Assignment Front Sheet

Qualification Unit Code / Unit number and title

H/601/0548
Pearson BTEC Level 5 HND Diploma in Business Unit 2: Managing Financial Resources and
Decisions
Student name / BTEC Registration Number Assessor name

Date issued Hand in deadline Submitted on

Assignment title MFRD 2: Financial Decision Making (2 of 2)

In this assessment you will have opportunities to provide evidence against the following criteria.
Indicate the page numbers where the evidence can be found.

In this assessment you will have the

Learning Learning Assessment Task Evidence
opportunity to present evidence that
Outcome outcome Criteria no. (Page no)
shows you are able to:

Understand the
sources of
Evaluate appropriate sources of finance for
LO1 finance 1.3 3
a business project
available to a
business

Understand the Explain the importance of financial

2.2 4
implications of planning
finance
LO2
as a resource
within a Assess the information needs of different
business 2.3 4
decision makers

Analyse budgets and make appropriate

3.1 4
decisions
Be able to make Explain the calculation of unit costs and
financial 3.2 make pricing decisions using relevant 4
LO3 decisions based information
on financial
information
Assess the viability of a project using
3.3 5
investment appraisal techniques

Student declaration

I certify that the work submitted for this assignment is my own. I have clearly referenced any sources used in the work. I
understand that false declaration is a form of malpractice.
Student signature: Date:

1.3 Evaluate appropriate sources of finance for a business project

a. The profitability of the company is obviously important. If the company is making

small profits or even losses, it will be unable to raise much or any capital internally. It
might also find it difficult to raise new long term funds externally. In such cases, the
company might rely heavily on bank lending.

b. The reason for wanting capital. Capital for financing long term assets should be
financed from long term sources, whereas current assets will be financed from a mixture
of long term funds and current liabilities.

c. A profitable company can raise capital from retained profits, and most new capital
in the UK is currently obtained from this source. However, retaining profits means paying
less in dividends and companies must achieve a sound balance between dividends and
retained earnings.

d. When a company wants to take over another, it might be able to pay for the takeover
by means of a share exchange issuing more of its own shares and giving these to the
shareholders of the target company in exchange for their shares in that company.
Companies seeking takeover opportunities commonly use share exchange arrangements
in this way to finance their takeovers.

e. Interest on loan capital may be high. If interest rates of gilts are high, then interest
rates on company loan stock would have to be even higher to attract the institutional
investors. In this case, rather than compete with the government, companies have tended
to borrow from banks, often medium or short term.
f. International companies sometimes borrow in foreign currency. Very large companies
can borrow long term on the Eurobond market.

g. If government grants are available companies will, if feasible, seek to obtain finance
from this source, depending on the conditions which must be met for the grant to be
obtained.

* With Apple

Source of finance Advantages Disadvantages

Cash from sales is + Cash is available at Apple + Opportunity cost if the
appropriate bc of such a hence it can be used to finance cash cannot be used for
great amount of cash the acquisition immediately and other purposes
available at Apple (130 conveniently + Shareholders may
billion pounds, net of + No interest => cheap finance in oppose and have negative
debts) comparison with bank loan and attitude bc dividends will
corporate bonds be reduced
+ Using cash gives independence
to Apple. Apple does not depend
on creditors
+ Using (Channeling) cash to
manufacturing will increase the
effiency and profitability of cash
of Apple as compared with
putting cash in the till

Bank loans are + In comparison with corporate + High interest rate =>
appropriate bc Apple is bonds and shares, bank loans call expensive source of
a large company with for cash flow quicker. finance
good reputation. Hence, + Can have a large amount for a + No risk-sharing bc of
the company can long time fixed interest rate
borrow quickly from
the banks without
collaterals.
Corporate bonds are + Lower interest rate in + Bond issuance process
appropriate bc Apple is comparison with banks loan can take a long time and
a large company with + No secured asset be complicated.
good reputation. Hence, + Can have a large amount for a + No risk sharing bc of
the company can long time fixed interest rate
borrow quickly from + Have to pay back the
the banks successfully principal at the due date
from citizen without
secured assets.
(corporate bonds
unsecured bonds no
secured asset
debentures- secured
bonds- secured asset)
Shares are appropriate + No pay back of the principal to + Issuance process can be
bc Apple is a very large investors complicated and take long
company with good + Risk-sharing, bc flexible time
reputatio . Hence, the dividends + Dilute the control of
company can mobilize existing shareholders
quickly and + Fee for issuance &
successfully from administration
citizen. + Share price fluctuation,
not be controlled

As Apple acquires Prime Sense, they need to call for capital. Thus, we suggest 2 sources
of finance which are possible for Apple to use is Cash from sales and Shares

2.2. Explain the importance of financial planning:

Financial Planning is the process of short-term spending demand in cash of a company

and the profits that company will earn in the future. There are three important steps in the
process of financial planning.
-Cash Planning, forecasting the need for cash.
-Forecasting future profitability.
-Forecasting the need for financing.
Understanding the financial resources of their company, from that the manager can
predict the financial situations in the future such as: lack of capital, risks that coming
from partners and customers. From those predictions, the company will prepare to avoid
disadvantages and adverse cases when having risk.
With the business activities such as price, connect with partners; companies have to give
some suitable policy.
When the business activities and financial activities are controlled by the financial plans,
its will have company guarantee about their finance. The financial plans also have
company about considering their investment, especially in the online selling companies,
they will know which product is the best seller, from that they will be invested and
developed. For example, HIC built its reputation as the behind-the-scenes designer and
manufacturer of many of the most popular OEM-branded mobile devices on the market
so they have their knowledge about the products in, brand HIC Financial planning. As a
result, they will know how to invest, sell their products, brand to bring more gains.
The financial planning is also an important connection between the past and future of
HIC Financing. HIC also invests in many other activities such as charitable and creating
job for holidays, etc so setting up a financial plan is essential. The CEO and Managers,
who will recognize the positive and negative affection, base on them. As a result HIC
company will have the project, which have to reduce loss and risk; therefore this
company will give the directions and decisions for business activities in the future.
In conclusion, HIC is one of the pioneering companies in online selling so the financial
matters are very important things. It will decide the success of the HIC.

