...‘When calculating variances, we in effect ignore differences of volume of output, between original budget and actual, by flexing the budget. If there were a volume difference, it is water under the bridge by the time that the variances come to be calculated’. Variance analysis typically involves the isolation of different causes for the variation in income and expenses over a given period from the budgeted standards. So for example, if direct wages had been budgeted to cost $100,000 actually cost $200,000 during a period, variance analysis shall aim to identify how much of the increase in direct wages is attributable to: * Increase in the wage rate (adverse labour rate variance); * Decline in the productivity of workforce (adverse labour efficiency variance); * Unanticipated idle time (labour idle time variance); * More wages incurred due to higher production than the budget (favourable sales volume variance). Variance analysis highlights the causes of the variation in income and expenses during a period compared to the budget. In order to make variances meaningful, the concept of 'flexed budget' is used when calculating variances. Flexed budget acts as a bridge between the original budget (fixed budget) and the actual results. Flexed budget is prepared in retrospect based on the actual output. Sales volume variance accounts for the difference between budgeted profit and the profit under a flexed budget. All remaining variances are calculated as the difference...
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...AN APPRAISAL OF CAPITAL BUDGETING TECHNIQUES (A CASE STUDY OF FORTHRIGHT SECURITIES AND INVESTMENT LIMITED, MARINA, LAGOS) BY OLOJOTUYI OLUFEMI O. FPA/AC/09/3-0101 BEING A PROJECT REPORT SUBMITTED TO THE DEPARTMENT OF ACCOUNTANCY SCHOOL OF BUSINESS STUDIES, THE FEDERAL POLYTECHNIC, ADO EKITI EKITI STATE IN PARTIAL FULFILLMENT OF REQUIREMENTS FOR THE AWARD OF HIGHER NATIONAL DIPLOMA IN ACCOUNTANCY DECEMBER, 2011. CERTIFICATION This is to certify that this research project was duly carried out by OLOJOTUYI OLUFEMI O. of the Department of Accountancy, School of Business Studies Federal Polytechnic, Ado Ekiti, Ekiti State and accepted as meeting part of the requirements for the award of Higher National Diploma in Accountancy. ……………………………… ……………………………. MR. UCHEFUNA D.I MRS. M. OLOWOLAJU Project supervisor H. O.D Accountancy …………………………….. …………………………….. DATE DATE DEDICATION This project work is dedicated to Almighty God and to my parent Mr. and Mrs. Olojotuyi. ACKNOWLEDGEMENT I give glory to God, for his guidance, protection and strength throughout the period of this project work. Thanks to my supervisor, Mr. Uchefuna D.I who has been of tremendous help in guiding and encouraging me through this process. Furthermore, for his serious yet gentle commitment to the completion of this...
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...CHAPTER ONE Introduction Understanding and being able to use capital budgeting techniques and investment appraisal tools is usually a standard requirement for most business degrees. In addition learning such methods will also give one an advantage in a real business situation, in which there is the consideration of significant capital expenditure project. Capital budgeting assists management decisions making on the process of ensuring growth of the organization. The techniques are divided into two types: one, Traditional (non-discounting) that includes pay back method, accounting rate of return (ARR). Two, discounting cash flow that includes net present value (NPV), internal rate of return (IRR) Profitability Index (PI). Before an investment appraisal is conducted, there are a number of points to keep in mind. Whilst the tool presented will give an evaluation of the worth of a project, one should consider that the answer is only a guide. In short, the results of an investment appraisal should be considered in conjunction with both common sense and other qualitative factors such as a business’s overall strategy. Secondly, before an investment appraisal is conducted, one should consider whether or not the project is mutually exclusive. Where a project is mutually exclusive, then only the best project should be selected. Where on the other hand, projects are independent; one may select all projects which give the appropriate return. 1.1 Background of the study Corporate finance...
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...why ratio and financial statement analysis are useful to any corporations. The ratio analysis is a useful tool for managers and investors that would like to evaluate the company’s financial health. By using this analysis companies are able to identify opportunities for growth and areas of weakness to determine where corporations can put in place corrective measures in order to rectify their areas of weakness. Financial statements are used in order to predict trends of cash flow within the business as well as predict the potential of a business and if they are capable of financial growth. Ratio analysis allows companies to analyze the future revenue of a company’s profit or a company’s loss. This paper will examine the benefits and limitations of ratio analysis, explain what factors impact the meaningfulness of such measures and what new practices or theories may be emerging regarding the application of ratio and financial statement. The paper concludes that ratio and financial statements is an essential tool used in analyzing a company’s profit. Close your eyes and think about all of the products you have consumed today. You purchased lunch from McDonald’s, used Google to help you find directions, drove your Toyota to work and grabbed your Nike sneakers as you headed to the gym. What do all of these brands have in common? They are well known market leaders and multinational organizations. Consumers are unaware of how many multinational brands...
