1.Investment fund options // http://www.wrighthassall.co.uk/resources/articles/article_investment_fund_options.aspx
2.Langfield-Smith K. Management control systems and strategy: a critical review // Accounting, organizations and society, 1997.
3.Model guide to securitisation techniques // http://crossborder.practicallaw.com/2-501-2997
4.Pricing Strategy // http://www.netmba.com/marketing/pricing/
5.Shawnee K. Vickery, Cornelia Droge, Robert E. Markland. Production Competence and Business Strategy: Do They Affect Business Performance? // Decision Sciences. Volume 24, Issue 2, pages 435–456, March 1993.
6.Smith T.M. The relationship of strategy, fit, productivity, and business performance in a services setting // Journal of Operations Management, 1999.
7.Ward P.T. Manufac
Показать всеturing strategy in context: environment, competitive strategy and manufacturing strategy // Journal of Operations Management, 2000. Скрыть
4. Investment - invest in premanufacturing assets (CAD, CAPP) and people skills.
5. Increased resources up front - the greatest opportunities for cost reduction occur before manufacturing begins.
6. Target costing - establishes goals for success in the global market.
7. Cost reduction, not cost control - Continuous improvement to achieve targets.
8. Performance evaluation - Performance evaluations should reinforce the whole life cost perspective.
2.1 Margaret wants you to assist her in identifying relationship between units produced in the factory and the associated costs. She also wants to know what others forecasting techniques can be used to make cost and revenue decisions.
2.2 Margaret wants to expand the business and she is interested to know what funding options are av
Показать всеailable to public limited companies in UK. She asks you to assess and report on the sources of funds available to the Dynamic Models PLC.
Feedback for Task 2:
2.1. Costs are an integral part of doing business. Every factor of production has a cost assocciated with it: labor, fixed assets, and capital, for example. The cost of labor used in the production of goods and services is measured in terms of wages. The cost of a fixed asset used in production is measured in terms of depreciation. The cost of capital used to purchase fixed assets is measured in terms of a percentage equal to the interest expense associated with raising the capital needed to purchase the asset.
Costs can have different relationships to output. Costs also are used in different business applications, such as financial accounting, cost accounting, budgeting, capital budgeting, and valuation. Consequently, there are different ways of categorizing costs according to their relationship to output as well as according to the context in which they are used. Following this summary of the different types of costs are some examples of how costs are used in different business applications.
The two basic types of costs are fixed and variable. Fixed costs do not vary with output, while variable costs do. Fixed costs are sometimes called overhead costs. They are incurred whether a firm manufactures 100 widgets or 1,000 widgets. In preparing a budget, fixed costs may include rent, depreciation, and supervisors' salaries. Manufacturing overhead may include such items as property taxes and insurance. These fixed costs remain constant in spite of changes in output.
Variable costs, on the other hand, fluctuate in direct proportion to changes in output. Labor and material costs are typical variable costs that increase as the volume of production increases. It takes more labor and material to produce more output, so the cost of labor and material varies in direct proportion to the volume of output. The direct proportionality of variable costs to level of output may break down with very small and very large production runs.
In addition, some costs are considered mixed costs. That is, they contain elements of fixed and variable costs. In some cases the cost of supervision and inspection are considered mixed costs.
Costs can be classified for decision making. Costs are important feature of many business decisions. For the purpose of decision making, costs are usually classified as differential cost, opportunity cost, and sunk cost. It is essential to have a firm grasp of the concepts differential cost & differential revenue, opportunity cost, and sunk cost.
2.2. The are following sources of funds available to the Dynamic Models PLC in the UK.
Shares. A share is a part ownership of a company. Shares relate to companies set up as private limited companies or public limited companies (plcs). There are many small firms who decide to set themselves up as private limited companies; there are advantages and disadvantages of doing so. It is possible, therefore, that a small business might start up and have just two shareholders in the business.
If the business wants to expand, they can issue more shares but there are limitations on who they can sell shares to - any share issue has to have the full backing of the existing shareholders. PLCs are different. They sell shares to the general public. This means that anyone could buy the shares in the business.
Some firms might have started out as a private limited company and have expanded over time. There might come a time when they cannot issue any more shares to friends or family and need more funds to continue expanding. They might then decide to become a public limited company. This is called 'floating the business'. It means that the business will have to go through a number of administrative and legal procedures to allow it to be able to offer shares to the general public.
It might be that a business wants to raise £300 million to finance its expansion plans. It might issue 300 million £1 shares in the company. The offering of these shares has to be accompanied by a prospectus which lays out details of the business - what it is involved in, how it is structured, how it will be managed and so on. This is so that prospective investors, people or institutions who might want to buy the shares, can get information about the company before committing to buying shares.
