ASSIGNMENT

UNIT 13 Managing Financial Course BTEC EDEXCEL

Principles and Level 7
Techniques (MFPT)

Lecturer Surendra Sthapit VERIFIER M Shammim

Hand Out Date 25 May 2011 Final Submission 13 July 2011

Name of Student TERM Sept 2011

ASSIGNMENT GUIDELINES

1. This assignment is designed to help you achieve a good result in this unit.
2. During your assignment, you are required to answer each question of the outcome
assessment criteria (next page) which has been covered separately in respective lessons.
3. In your answer, write about the key processes and concepts highlighted by the lessons.
4. Study the required descriptors below to ensure that your work demonstrates compliance in
order for it to be considered for pass grade.

It is important that the work you produce is your original work, is carefully planned and written.
Your work should demonstrate your understanding of the theory you have learned
(underpinning knowledge) and your ability to apply it in contemporary situations/case studies
(applied knowledge)

Please Note:

1. Cover sheet should be clearly marked with your name, student ID, title and date. All pages
should be numbered. Give a table of content.
2. Present your work in a structured format with clear sections and use graphs and tables
where appropriate.
3. Follow Harvard Referencing system. All work should be properly referenced and sources
acknowledged clearly, including books, journals, newspapers and websites.
4. Ensure that your work is within the stated word limit.
5. The report should be typed 1.5 spaced, 12 point fonts
6. Plagiarism MUST be avoided.
 RESULT DESCRIPTORS

PASS DESCRIPTORS Learner’s Evidence Shows Tutor to Comments/Feedback

(FROM Outcomes check
Assessment Criteria)
1. Be able to apply 1.1 Explain the importance of costs in
cost concepts to the the pricing strategy of an organization
decision-making 1.2 Design a costing system for use
process. within an organisation

1.3 propose improvements to the

costing and pricing systems used
by an organisation

2. Be able to apply 2.1 apply forecasting techniques to

forecasting make cost and revenue decisions in an
techniques to obtain organisation
information for
decision making 2.1 assess the sources of funds
available to an organisation for a
specific project

3. Be able to 3.1 select appropriate budgetary

participate in the targets for an organisation
budgetary process of
an organisation 3.2 participate in the creation of a
master budget for an organisation

3.3 compare actual expenditure and

income to the master budget of an
organisation

3.4 evaluate budgetary monitoring

processes in an organisation

4.Be able to 4.1 recommend processes that could

recommend cost manage cost reduction in an
reduction organisation
and management
processes for an 4.2 evaluate the potential for the use
organisation of activity-based costing

5. Be able to use 5.1 apply financial appraisal methods

financial appraisal to analyse competing investment
techniques to make projects in the public and private
strategic investment sector
decisions for an
organisation 5.2 make a justified strategic
investment decision for an
organisation using relevant financial
 information

5.3 report on the appropriateness of a

strategic investment decision using
information from a post-audit appraisal

6.Be able to 6.1 analyse financial statements to

interpret financial assess the financial viability of an
statements for organisation
planning and
decision
making 6.2 apply financial ratios to improve
the quality of financial information
in an organisation’s financial
statements

6.3 make recommendations on the

strategic portfolio of an
organisation based on its financial
information
Any other comments

RESULT GIVEN BY Pass

TUTOR Date:
Refer
Tutor Signature
IV Result Check
Agree
Date
Disagree
IV signature
Student’s Response

Signature Date
 ASSIGNMENT TOPIC
Introduction

Knowledge Management is a company that provides consultancy services to various

companies and corporations on management related issues. YOU are one of the directors and
quite frequently, you are required to study, analyze, interpret and recommend various
solutions to your client and their businesses.

At the moment, you have about five different businesses asking for your help and they each
have different focus of concern. Your task is to study the cases of each of those businesses
and provide the necessary expert advice based upon your study and research. You are quite
frequently required to conduct research and also do a detailed numerical analysis before
arriving at any conclusion.

Your Tasks:

1. Cost Analysis (use supplementary information 1)

a. Prepare a profit statement based on marginal costing which shows, for each
product(phone), the contribution margin; your statement also need to show the
total cost figures for the company overall.
b. Is any product giving a negative contribution? Using your previous answer (a),
advise on the possibility of changing the sales mix in order to maximize profit
and suggest how the profit can be increased.
c. Evaluate the merit of Marginal Costing and Absorption Costing.
d. Explain some of the assumption which underlies your analysis above.
2. Forecasting (use supplementary information 2)
a. Use the regression method (either using the formulas or the excel spreadsheet)
to determine the equation of Solaris Company. Estimate the fixed cost and the
variable cost per unit of output.
b. On the basis of your calculations, provide an estimate of the total production
cost for 2009, if their sales quantity is 560,000. Draw the scatter graph and
line of best fit, include the equation as well.
c. How reliable or accurate is the prediction?
d. What are some of the factors that may affect the forecast?
3. Source of Funds (use supplementary information 3)
a. Explain the different types of source of funding available to Blackwall PLC.
b. Briefly explain the advantages and disadvantages of these various source of
funding.
c. Calculate the cost of capital (WACC) for the expansion of Blackwall PLC.
d. What would you recommend to reduce the cost of financing for Blackwall
PLC?
4. Budget Preparation (use supplementary information 4)
a. Prepare the Cash Budget for Monalisa Company for the month of January -
May 2011.
a. Based on your cash budget, recommend how Monalisa Company can better
manage its budget and costs in 2011. Also explain the drawbacks of such
actions.
b. What recommendation can you give to set up an effective method to evaluate
budgetary monitoring processes in an organisation
5. Financial Analysis (use the information available from the company’s
website or annual report)
a. Explain why financial analysis is important for an organization. What are the
different types of ratios that can be used to evaluate the financial position of an
organization.
b. Calculate the key ratios of liquidity, efficiency and profitability and gearing
and investment based upon the information available to you
c. What recommendation can you give based upon your findings of the ratio
analysis and other findings?