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...Capital Budgeting Processes and Techniques Keith A. Rossmiller Business 657 Instructor Maxwell September 3, 2012 Capital Budgeting 2 Capital Budget Processes and Techniques Investment decisions impact the long-term success or failure of a company. The capital budgeting theory assumes that the primary goal of a firm’s shareholders is to maximize firm value. The process of analyzing and prioritizing investment opportunities is capital budgeting. Capital budgeting involves three basic steps of identifying potential investments, analyzing the set of investment opportunities that will create shareholder value, and implementing and monitoring the investment projects that a firm should undertake. Managers need analytical tools to help them make the best investment decisions for their firm. This paper will explore six different methods of evaluating investment projects and their advantages and disadvantages. The six methods are the payback period, discounted payback period, net present value, profitability index, internal rate of return, and modified internal rate of return, which method is most used in business, and issues related to capital budgeting. Capital Budgeting 3 Payback Period The first...
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...OBIAJULUM JOHN LAWRENCE NJILEFACK NGOASONG ABSTRACT Date Level Authors : : : June, 2008. Master Thesis EF0705, 10 points (15credits) Amalokwu Obiajulum John (820821) Lawrence Njilefack Ngoasong (770901) Title : Budgetary and Management control Process in a Manufacturing Organization. Roland Almqvist. What is the budgeting practice in the Nigerian Manufacturing companies? The aim of this study is to investigate the management control practice (budget being the tool for management control) in Guinness Nigeria Plc and to suggest what seems to us the most appropriate practice based on findings from literatures and empirics Supervisor: Problem Purpose : : Method : The study was described based on a qualitative approach. Furthermore, we described why we chose the company, sources of literature, techniques employed in data collection (primary data), research purpose, data analysis as well as critiques to the method use. Conclusion : The Integration of strategic Management and Budgeting enhances competitiveness which when attained is translated as high performance. Keywords : Management Control, Budgeting, strategy, High performance and Competitive advantage. ACKNOWLEDGEMENT Firstly we give thanks to God Almighty for the strength to work on this research. This work could not have materialized without the assistance of certain people who contributed to its success. Our special gratitude goes to Leif linnskog for his wonderful assistance during the programme and...
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...Table of Contents Introduction 3 Task 1 3 Assessment criteria 1.1 3 Assessment criteria 1.2 4 Assessment criteria 1.3 4 Assessment criteria 1.4 6 Assessment criteria 1.4 7 Section 2 8 Assessment criteria 2.1 8 Assessment criteria 2.2 8 Assessment criteria 2.3 10 Section 3 11 Assessment criteria 3.1 11 Assessment criteria 3.2 13 Assessment criteria 3.4 15 Zero-based budgeting 16 Top-down budgeting 16 Bottom-up budgeting 16 Activity-Based Budgeting 16 Section 4 18 Assessment criteria 4.1 18 Assessment criteria 4.2 21 Conclusion 22 Bibliography 23 Introduction Financial management is the efficient as well as effective management of the funds in a motive of accomplishing the goals and the objectives an organization. It comprises of how to rise capital and how to allocate for instance through budgeting. This does not only cater for the long term budget but also the allocation of funds in the short term. In our discussion we are going to focus on various issues such the various methods used in costing, the budgeting formation and formation process, and the different types of budgeting. The attainment of coordination will also be factored since it is key to the success of a business. Task 1 Assessment criteria 1.1 a. Identify and explain the various ways by which cost can be classified discussion the value of costs classification including any weaknesses in your argument In the world of business there are a range of costing methods are actually used by...
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...cost equals the total revenue. Advantages of Break-even point Break-even point clearly explains the relationship between cost, production volume and returns. It clearly shows the lowest amount of business activity. It assists the business in determining the minimum amount of activity to prevent losses and maximize gains. It shows how the change in variable cost, fixed cost relationship affects profit level. It is very useful when in link with partial budgeting or capital budgeting techniques. Break-even also measures profit and loss at different levels of production and sales, which will help determine the time necessary for recouping the amount of money that has been invested in a business. Disadvantages of Break-even point Break-even can only be applied to single products or single mix products Most Break-even charts may be time consuming to create. It Assumes production and sales at the same time and it also assumes that sales price are constant at all level of output. How many jeans would they now need to sell to break-even? In order for the Brockley’s company to sell break-even they would need to sell 1400 jeans. Monthly Sales Variable Expenses = Contribution Margin Monthly Sales Contribution= selling price - variable cost per unit 5 = 12 7 Break even = fixed cost/contribution 1400 = 7000 5 Explain the advantages and limitations of using the break-even analysis ...
