdf]. Available through

<http://www.cimaglobal.com/Documents/ImportedDocuments/P9may2009fmarticle.pdf >[Accessed

on 15 February 2013].

• Peavler, R. n.d. Budgeting - What is a Master Budget?. [online]. Available through

<http://bizfinance.about.com/od/businessbudgeting/qt/budget-planning-what-is-a-master-budget.htm >

[Accessed on 16th February 2013].

• Performance Monitoring. http://www.bized.co.uk/educators/16-

19/business/strategy/lesson/performance.htm 2005. [online]. Available through<>[Accessed on 15

February 2013].


http://www.bized.co.uk/educators/16-19/business/strategy/lesson/performance.htm%202005

http://www.bized.co.uk/educators/16-19/business/strategy/lesson/performance.htm%202005

Managing Financial Principles and Techniques Assignment Sample

Economy & Finance

Transcript of Managing Financial Principles and Techniques Assignment Sample