Answer 'Capital Budgeting' Step into the shoes of a financial analyst. Discuss which steps of the capital budgeting process you would find the most challenging and state why. Discuss the pros and cons of applying different investment decision rules when faced with the choice of investing corporate funds. Provide two examples Capital Budgeting is a process of long range planning involving investment of funds in long term activities whose benefits are expected over series of years. For example, installing machinery, creating additional capacity to manufacture a part of the machinery which at present is purchased from outside.
The information is evaluated within a rational cost/benefit decision framework by analyzing cash inflows and outflows over time. In project selection process, corporate manager uses various criteria and methods in selecting the optimal project. Traditional or conventional evaluation capital budgeting methods are: present value, internal rate of return, profitability index and payback period. Limitation of Present Value (PV) criteria by which projects are eligible if PV is higher than investments (PV > I) is averted by Net Present Value (NPV). Main limitation of PV method is that doesn’t take into account the
Two primary components of a model is the projected cost of one hour of direct labor and the number of labor hours required to produce one unit. Other direct costs are often the type of cost that the firm would normally charge as an indirect cost, but the proposed contract requires a large, unusual, or one-time expenditure for example a special tool that will benefit only the proposed contract. When you agree to the direct or other direct cost of labor you are saying that this is the cost you are going to charge to complete the work. If you under estimate yourself on direct cost on your contract, you will have an overage depending on the type of contract you negotiated. Overestimated on direct cost and other direct cost can hurt you as well because that mean you are charging too much to do the job....
PROFIT PLANNING AND BUDGETING Overall Organization Plan consists of 1. organizational goals, broad objectives management establishes and company employees work to achieve 2. the strategic long-range profit plan, Strategic plans discuss the major capital investments required to maintain present facilities, increase capacity, diversify products and/or processes, and develop particular markets. 3. the master budget/static budget (tactical short-range profit plan). Budgeting is a dynamic process that ties together goals, plans, decision making, and employee performance evaluation Benchmarking is the continuous process of measuring products, services, or activities against competitors’ performances. 4 types of responsibility centers 1. Cost Centers (costs) 2.
A business’s critical success factors should, in turn, be directly related to the results measures included in a result measures included in a result control system. In Simon (1990)’s article, statistical analysis and interview data indicated that control system differ systematically between prospector and defender firms. Successful prospectors use a high degree of forecast data in control reports, set tight budget goals and monitor outputs carefully. Cost control is reduced. Moreover, large prospectors emphasize frequent reporting and use uniform control system that are modified frequently.
First of all it is commonly known that a business is confronted every day with numerous issues that have to end up with a decision. For instance “whether to make components itself or buy them in, whether to accept or reject an order, whether to further process a product or sell it at its split-off point or how to best use resources when one or more of them becomes scarce.” (Docstoc, 2010). Nevertheless, in order a company to go ahead with the right decisions, it must take into account the relevant costs. Relevant costs are regarded as those which will be generated in the future. Subsequently, in most cases fixed costs are considered to be disrelated with short term decision making, on the grounds that whichever option will be choosed, the costs will remain constant.
The following of this essay will mainly focus on the influence of budget and budgeting on employees, management and performance of an organization. Body: Budget provides the step by step guidance for managers to use the scarce resources to achieve the organization’s objectives. It is usually stated in monetary terms and periodically, actual financial performance is compared to budget and variances are analyzed and explained. Nowadays, managers use budgeting system in the organization with the purposes of making plan for the companies, motivating employees, increasing the coordination in the organization, and strengthening the long-term competition position of the companies. First of all, budgeting is decision-making in advance.
1.1 Planning financial management approaches To successfully manage your organisation’s or team’s financial resources, you need to be familiar with the organisation’s priorities and objectives for the short- and long-term as articulated in its strategic plans, and understand how these are translated into the resulting organisation budget and then into team budgets. Your role is to support team members by explaining the team’s budget to them and ensuring this will help them achieve their goals. Any variations or events that impact on the budget need to be identified, documented and negotiated promptly with appropriate personnel within the organisation, such as accountants, frontline managersand supervisors. 1.1 Accessing budget/financial plans for the work team 1.2 Ensuring budget/financial plans are achievable, accurate and comprehensible 1.3 Negotiating any changes required to plans 1.4 Preparing contingency plans 1.2 Ensuring budget/financial plans areachievable, accurate and comprehensible The budgets and financial plans developed by an organisation primarily depend on the size of the organisation and the type of business involved; for example, whether it is a service organisation that charges for its services, a trading organisation that buys and sells goods or a manufacturing organisation that buys raw material and converts it into a saleable product. Because of the significant differences that exist between the three types of organisations so too are the range of budgets developed for each one.
Running Head: FINANCIAL PROJECT Case Study 2: Managing a Large Financial Project Clara Mae Jones Strayer University Instructor: Dr. Kegan Samuel CIS 510 Advanced System Analysis and Web Design August 6, 2013 Abstract There are many factors that should go into the planning of an organization’s project. One of the main things that should be included is cost based on the size of the organization and what their needs are. Normal cost for mid to large companies/organization will generally have large financial projects. In managing large financial projects, there should be many things (important) that must be considered in the planning. This information will be discussed in the content of the case study.
Variable costs change directly with sales volume, such as purchases inventory, shipping costs, and product manufacturing costs. For example, a business with break-even analysis showing that 100 units are needed to be for it to break from loss to profitability the managers are required to assess whether or not they will be able to sell the 100 units within a set period of time considering the market situation. Entrepreneurial expectations and financial situation of the business are major factors of consideration. In case a decision to lower the prices is arrived in order to sell off the 100 units, break-even point should be re-calculated factoring in the