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...annuity tables are included in this question paper on pages 7 and 8. Formulae can be found on pages 9 and 10. 7 Candidates who break ABE regulations, or commit any misconduct, will be disqualified from the examinations. 8 Question papers must not be removed from the Examination Hall. MFRP1209 © ABE 2009 D/502/3188 Answer any FOUR questions Q1 Three companies A, B and C are engaged in the same type of business in the UK. The business is in a highly sensitive and cyclical market and past experience shows that earnings before interest and tax are liable to fluctuate by up to 25% in either direction from the current level. Each company has almost identical total funds employed and profitability, but significantly different capital structure. The capital structure of the three companies is as follows: Company A 2,700,000 Ordinary Shares (Nominal value of 40p) Reserves £ 1,080,000 4,080,000 ––––––––– £5,160,000 Company B 4,360,000 Ordinary Shares (Nominal value of 25p) Reserves 10% Debenture Stock repayable 2012-2014 £ 1,090,000 2,910,000 1,000,000 ––––––––– £5,000,000 Company C 2,080,000 Ordinary Shares (Nominal value of 50p) Reserves 1 7–% Unsecured Loan Stock repayable 2010 2 £ 1,040,000 1,060,000 3,000,000 ––––––––– £5,100,000 The...
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...decision making? 13. What would be the effect on the profits if we reduce selling price and sell more units? 14. Should we pay workers on a basis salary only/commission only/combinations? 15. How would changes in sales volume affect the profits of the firms? 16. Definition of bep 17. Limitation of bep 18. Benefit of (bep) 19. Assumptions in (bep) 20. Computation of bep in units and in value 21. What is the effect on a firm’s (bep) of a lower income tax rate? 22. Can break even analysis to be used to determine the sales level that is needed in order to earn a target net profit? 23. Break even point graph 24. Definitions of sales mix 25. What’s the effect on the company’s profits? 26. What is the assumption in the basis? 27. How to calculate and example? 28. How does sales mix affect the contribution margin? 29. Definition of mos 30. How to compute of mos? 31. Usefullness of (mos) 32. Can (mos) be negative? BUDGETING 1. What is definition of budget? 2. What is purpose of budgeting? 3. What are the objectives of budgeting? 4. What are the advantages...
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...Contents CHAPTER 01 3 About the report 3 1.1Introduction 4 1.2 Origin of the Report 5 1.3 Literature Review 5 1.4 Objectives of the Study 7 1.5 Methodology/ Design of the Study 7 1.6 Limitations of the study 8 CHAPTER 02 9 Overview of management control systems 9 2.1Management Control Systems (MCS) 10 2.2Elements of Management Control 11 2.3Boundaries of Management Control 11 2.4 Benefits of management control systems 12 2.5 Limitations of Management control systems 12 CHAPTER 03 13 Management control systems and strategy: 13 A critical analysis 13 3.1 Relationship between Management control systems and strategy 14 3.2 Levels of strategy from organization point of view 14 3.2.1Corporate-Level Strategy 14 3.2.2 Business Unit Strategies 15 3.2.2.1 Business Unit Mission 15 3.2.2.2 Business Unit Competitive Advantage 15 3.4 Responsibility Centers 16 3.4.1 Nature of Responsibility Centers. 16 3.5 types of Responsibility Centers 17 3.5.1 Revenue Centers 17 3.5.2 Expenses Centers 17 3.5.3 Profit Centers 18 3.5.4 Investment center 21 3.6 Concept of Transfer Pricing in relation to Responsibility center 22 CHAPTER 04 23 Budgeting and performance measurement 23 4.1Budgeting as a Control Mechanism 24 4.2Business performance management 25 4.3Balanced Scorecard 26 CHAPTER 05 29 FINDINGS AND CONCLUSION 29 5.1 Findings 30 5.2 Conclusion 30 5.3Bibliography 31 CHAPTER 01 About the report 1.1Introduction To introduce this topic and understanding the...
