HND Business Unit 2: Managing Financial Resources and Decisions

Learning Outcome	Learning Outcome	Assessment Criteria	In this assessment you will have the opportunity to present evidence that shows you are able to:	Task no.	Evidence (page no)
LO1 LO2	Understand the sources of finance available to a business Understand the implications of finance as a resource within a business	1.1	Identify the sources of finance available to a business
		1.2	Assess the implications of the different sources
		1.3	Evaluate appropriate sources of finance for a business project
		2.1	Analyse the costs of different sources of finance
		2.2	Explain the importance of financial and marketing planning
		2.3	Assess the information needs of different decision makers
		2.4	Explain the impact of finance on the financial statements
LO3	Be able to make financial decisions based on financial information	3.1	Analyse budgets and make appropriate decisions.
		3.2	Explain the calculation of unit costs and make pricing decisions using relevant information.
		3.3	Assess the viability of a project using Investment appraisal techniques.
LO4	Be able to evaluate the financial performance of a business.	4.1	Discuss the main financial statements.
		4.2	Compare appropriate formats of financial statements for different types of business.
		4.3	Interpret financial statements using appropriate ratios and comparisons, both internal and external.

Task 1

This tasks offers you the opportunity to achieve L.O. 1: 1.1, 1.2, 1.3

Jon Christ is about to establish a small to medium sized business known as ‘Cosy Chairs’. ‘Cosy Chairs’ will be manufacturing special type of chairs which will bring comfort for those who have to sit long hours for their work.  Jon is strongly considering registering the business as a Public Limited liability company.

As a finance manager, you are required to

a)    Identify the sources of finance available to a business. (AC 1.1)

b)    Assess the implications of the different sources (AC 1.2)

Evaluate appropriate sources of finance for a business project (AC 1.3)

Task 2

This tasks offers you the opportunity to achieve LO2: 2.1, 2.2, 2.3, 2.4

a)      Analyse the costs of different sources of finance (AC 2.1)

b)      Explain the importance of financial planning (AC 2.2)

c)       Assess the information needs of different decision makers (AC 2.3)

Explain the impact of finance on the financial Resources and Statements (AC 2.4)

Task 3 

This tasks offers you an opportunity to achieve LO3: 3.1, 3.2, 3.3

Task 3.1

Kurt Enterprises Cash budget for the second quarter of 2015

	Jan £	February £	March £
Receipts
Cash sales	20,000	22,000	25,000
Disposal of machinery	-	-	32,000
Receipts from customers	10,000	13,500	20,000
Bank loan	10,000	-	-
Total receipts	40,000	40,500	77,000
Payments
Wages and salaries	-11200	-10000	-12000
Operating expenses	-4500	-2700	-6000
Advertising	-2000	-1200	-3000
Raw material	-18000	-16000	-22000
Drawings	-12000	-	-
Total payments	-47,700	-29,900	-43,000
Total receipts less payments	-7,000	10,600	34,000
Opening balance	3,000	-15,000	12,000
Closing balance	-4000	-4,400	46,000

Martin Enterprise Cash budget for the second quarter of 2015

	Jan £	February £	March £
Receipts
Cash sales	20,000	20,000	25,000
Disposal of machinery	80,000	-
Receipts from customers	15,000	30,000	30,000
Bank loan	110,000	20,000	-
Total receipts	225,000	70,000	55,000
Payments
Wages and salaries	24,500	14,500	16,500
Operating expenses	8,900	7,550	8,000
Advertising	2,500	1500	2100
Raw material	5,000	3600	3700
Drawings	6,300	-	-
Total payments	40900	27,150	30,300
Total receipts less payments	184,100	42,850	24,700
Opening balance	-15,000	87,000	32,860
Closing balance	169,100	129,850	57,560

You are required to;

a)   Analyse the cash budgets for the first quarter of 2015 for Kurt and Martin Enterprise.

Make a decision on the actions to be taken to improve the cash budgets

Task 3.2

Cosy Chairs Ltd wants to manufacture a special type of chair designed to alleviate the back pain.

 The costs are as follows:

• Direct materials is £32 per chair
• Direct labour is £40 per chair
• Variable overheads are £15 per chair
• Total fixed production overhead  £100,000
• Number of chairs manufactured is 5,000
• The selling price is £125 per chair and total sales are 4,500 cots.

You are required to;

a)   Calculate the cost of producing a chair using marginal and absorption costing (AC 3.2)

Discuss why Cosy Chairs Ltd might use breakeven or contribution to price the chairs rather than full pricing method (AC 3.2).

Task  3.3

A market survey indicated that there is huge demand for revolving chairs. The net cash inflows directly associated with these chairs are:

Year	Revolving chairs     £
1	50,000
2	53,000
3	60,000
4	67,000
5	72,000

There is the need to initially invest in a specialised machine of £90,000 for the revolving chair.

The estimated cost of capital is 7% per annum.

You are required calculate:

a)   Payback period (AC 3.3)

b)   The Net Present Value (NPV) (AC 3.3)

Advise Cosy Chairs Ltd whether the revolving chairs cots should be manufactured or not (with a justification)(AC 3.3). 

Task 4

This tasks offers you an opportunity to achieveLO4: 4.1, 4.2, 4.3 Tasks 4.1 & 4.2 You are required to; a)      Explain the purpose of the Profit and Loss Account (or Income Statement), Cash flow Statement and the Balance Sheet.(AC 4.1) Following are the statements of financial position for a sole trader and a partnership business