Managing Financial Principles and Techniques Assignment Sample

Assignment
Managing Financial Principles and Techniques
Type of Documents : Assignment
No of Words : 2,500

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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

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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
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FY 2015
£26,324
£64,512
£22,680
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FY 2013
£23,877
£21,760
£11,400
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Nursery Director
F/T Nursery teachers
P/T Nursery teachers
Total People
Total Payroll
£113,516£57,037 £108,111

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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].

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