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...if those plans need to be changed in order to make a profit. (Financial Times) The major aim of any organization is to create wealth for their shareholders for that they need to make plans and the major plan for it is budgets. Budgets are also heavily linked to the strategy as budgets plan the future of an organization they must be implemented in the strategy of the organization. “A strategy can be viewed as describing how an organization matches its own capabilities and opportunity in the market place to accomplish its overall objectives.”(Bhimani 2012) The budget of an organization shows its financial capabilities and it must be prepared according to the long term strategy of the organization. This essay will hence examine the advantages and limitations of budgetary control and its effect on performance management. Organisations in the modern day comprise of many different departments that must have proper coordination and communication in order to achieve growth and profits. A budget is a mere translation of a company's strategic objectives that used to direct coordinate and also motivate the employees to achieve those targets.(Biznik, 2014) Coordination is meshing and balancing all factors of production or service and all departments...
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...CAPITAL BUDGETING DECISION 1. Meaning Capital budgeting denotes situation where funds are invested immediately and returns are expected after a year. In growing orgnisation capital budgeting is more or less continuous process and it is carried out by top management. The role of any Finance Manager is to critically evaluate proposal, evaluation of alternative proposal and select best one. The following are the some of the cases where heavy capital investment may be necessary. A) Replacement of fixed assets: - To replace old Assets. To buy Asset with latest technology. B) Expansion: - It means increase in production capacity to meet additional demand. C) Research and Development: - It is required for those industry where technology in changing rapidly. D) Diversification: - To set up factories, to fulfill need of various markets. To reduce dependency on one market E) Miscellaneous: - To meet legal norms, such as investment in pollution control equipment. 2. Features and significance of capital budgeting Capital budgeting includes investment for long firm funds for long term and their utilisation. Capital budgeting decision affects profitability of firm. Therefore these decisions are very important. A wrong decision taken by finance manager may affect firm’s profitability. The relevance and significance of capital budgeting may be stated as follows. A) Involvement of heavy funds: - Capital budgeting decision requires large amount of capital...
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...costing theory that caters accordingly to their needs and objectives. Part 1: Evaluation of Costing Theories Costing theories are very important in business decision making. According to Hariharan (n.d.), they serve managers as a guide to make correct decisions such as what price to quote, whether to place order for inputs or whether to abandon or add a product to the production line. Costing theories also determines the price of the best alternative use of a factor of production and results in an efficient allocation of resources (Chand, 2015). The business will adopt the most profitable production inputs by identifying unprofitable activities, losses and inefficiencies (Chand, 2015) Costing theories also helps the decisions regarding the capital expenditure through the estimation of long-run function (Chand, 2015). This function will be useful to managers when deciding on the expansion or contraction of plant size in the firm and confirming that the present plant size is just nice for the output level that is being produced (Chand, 2015). It improves the overall productivity of an organisation and acts as an important guide in bringing prosperity to the firm (Vitez, 2015). Besides that, Vitez (2015) stated that costing theories will make sure that no machine remains idle, efficient labour gets due incentive, products are efficiently used and cost are properly ascertained to avoid wastage. Palikad (2015) studies shows that an adequate costing theory will aid the management in times...
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...Management Blekinge Institute of Technology THE IMPORTANCE OF THE PAYBACK METHOD IN CAPITAL BUDGETING DECISION. By Alaba Femi, AWOMEWE & Oludele Olawale, OGUNDELE Supervisor: Anders Hederstierna Thesis for the Master’s degree in Business Administration Fall/Spring 2008 THE IMPORTANCE OF THE PAYBACK METHOD IN CAPITAL BUDGETING DECISION. By Alaba Femi, AWOMEWE & Oludele Olawale, OGUNDELE A thesis submitted in partial fulfillment of the requirements for the degree of MBA (Master of Business Administration) Blekinge Institute of Technology 2008 Supervisor Anders Hederstierna ii Abstract Title: The importance of the Payback method in Capital budgeting decision. Authors: Alaba Femi, Awomewe and Oludele Olawale, Ogundele Supervisor: Anders Hederstierna Department: School of Management, Blekinge Institute of Technology Course: Master’s thesis in business administration, 15 credits (ECTS). Background and Problem Discussion: The capital budgeting decision has been a very typical issue in the sustenance of a company. Several companies have lost their identity or liquidated due to wrong capital budgeting decision they made at one particular time or the other. Based on these prevalent problems in industries and the effect of globalisation on industries, it is important to use effective method to analyse investment before decision is made. Capital budgeting is extremely important because the decision made involve the direction and opportunity...
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