Management finance
Part A:
According to the case, Charles Ltd. Department, because of the implementation of the new budget system is faced with the increased workload. This is because the system is effective, the department's power to enact budget Charles Co. said their goal is to estimate and predict facts (Fabozzi and Peterson Drake, 2009, pp.15-25). These must be analyzed by the selected company's management to ensure that they can achieve a reasonable and reflect reliable data. This concept would increase work that was previously absent in the departments.
In many cases, this requires expert who is an estimate of the budget formulation and budget calculation knowledgeable provided (Brigham and Houston, 2009, pp. 57-61). This will not help the competent especially when he or she is not knowledgeable in this area. The same information and knowledge is limited Charles Ltd important as well, because the company hopes their services and expertise to bring the level of knowledge.
Essence of the conflict is expected in an organization at any time to achieve any changes in business, it is also advantageous Charles Ltd as well. According to the analysis, the majority of Charles Co. boycotting segment may thus lead to more inefficiency and confusion will adversely affect sales. In the case of Charles Limited, Part D result’s superior’s presumption against the financial system is unfair and incorrect, because it emphasizes the sector weakness and inefficiency in achieving established goals and budget estimates (Tarantino and Cernauskas, 2011, pp. 45).
Obviously, the new system led to the mentality of the leadership / management, and staff change, it is equally beneficial Charles Limited. Many people are afraid of change that in any case, so the implementation of the new financial budget system may be affected by who the people do not understand it, and those who rebel generation system will be facing adverse reflect. This is evidenced by the supervisor of the department D who has regarded the system as inaccurate because it outlined the variances that were present in their operations in line with the plans forecasted earlier.
Each system of Charles Ltd requires the implementation of the same staff and management of all participants must be involved in its planning. Charles Ltd. may slow down; resist the system due to be implemented in the current financial budget action. Results and reports from the system may prevent some sectors ð drafting work from employees and supervisors, if they choose to implement observation is unnecessary and a will affect them over and over again. It is an obvious fact that Boycotts and strikes would deter the effective implementation of the system of Charles Ltd, hence retaining the organization in the prior unorganized state and one that lacks effective planning.
On the positive side, depending on the current managers and employees in the sector, the current budget system may lead to the awakening of the way it operates. Self-interest is a threat to any change should not be by Charles Ltd., elements because it will face resistance only to the person or people involved in the maintenance of their own interests. Charles Ltd., has developed a new financial budget system, this case of Charles Ltd clearly shows that no part of the department and a lot of elements. It has shown how inefficient sector D of the operation, and it has not been able to meet any target set by the budget (Weaver and Weston, 2008, pp.69-74). This may affect the department's employees own interests, but more so the boss, he or she will be entitled to request the required standard answer about how and why the department does not perform. This is the main reason why the supervisor deemed the report to be inaccurate and unfair.
PART B
Changes to be made to the reporting system
Accounting is generally referred as the language of finance; similarly the financial reporting is the process of discussing financial information in order to make investment, acquiring loans and other business related measures (Paramasivan and Subramanian, 2009, pp. 51-54). The purpose of the financial reporting is to present the financial information of business’s operating performance, state of stability and cash flows during fiscal year. Along with the relevant information / documents to the financial statements, may be comprised in diverse shapes like in annual report and primarily used by external personnel. The financial reporting is mainly encompassed with income statements, cash flow assessment, balance sheet, statement of equity and notes for statements. Moreover, Financial reporting also address the SEC filings, press releases, meeting minutes, and auditor’s reports.
Expectation to change in any organization in an open and transparent manner raised by participants; employees, supervisors and managers are well aware of the expected implementation, they have access to effective knowledge and skills related to the operation of the system. This leads to an acceptable behavior by the presence of staff, therefore, even in the case of the results and drafting of the report is unfavorable, they will accept it positive. It is also particularly beneficial to Charles Ltd. It is vital for Charles Limited to engage their employees and management in the day to day implementation process would be an effective tool of reducing conflicts and unreceptive behavior towards the system being implemented.
Charles Limited financial budget system in the third quarter of the current fiscal year began. This is to introduce a new concept into a company limited by poor look like Charles Limited. They should have a parallel manner gradually into the concept. Although Charles Ltd. does not have any existing financial system, there is a better way, the system unveiled. The financial budget system could have either started with one department of Charles Limited, preferably one that is performing best just to induce excitement and psyche, or start with the service or manufacturing departments before diverging to other sectoral departments (Eun and Resnick, 2007, pp. 88-92). This particular provision of Charles Ltd would have gradually changed the perspective of the employees and stakeholders as they would be already aware that there are changes gradually being adopted.