Once the shares are sold, share owners can buy and sell their shares through the stock exchange. Such buying and selling does not affect the business concerned directly and is one of the main advantages of the stock exchange. You can get more details of how the stock exchange works through our resource on the London Stock Exchange.
There may be times in the development of a plc when it needs to raise more funds. In this case it can issue more shares. Many firms will do this through what is called a 'rights issue'. This occurs where new shares are issued but existing shareholders get the right to purchase new additional shares at a reduced price. If the business is doing well and the new finance is needed for expansion, this can be an attractive proposition for existing shareholders. For the business it is a relatively quick and cheap way of raising new funds.
Venture Capital. Venture capital is becoming an increasingly important source of finance for growing companies. Venture capitalists are groups of (generally very wealthy) individuals or companies specifically set up to invest in developing companies. Venture capitalists are on the look out for companies with potential. They are prepared to offer capital (money) to help the business grow. In return the venture capitalist gets some say in the running of the company as well as a share in the profits made.
Venture capitalists are often prepared to take on projects that might be seen as high risk which some banks might not want to get involved in. The advantages of this might be outweighed by the possibility of the business losing some of its independence in decision making.
Government Grant. The Eden Project near St Austell in Cornwall. The cost of the project was £133.6 million. Some of thefunding came from the National Lottery and some came from the EU. Copyright: Simon Nicholson, from stock.xchng.
Some firms might be eligible to get funds from the government. This could be the local authority, the national government or the European Union. These grants are often linked to incentives to firms to set up in areas that are in need of economic development. In Cornwall, for example, there have been a number of initiatives to encourage new businesses to locate there.
Cornwall has the lowest gross domestic product (GDP) per head of the population in the UK. The average wage in Cornwall is 28% below the UK average. As a result, the area attracts funding from the EU and the government. Firms looking to set up in Cornwall might be able to apply for some help in starting or moving a business to the area. One of the disadvantages of this type of funding is that it involves large amounts of paperwork and administration. This can add to costs and in some cases might not make the project worthwhile.
One famous example of how a business project can be developed using European Union funding was the Eden Project. The EU was not the only source of finance to help set up the project but was an important partner in helping to realise this important tourist destination for a deprived part of Cornwall.
Bank Loans. As with short term finance, banks are an important source of longer term finance. Banks may lend sums over long periods of time - possibly up to 25 years or even more in some cases. The loans have a rate of interest attached to them. This can vary according to the way in which the Bank of England sets interest rates. For businesses, using bank loans might be relatively easy but the cost of servicing the loan (paying the money and interest back) can be high. If interest rates rise then it can add to a businesses costs and this has to be taken into account in the planning stage before the loan is taken out.
Mortgage. A mortgage is a loan specifically for the purchase of property. Some businesses might buy property through a mortgage. In many cases, mortgages are used as a security for a loan. This tends to occur with smaller businesses. A sole trader, for example, running a florists shop might want to move to larger premises. They find a new shop with a price of £200,000. To raise this sort of money, the bank will want some sort of security - a guarantee that if the borrower cannot pay the money back the bank will be able to get their money back somehow.
The borrower can use their own property as security for the loan - it is often called taking out a second mortgage. If the business does not work out and the borrower could not pay the bank the loan then the bank has the right to take the home of the borrower and sell it to recover their money. Using a mortgage in this way is a very popular way of raising finance for small businesses but as you can see carries with it a big risk.
Selling Assets. As firms grow they build up assets. These assets could be in the form of property, machinery, equipment, other companies or even logos. In some cases it may be appropriate for a business to sell off some of these assets to finance other projects.
3.1 Explain with examples how to select appropriate budgetary targets for an organisation
3.2 Participate in the creation of a master budget for an organisation, illustrate in detail with example.
3.3 Compare actual expenditure and income to the master budget of an organisation
3.4 Give details how to evaluate budgetary monitoring processes in an organisation
Feedback for Task 3:
3.1 During budget preparation, trade-offs and prioritization among programs must be made to ensure that the budget fits government policies and priorities. Next, the most cost-effective variants must be selected. Finally, means of increasing operational efficiency in government must be sought. None of these can be accomplished unless financial constraints are built into the process from the very start. Accordingly, the budget formulation process has four major dimensions:
Setting up the fiscal targets and the level of expenditures compatible with these targets. This is the objective of preparing the macro-economic framework.
Formulating expenditure policies.
Allocating resources in conformity with both policies and fiscal targets. This is the main objective of the core processes of budget preparation.
Addressing operational efficiency and performance issues.
3.2 A master budget is a comprehensive operational plan of action for the coming year. It includes both operating budgets and financial budgets and culminates in a set of forecasted (i.e., pro-forma) financial statements (cash flow, income statement, and balance sheet). The strategic plan of a firm guides, in a general sense, the determination of the master budgets prepared annually by the organization.