Digital pad Analogue bubbles

Beginning balance 450 300
Budgeted sales 3000 4500
Ending balance 700 500
Budget production 3250 4700
Material usage A4 B2 C6 D5
For digital pads 3 units* 3250 = 6500 0 3250
9750
For analogue bubble 2 units * 4700= 9400 18800 0
9400
Total material usage 19150 15900 18800 3250
Beginning balance 3000 9900 9800 1000
Ending balance 4850 11000 10,000 1250
Purchase budget 21000 =15900+11000-4850= 19000 3500
17000
Purchasing budget (in 21000*10= 119000 95000 105000
pound) 210000

Price =Unit cost + 23% profit

Production cost per unit= RM cost per unit + Direct labor cost per unit+ Production
overhead per unit
Digital Pad introduction cost per unit = 3*10+2*7+30 + 3*6+2=94
Analogue bubble= 68
Total cost per unit = Production cost per unit + Non- production cost per unit
Fixed overhead rate = 2872503250*6+4700*2*6=2.5
For every dollar for producing, the overhead cost is 2.5$.
Total cost of digital per unit= 94+2.5*3*6= 139
Total cot of bubble per unit= 68+2.5*2*6= 98
Gross profit per unit of Digital = 23%*139= 31.97=32
Gross profit per unit of Bubble= 23%*98= 22.54
Selling price of digital per unit = 139+32= 171
Selling price of bubble per unit = 98+22.54= 120.54
Importance:
Preparation of sales, production budget and purchasing budget is important
Sales department, production dept purchasing dept have their targets to try
Companys objectives can be achieved easier
Sales dept, factories & purchasing dept cooperate to reduce in efficiency.
Sales dept, factories, purchasing dept arrange resources (labor, machine, cash, raw
materials) to be used ad select the best option
Budgets are benchmarks to evaluate performance of departments, factories and
individuals.

2.3: Assess the information needs of different decision makers.

The managers always have to classify what they need to make decision and direction
such as useful and quick reports. It will bring efficient performance. These essential
information are founded from different decision makers, they will effect on what the
needs of company and what company intend to do. There are four groups of people that
give the main decision:

Owners:
The owner is the most important people in the company, so they will make the decisions
to manage business activities so that it bring company to succeed. They concern about
making business plan and classified who are the significant partner and finding potential
markets to give suitable strategy, sign more contract and invest, expand their business
operations on the market. In the business activities, they have to compete with other
competitors and they cannot avoid them. To do that, they need to know exactly and
carefully information such as the demand of the market, what customers needs and
wants, the competitors, the financial resources, expense and total income.

Customers:
The customers are one of the most important factors that effect directly on the business
activities and they have their own authorities that influence remarkably on financial
profits of company. For example, the customers who want to buy the products of HIC,
they need to find the information about HIC company such as the foundation, activities
during through the period, the strategy, etc. Specially, they interested in HIC products like
price, the quality, the form and they compare them with other competitors of HIC
products. Therefore, they have to improve the quality of products, develop our image to
make a good impression for customers so that their company has more and more
customers loyalty.

Managers:
Managers are people who give the decisions so that their company can earn so much
profits. They need all information about finance performance to make better decision,
finding the problems and set up the new business plan. Therefore, they have to have the
information finance performance to make the good decisions to manage directly
company. Specifically, in each different market, the managers need the information about
it, then they research clearly in detail. As a result, they will know what customer needs
and wants, the price which is suitable for them, the competitor of them, etc.

Staff:
Employees are the largest force in the company, play a significant role because they
perform directly all activities that are given by their superior. They have to know revenue
and profit every month, every quarter, every year. From that, they send the report of them
to their managers about financial situation and they know ability to raise their salaries to
decide to work there or not. They also need to know what their company needs to do and
the projects, strategies in the future so that they can prepare psychology and have
awareness to work more efficiently.

Below are specific examples:

CEO: need information on performance as a whole as well as of individual product

(digital pad and bubble) and each department and factory
Chief accountant: need information on actual cost to calculate unit cost in order to set
the selling prices for CEO and to do performance evaluation
Sales manager: need information abt products to be sold with requirements of volume,
time, prices and discounts
Production manager: needs information on products to be produced, their volume,
quality and time requirements
Purchasing manager: needs information abt raw materials to be purchased with
quantity, quality, time and prices so that he can select suitable suppliers and do
purchasing

In conclusion, in company, the exact information from different sources such as finance,
human resources, competitors, quality of products, etc are very important. Thus, the
managers have to know carefully and clearly about them to make the decisions and
directions of company so that it can active effectively. As a result, the company is able to
succeed in the business activities on the market.

https://www.entrepreneur.com/article/38308
http://www.businessdictionary.com/definition/owner.html
http://smallbusiness.chron.com/customer-consumer-definitions-5048.html
https://www.thebalance.com/what-is-a-manager-2276096
https://www.vocabulary.com/dictionary/staff