In order to become economically prosper and strategically tough, Charles Ltd. structure should be set so that complaints can be lodged, and a committee or group is assigned the task of solving the worries and complaints, as well as applause, so as to ensure that the system has been fully accepted and collaboration that has occurred in the Charles Limited. The company has implemented a new financial establishment and adoption of the budget system.
Workshops and seminars will have a role in the development of new sensitive people expected happened, but also to ensure that they understand the budget system to take such a disorganized state of the importance of early than to play. This has the possibility to equip the participant’s knowledge of the financial system, thereby eliminating the occurrence of the new system and its repercussions in Charles Ltd., fear of uncertainty.
A force-filed analysis could be adopted by Charles Limited that the management is able to measure the forces of employees and supervisors who are against and those who are for the budgetary system. If the force against Charles Limited is more compared to the force for the adoption of the new system, the management should try other approaches of inducing acceptability. In the case of Charles Limited this force persists, they should withdraw the notion of implementing the financial system. A balance should be created when the meeting is in force between the two forces to avoid further problems.
PART C
Revised report for the quarter ended August
We have supposed that the results outlined are some of the indicators of the performance of the corporation for the three months covered in the current financial year and that the company’s performance and values are equal in each month, the figures given represent the outcome for months.
Actual, budgeted and variances for the first quarter of the year of Charles Ltd;
The performance of the entry value according to this particular table is mentioned below;
The department cannot be improved to meet the targeted production units. This can be done on different factors, such as the production team of inefficiency, lack of product being produced, and inefficiencies in the sector sufficient demand to explain. It has a role in the general sales department, so the observed differences in the organization play.
The sector is expected to offset the underutilized machines in four hours. This led to 1,733 favorable variations may be reflected in the company's balance sheet, because it reduces the wear and machinery (depreciation) tear, reducing casual wage, because they increase the adding machine hours (not only with the labor hours ), and also to reduce any costs associated costs like fuel consumption and maintenance costs of machines.
The department of Charles Ltd failed to achieve the expected level of sales, resulting in a deficit of 36,667 works. This indicates that inefficiencies exist in the department or the lack of production of products to meet the sales and marketing part of the customer's needs and preferences. This difference is large enough, can lead to a variety of activities by the local administration was forced to take in order to avoid more in Los Angeles.
The sector has experienced a material variance obtained 3,333. This fact can be analyzed differ depending on the goal to achieve focus. It depicts the efficiency because it reduces the cost of participation in the procurement of raw materials and it can be called an inefficient. The more the raw material obtained, the greater the production volume hence the greater the sales.
The department experienced an unfavorable variance of 1,333 as it surpassed the budgeted labor hours. This has an impact on the labor costs that are reflected in the income statement of the department, and the organization in the overall.
The sector experienced a favorable variation reduction, and 5,867 in the variable production overheads provisions, the department is to effectively manage costs and production costs.
The actual value of the sector has experienced adverse fixed production costs 13,407 after differences over the budget. These are expected to affect the sector as a previously saved far more than the cost of a favorable variation. It clearly outlines the department inefficient, or something acquired, which leads to an increase in fixed manufacturing costs.
Financial Aspects of assessing managerial performance
Financial statements are the end product of an organization, as it usually has such information which could be used by different users of an entity. Financial statement of an organization specifically comprises on four elements which particularly are Income Statement, Balance Sheet, Cash Flow and Changes in Shareholder’s Equity (Brigham and Daves, 2013, pp. 71-77). The information which could be found among each of above mentioned element is essential for different users. There are numerous methods through which an investor can assess the financial belongings of an organization and could make effective decisions in terms of parking their money.
Among such tool, used specifically for the purpose of financial analysis, the name of Ratio analysis is one of them. Ratio analysis is a financial tool used to assess the association of financial competitiveness and complying behavior of an organization. The tool usually comprises on Profitability, Efficiency, Liquidity and Investment (Finch, 2010, pp. 97-99). Financial ratio analysis: this acts as an evaluation tool which the company achieves to assess the performance of the management and their general performance. There are several ratios that are analyzed before inferences are outlined and settled as facts.
Budget is a financial assessment tool that enables companies to compare and contrast changes because of the difference among the actual results and budget result. Then the variance evaluation and assessment, in order to establish the root cause of the variance. In this case, the results are favorable, it will need to be a concept, but it is disadvantageous if the measures are created in order to prevent any mistakes (Pandey, 2006, pp.89). The financial measurement tools enable managers or supervisors of departments to perform certain measures, therefore, to maintain the set target, and the regulatory sector expenditures incurred. It also acts as a decision making tool as the management can make rules and decisions basing their arguments on the budget performance of the departments and the company in general.