(Recommended 2000 words for the main body content. Attach other reference
and appendix separately at the end).
Supplementary information 1

Nobika Ltd sells three models of mobile phones. On the basis of the last year’s profit
figures, the management feels that all three models should be continued to be sold this
year too. They have come to your company to study their financial statements and
provide the necessary suggestions.

Results of Last year Galaxy Model Nebula Model Cosmos model

Sales 180000 360000 228000

Cost of Goods 100000 170000 104000

(variable cost)
Gross Profit 80000 190000 124000

Selling Fixed Cost 30000 96000 48000

Admin Fixed Cost 30000 30000 30000

Net Profit 20000 64000 46000

Upon careful analysis, you have found that their profit statement above has lots of
errors on cost distribution. You have concluded that the following adjustments have to
be made.
1. Cost of Goods sold is actually 80% variable cost and 20% fixed cost (that goes in
Admin cost)
2. Selling cost is not properly distributed. Of the total selling cost, 20% should be
Admin Fixed cost, 40% selling cost is variable cost for Galaxy Model, 20%
variable cost for Nebula Model and 20% variable cost for Cosmos model
3. Admin cost is also not properly distributed. 40% of the actual Admin cost is
variable cost specific to Galaxy Model, 10% for variable cost of Nebula Model,
10% for variable cost of Cosmos Model, and 40% is the fixed cost, distributed
equally to all three products.
Supplementary information 2
Solaris is a CFL light-bulb manufacturing company and they have provided you with
their 6 years sales figures.
Year Total Cost Output (units of
bulbs)

2003 520000 400000

2004 250000 200000

2005 710000 600000

2006 680000 520000

2007 1850000 1800000

2008 600000 440000

2009 ????? 560000

Solaris expects the 2009 sales quantity to be 560000.

Supplementary information 3
Blackewell PLC Company is planning to raise some money to start a new project in
their business. They would like to explore different ways of raising additional funds
and have come to your company to recommend them on the possible ways to raise
this additional finance.

You have been requested to list various sources of funding (finance) and also briefly
explain what are the advantages and disadvantages of these various sources of
funding.

At the moment Blackwall has the following types of funding available and the details
are as follows.

There are 40,000,000 common shares issued.

The current market price of the share £2.20 per share.
The return on equity (ROE) was 12%
The EPS (earnings per share) was 80 pence per share.
The dividend paid this year was 30 pence per share.

Blackwall PLC also has issued 15% bonds (debt) for the total value of £25,000,000.
The tax rate is 40% for Blackwall PLC.

It also has preferred shares in issue of 5,000,000 shares of market price of £1.00 each.
The cost of these preferred shares are 16%.
Supplementary information 4
Monalisa Company is trying to prepare a cash budget forecast for the first six month
of year 2011. Their estimated income and expenses are as follows:

Jan 2011 Feb 2011 March April 2011 May

2011 2011

Sales 50000 70000 90000 70000 50000

Raw material 17000 38000 42000 23000 21000

cost
Labour cost 10000 10000 20000 12000 10000

Overhead 5000 5000 10000 5000 5000

expenses
Capital 19000
Expenditure

The following information is available:

a. Sales are usually 50% for cash (immediate payment), 25% on credit, that is paid in
the next month (one month credit), and 25% to special customers, who pay after
two months (two month credit)
b. Material purchased in one month is paid in cash in the next month (one month
credit)
c. Labor cost is paid one half (50%) during the same month and remainder in the
following (next) month.
d. Overheads are paid in the next month.
e. The capital expenditure of £19000 relates to the purchase of a machine which will
be delivered and paid for in March.
f. The balance at bank on 31 December 2010 is planned to be £4000 in bank
balance.
 Supplementary information 5

Sunrise Marketing is a market research company that produces reports and analysis of the
various sectors of the economy. At present, they are preparing a report on the economic
situation of the retail market in general and the performance of the various retail and
manufacturing companies.

As part of their strategy, they have commissioned your company (Knowledge Management)
to do a ratio analysis (financial statement analysis) of any company you would like to select
and give your analysis and recommendations on those results.

You are provided with the following basic guidelines.

1. You can choose any company whose financial statement (annual report) is
available to you. You are asked to attach their Profit and Loss statement and the
Balance Sheet statement as well.
2. You are required to explain the parameters (formula) you have used to calculate
those figures.
3. You are requested to analyze the five major ratios (profitability, efficiency,
liquidity, gearing and investment) and use any measure of ratio that you think is
appropriate.
4. You are encouraged to do a horizontal and vertical analysis where possible.
5. Where feasible, you can also do an inter-company analysis of that sector to
compare the performance of the various companies.