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Sales
Income fromsold goods
Cost of goods sold
Opening finished goods in stock
Add: Cost of finished goods manufactured
Simplified P&L Account
NCC Education Limited V1.0
Less: Closing finished goods in stock
Gross profit
Less:
Expenses
Distribution costs
Selling costs
Administration costs
Other income and expenditure
Net profit before interest and tax
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.11
Depreciation based on the original cost of the
investment, including set-up and training, less the
expected scrap value at the end of its life
Credit most products are sold on the basis of
Factors Affecting Profit and Loss
NCC Education Limited V1.0
credit rather than cash, so bad debts need to be
taken into account
Warranty claims if a product under warranty has
to be repaired or replaced, this is a cost to the
manufacturer
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.12
A statement that lists the assets, liabilities and
equity of a business at any specified time
Provides a snapshot of the financial health of the
business
The Balance Sheet
NCC Education Limited V1.0
Typically prepared every 6 to 12 months
Uses a double entry approach every entry for an
item of incoming finance must have a
corresponding entry for usage
Lecture 9 Monitoring Organisational Performance
Finance & Budgetary Control
Understanding Business Organisations
V1.0 Visuals Handout Page 5
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.13
$million
Property, plant and equipment (tangible fixed assets) 68.4
Investments 4.8
Goodwill (intangible assets) 31.5
Stocks of goods for resale 44.7
Money owing fromcustomers
Example of a Balance Sheet
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(debtors) 51.9
Cash and bank account (current assets) 19.2 115.8
220.5
These resources were financed by shareholders
(including retained profit) 121.4
Money owing to suppliers, banks and tax 99.1 220.5
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.14
Depreciation the figure used should be the
original cost minus the proportion so far
depreciated
Factors Affecting the Balance
Sheet
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Changes in price levels asset is recorded at
original cost less depreciation, so price fluctuations
may cause complications
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.15
Managers need systems and procedures to
ensure the financial consequences of decisions
are understood
Cannot wait until year-end for financial
Internal Control
NCC Education Limited V1.0
information
Income and expenditure must be monitored
throughout the year
Budgets play a vital role
Lecture 9 Monitoring Organisational Performance
Finance & Budgetary Control
Understanding Business Organisations
V1.0 Visuals Handout Page 6
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.16
Begins at the top level with directors setting targets
and goals
Profit target derived for the whole organisation
Individual units/divisions will have to prepare their
b d ib i ll b d
The Budgeting Process
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own budgets, contributing to overall budget
Once agreed, the budget becomes an operating
plan
Important to keep budgets up-to-date and reflecting
operating and marketing conditions
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.17
Sales budget
Materials budget
Labour budget
O h db d t
Components of a Corporate
Budget
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Overhead budget
Capital budget
Research and development budget
Cash budget
Budget balance sheet
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.18
Budgets frequently used to judge performance
Employees often blamed for failing to achieve budget
(e.g. sales people not reaching sales targets)
Blame may lie with the budget rather than the person
Budgets and Performance
Measurement
NCC Education Limited V1.0
y g p
Consistent failure to achieve budget should lead to a
review of the budget to ensure targets are fair
As conditions change, the budget should be revised so
that it continues to be credible
Important that employees feel a sense of ownership
Lecture 9 Monitoring Organisational Performance
Finance & Budgetary Control
Understanding Business Organisations
V1.0 Visuals Handout Page 7
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.19
Managers need to make ad-hoc decisions
Financial information may need to be processed to
assist
Accountants play a vital role in extracting and
Decision Making
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p y g
supplying the financial data required
Data must be accurate and understandable
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.20
Managers need a regular flow of internal financial
data to manage effectively
Information must be related to the needs of
managers
Routine Information for Managers
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Information must be flexible so managers can look
at what if scenarios
Internal information may expand into the supply
chain if sufficient trust exists
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.21
All businesses are under pressure to achieve profits and
deliver a return for their investors
The financial function plays a critical role in monitoring
organisational performance
The interpretation of financial reports is vital in evaluating
Summary
NCC Education Limited V1.0
The interpretation of financial reports is vital in evaluating
performance
A corporate budget is made up of a variety of divisional and
departmental budgets, each with their own budget holder
Financial information must be up-to-date and accurate in
order to assist managers in their decision making
Lecture 9 Monitoring Organisational Performance
Finance & Budgetary Control
Understanding Business Organisations
V1.0 Visuals Handout Page 8
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.22
References
Boddy, D. (2005), Management: An Introduction,
3rd edition, Prentice Hall, Chapter 18
Boddy, D. (2007), Management: An Introduction,
4th edition, Prentice Hall, Chapter 19
NCC Education Limited V1.0
Campbell and Craig (2005), Organisations and the
Business Environment, 2nd edition. Butterworth-
Heinemann, Chapter 29, pp 648-660
Monitoring Organisational Performance Finance &Budgetary Control Lecture 9 - 9.23
Lecture 9 Monitoring Organisational
Performance Finance & Budgetary Control
NCC Education Limited V1.0
Any Questions?