Specialized consulting companies now provide software that can be used to integrate master budgets with strategic plans as part of a comprehensive performance management system.
The preparation of the Master Budget includes:
Annual operating budgets
– Sales budget: number of units to be sold
– Production budget: expected output and inventory
– Direct materials budget: planned material use
– Direct labor budget: planned labor use
– Other budgets: expected selling and administrative
– Needed to prepare the cash budget
Other annual budgets and statements
– Capital expenditure budget
– Needed to prepare budgeted cash flow statement
– Needed to prepare budgeted income statement
– Needed to prepare budgeted year end balance sheet
3.3 In budgeting, the link between sectoral policies and budget allocations is often weak. Sector politicians announce policies, but the budget often fails to provide the necessary resources.
However, two pitfalls should be avoided. First, a multiyear expenditure approach can itself be an occasion to develop an evasion strategy, by pushing expenditure off to the out-years. Second, it could lead to claims for increased expenditures from line ministries, since new programs are easily transformed into “entitlements” as soon as they are included in the projections. To avoid these two pitfalls, many developed countries have limited the scope of their multiyear expenditures estimates to the cost of existing programs, without making room for new programs.”
Three variants of medium-term year expenditure programming can be considered:
A mere “technical” projection of the forward costs of ongoing programs (including, of course, the recurrent costs of investments).
A “stringent” planning approach, consisting of: (i) programming savings in nonpriority sectors over the planned period, to leave room for higherpriority programs; but (ii) including in the multiyear program ongoing programs and only those new programs that are included in the annual budget currently under preparation or for which financing is certain. Such plans include only a few new projects beyond their first planned year (e.g., the Public Investment Program prepared in Sri Lanka until 1998).
The “classic” planning approach, which identifies explicitly new programs and their cost over the entire period. This includes “development plans” covering all expenditures, or many public investment programs currently prepared in several developing countries, as well as expenditure plans prepared in developed countries in the 1970s. Where the institutional mechanisms for sound policy decision making and for budgeting are not in place, this approach can lead to overloaded expenditure programs.
3.4 The importance of good data cannot be underestimated. Without reliable information, the macroeconomic framework is literally not worth the paper it is written on. This includes the collection of economic data and the monitoring of developments in economic conditions (both of which are generally undertaken by statistics bureaus) as well as the monitoring and consideration of changes in laws and regulations that affect revenue, expenditure, financing and other financial operations of the government.
4.1 Recommend processes that could manage cost reduction in Dynamic Models PLC
4.2 Evaluate the potential for the use of activity-based costing
Feedback for Task 4:
4.1 We consider two approaches to procurement. In the first one, the wholesale prices in each period are determined contingent on the cost of components in that period. In the second one, under so-called target-price contracts, the assembler announces a priori a periodic rate of cost reduction that it expects from its suppliers, and the wholesale prices are determined based on this rate.
In settings with cost-contingent contracts, we show that there exists an equilibrium in closed-loop strategies that is synchronized—that is, all suppliers invest in cost reduction in the same periods.
We also find that the levels of cost reduction and the associated cost-reduction rates are affected by the number of suppliers and their relative initial component costs. Under target-price contracts, it is important to establish an appropriate rate of cost reduction that is supplier specific and that evolves over time according to the various stages of the product’s life cycle. Overly aggressive target rates may hurt the supplier’s profitability, whereas low rates result in smaller production quantity and lower profit for the assembler. We find that a target-price contract calibrated with the levels of cost reduction achieved under cost-contingent contracts results in higher investment levels and in higher profits for all firms.
4.2. Activity Based Costing (ABC) and Activity Based Management (ABM) have been espoused as the saviors of Management Accounting. With the use of ABC analysis to develop information, and the use of modern computers and software packages, managers have been able to evaluate customers and products using Value Chain and Supply Chain techniques. Through the use of ABC, the activities and associated costs to support either products or customers can be determined. With this information, the evaluator identifies the revenues associated with the product or customer, and then either directly identifies or allocates all the costs associated with the product or customer. Once the revenues and costs have been assigned, it becomes a simple matter of adding the numbers to see if the product or customer is profitable. But does this bottom line approach provide managers with a valid basis for decision making? This paper examines the basic constructs of ABC to determine if it provides the appropriate information for use in evaluating products and customers. In addition, an alternative approach is presented.
5.1 Apply financial appraisal methods to analyse these competing investment projects for the Dynamic Models PLC
5.2 Make a justified strategic investment decision for the company
5.3 Report on the appropriateness of a strategic investment decision using information from a post audit appraisal
Feedback for Task 5:
5.1. To analyse these two competing projects we use methods of appraisal of cost efficiency, level of reliability of the projects and others. Initial capital cost of equipment of the first project is less than of the second project. In general, the total cost of the first project is less than the second one, but investing in the second project investors are closer to the target rate of return of 20%. Скрыть
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