Managing Financial Principles and Techniques

Topics: Strategic management, Decision making, Budget Pages: 9 (1764 words) Published: April 12, 2012


This unit will give learners a foundation in financial principles and techniques relevant to the strategic management process. It encourages learners to explore the nature of cost-based financial data and information, the impact of the budgeting process on the organisation, and the development of cost reduction and management procedures and processes. It also focuses on the management of these costs through the use of forecasting, appraisal and financial reporting procedures. One of the main objectives of this unit is for learners to develop the confidence to apply, analyse and evaluate financial and cost information.

Areas of Learning

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

Costs and prices, Cost systems, Responsibility and control of systems

Be able to apply forecasting techniques to obtain information for decision making

Forecasting techniques, Funds, sources

Be able to participate in the budgetary process of an organisation

Target setting, Process, Budgets, Monitoring process

Be able to recommend cost reduction and management processes for an organisation

Cost reduction, Activity-based costing

Abel to use financial appraisal techniques to make strategic investment decisions for an organisation

Investment, Investment appraisal

Be able to interpret financial statements for planning and decision making Statements, financial ratios, interpretation and limitations of financial ratios


Task 1

You are required to choose an organisation of your own and explain the importance of costs in the pricing strategy of that chosen organisation. You could describe other systems they considered in this process and explain the reasons behind their final design. Also propose improvements to the costing and pricing systems used in their chosen organisation. (A.C 1.1,A.C 1.2 and A.C1.3)

Task 2

You need to apply forecasting techniques to make cost and revenue decisions for your chosen organisation assess the sources of funds available to that chosen organisation for a specific project. (A.C2.1 and A.C 2.2)

Task 3

Use forecasting techniques which you used in Assessment Criteria 2.1 as part of the process of selecting appropriate budgetary targets for their chosen organisation and you need to demonstrate how they have participated in the creation of a master budget for your chosen organisation. Compare actual expenditure and income to the master budget of that chosen organisation. (A.C3.1, 3.2 and 3.3) Evaluate the budgetary monitoring processes in their chosen organisation and you should be able to recognise the generic limitations of budget variances and how this might be different for types of budgets, for example fixed versus flexible. (A.C 3.4)

Task 4

You need to consider at least three processes that could manage cost reduction when making any recommendations. You need to explain the difficulties that may need to be overcome when implementing the recommended processes. Evaluate the potential for the use of activity-based costing (A.C 4.1 and 4.2)

Task 5

Pegg Ltd is considering investing in a machine in order to increase its profitability. Two machines, A and B, are under consideration. The estimated annual profit increases (in $000) after the calculation of straight-line depreciation over the life of the machines are as follows;


Both machines have an initial cost of $700,000. The residual value of Machine A is expected to be $60,000 and that of Machine B, $20,000. The chairman of the company has stated that, for the foreseeable future, the liquidity situation of the company needs to be carefully monitored.

Apply Financial Appraisal methods to analyse the above projects and state which machine would be preferred on financial grounds, giving reasons for your answer. Calculate the Accounting Rate of...
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