Forecast, the tool enables organizations estimate may profit in the future. They are based on various factors, such as cost-competitive market, customer base and inherent production process. These forecasts will help various stakeholders’ interests of the organization as suppliers, creditors and financial institutions.
Earnings quality, which is a tool for financial performance, mainly related earnings impact assessment report. The tool can be sure that you have predicted accounting earnings management does not have the intrinsic value of the deviation would lead to an exaggeration to say.
Appraisals; these are evaluators which ensure that the best managers or employees are offered incentives for their work done so as to increase internal competition and act as a morale boost for the managerial team.
VARIANCE ANALYSIS
The word variance is an effective tool that is used to figure out the divergence between planned or standard cost and the actual cost or revenue during specific frame of time. Therefore, all the workings are being executed under the heading of variance analysis. This is one of the statistical tools which is used to observe the deviation among expected with real cost and deduce the results from findings (Moyer and Mcguigan et al., 2009, pp. 65-71). The framework of variance is typically applied in the context of manufacturing industry. It is widely integrated to identify the manufacturing cost on products. In this regard, the variance analysis emphasizes to catch out the roots involved in creating difference between manufacturing standard cost that is incurred for the manufacturing of actual products, and the exact cost of inputs occur for the final product.
Material variances deal with evaluating the material costs and variances during the production process. Material price variances are calculated as; MPV= (Actual Price x Actual Quantity) – (Standard Price x Actual Quantity). In this case, it would be (10.25 x 120,000) – (10 x 120,000) = 30,000. This is an unfavorable variance as the actual material prices were higher than the budgeted hence would affect the income statement by increasing the expenses. Material usage variance is calculated as; MUV= (Standard Quantity – Actual Quantity) x Standard price. This would be; (126,667 – 120,000) x 10 = 66,670. This is a favorable result as the department has been able to save materials that are being used. The total material variance is calculated by adding material price variance and the material usage variance. This would be; 66,670 + 30,000 = 96,667 favorable.
It helps in critically examine the magnitudes from every aspect with relevant reason so that counteractive measures can be taken by Management or personnel on the basis of provided report. However, the variance may be of favorable as well unfavorable. The result of variance analysis would be positive, if the actual incurred cost is below than the budgeted cost of input. In contrast, if the actual cost get surpass from expected cost, then it would be termed as “unfavorable variance”. The variance analysis can be performed in numerous dimensions, but it is mainly classified into two broad categories such as cost variance analysis and sales variance analysis. Manufacturing’s overhead cost variance analysis is comparatively more difficult than material variance analysis
Labor rate variances are meant to assess the deviations from the standard average wages paid to the actual wages paid. It is calculated by; (Actual rate - Standard Rate) x Actual Hours that is (5.6 – 5.3) x 36,267 = 10,880. This is an adverse element as the actual wages were higher than the expected budgeted rate. The Labor efficiency variance is used to measure the productivity of labor. It is calculated by (Standard hour – Actual hours) x Standard rate that is (38,000 – 36,267) x 5.3 = 9,185. This is a favorable labor efficiency variance as they efficiently conducted their duties and accomplished their tasks. The total labor variance would be the summation of the labor rate variance and the labor efficiency variance which would be 10,800 unfavorable and 9,185 favorable hence 1,695 unfavorable results would be obtained.
Reference List
Fabozzi, F. J. and Peterson Drake, P. 2009. Finance. Hoboken, N.J.: Wiley.
Brigham, E. F. and Houston, J. F. 2009. Fundamentals of Financial Management. Manchester: Cengage Learning.
Tarantino, A. and Cernauskas, D. 2011. Essentials of risk management in finance. Hoboken, N.J.: John Wiley & Sons
Finch, B. 2010. Effective financial management. London: Kogan Page.
Weaver, S. C. and Weston, J. F. 2008. Strategic financial management. Mason, OH: Thomson/South-Western.
Paramasivan, C. and Subramanian, T. 2009. Financial management. New Delhi: New Age International (P) Ltd., Publishers.
Eun, C. S. and Resnick, B. G. 2007. International financial management. Boston: McGraw-Hill/Irwin.
Brigham, E. F. and Daves, P. R. 2013. Intermediate financial management.. Mason, Ohio: South-Western.: Cengage Learning
Pandey, I. M. 2006. Financial management [with CD copy]. New Delhi: Vikas Publishing House.
Moyer, R. C., Mcguigan, J. R. and Kretlow, W. J. 2009. Contemporary financial management. Mason, OH: South-Western/Cengage Learning.
