Organisational structures Essay Example for Free

Organisational structures Essay An organisation can be defined as a group of people who work over a period of time together to achieve a common goal or objective. An organisational structure can be classified into a number of different types, examples are listed below: * Tall, flat, hierarchal * Line structures * Line and staff structures * Centralised and decentralised structures * Matrix structures Mars Confectionery in Slough comprises two factories and an office, all of which are situated in Slough Trading Estate. Their factories operate around the clock, 24 hours a day. The two main types of chart are a flat organisational chart and a tall organisational chart. A flat organisational chart is used when a company have very little hierarchy; there are few levels of authority and more departments. A tall organisational chart shows the hierarchical structure of the organisation, the different levels of authority. 2.4a Flat Organisational Charts- A flat organisational chart is when an organisation has very little hierarchy, there are few levels of authority. Mars have a tall organisational structure and also a tall hierarchal structure. The managing Director is at the top and below are seven departments. Each department is made up of a team. Flat Tall The advantages of an organisational chart is that is shows the position of your company at a particular time- needs reviewing. It can show anomalies and efficiency- shows faults in fundamental structure. It also shows new employees and shows a broad outline of the company and where they fit in. It is also essential for the day to day planning. The disadvantages are that it shows formal organisation- not personalities (people mould job). And it may lead to disputes if not applied rigidly. It also shows that companies status at only one point in time (when the chart is being drawn). After it has been drawn a new employee may start up at the organisation and then the old chart would need to be upgraded. This type of structure provides possibilities for promotion for any staff. Mars use critical thinking this is where managers are looking to promote someone with initiative, who can handle difficult situations and make the right decisions quickly. An organisational chart is a diagrammatic presentation of the structure of an organisation, showing the department within that organisation e.g. Finance, RD, Administration, Personnel, Marketing, Sales Logistics and Production. An organisational chart also shows the level of responsibility and authority for individuals or departments, it also shows the span of control, so the number of people a person in supervising. At Mars they operate a line structure is the relationship between a senior and a subordinate at any level within the organisation. This is simple to understand so staff know exactly where they are in the structure. Managers will also have a clear understanding of the roles of people when allocating work. A centralised organisation is when decisions are made at the top of the organisation and the activities are shared out centrally. The advantage of centralisation are that the senior management is aware of how both internal external factors are likely to affect individual departments and the organisation in general. Decentralised structures are used when managers or supervisors take the authority in decisions The Mars decentralised because the head of each department has the authority to make decisions; therefore this saves time allow managers to take control of the work undertaken by their department and motivates staff because they have more responsibility. A matrix structure can be used by Mars when they are going to develop or launch a new product as it enable people from each functional area in order to complete the task. There are six types of organisational structures, which are line structures, staff structures, Functional structures, matrix structures, Centralised and De-Centralisation. 2.4b Line Structures Each unit is a microcosm of the whole. Each unit will have its own specialised staff carrying out the specialist management function. In a line structure, a company is usually organised into functional department, each headed by a senior manager, below whom is a chain of command. This shows there is a line of authority and responsibility as you go down the structure. For example, in Mars in the production department the line may pass down from production director to production manager, quality control, plant manager, process control, production supervisors and finally operatives. Each person in the line has authority of the one below. The advantages of a line structure is that it is simple to understand because staff know exactly where they are in the structure. Managers in Mars have a clear understanding of the roles of people when allocating work and spend less time monitoring work because subordinates are not distracted or confused by instructions from other sources. A well establishes line authority makes it possible for work to be delegated further down the line. Mars would use the line structure as it is simple to understand because staff know exactly where they are in the structure. The disadvantages are that it can involve a very long chain of command. Instructions may take a considerable amount of time to filter from the top and impact on the functional department, which would be a major drawback on a company in a rapidly changing market. Individuals may only respond to commands from their direct superior. The flow of information up the chain of command may take a long time, causing delays. 2.4c Staff Structures The senior management In Mars have a team of advisors to help them co-ordinate the activities of the whole organisation. A Mars member with the staff authority can provide services and advice to those in the line of authority in other departments. The training and recruitment of Human Resources management department are bound to involve other departments. Senior staff of Mars in the production department may have staff authority in the purchasing department. Mars staff in the finance department may have staff authority across all departments. Managers within Mars do not have the power or authority to control or give instructions, but rather the authority to deal with other departments and offer advice and services in relation to their problems. The advantages of staff structures are that it enables expertise and experience of specialists to be used to a greater extent across the Mars organisation. By having access to all areas of the business managers with staff authority can coordinate the organisations objectives and ensure a more immediate response to changes in technology or market conditions. Staff authority prevents individual departments from being too inward looking. In Mars it makes communication more efficient, without staff authority, communications between departments are a director level, and so any inter departmental communication ahs to pass up the chain of command in one department to director level and then down the other before it reaches the appropriate level. The disadvantages of a line and staff structure are that there is a risk that staff authority may diminish the authority of individuals in line management, particularly is those with staff functions acquire informal power and authority. In Mars this can lead to some subordinates becoming confused about whether they should take instructions from and be responsible to their line managers with staff authority. It can lead to clashes of personality and options. This may strain relations between staff, affecting productivity and morale. 2.4d Matrix Structures A matrix structure is an organisational structure set out as a grid, which shows the different ways an individual can be affected by authority. Here the projects need a variety of people from each functional area and there will be two managers that individual employees will have to report to. The advantages of the matrix structure are; making sure there is co-ordination between departments this is because it moves into the boundaries of each department boundary. This encourages greater flexibility and creativity, which is produced by the cross-fertilisation of knowledge and skills. It also enables lower staff to gain experience in management of a project team, which could be preparing them for promotion to become a higher manager. A disadvantage, however is that it can lead to confusion between project teams as individuals are involved in a large number of different relationships which create a complex pattern of authority and responsibility. In Mars they use a matrix structure which consists of specialist expertise who concentrate in specialist departments. Specialist staff are allocated to work on specialist projects. Project managers in Mars are responsible for completing the project calling on departmental specialise as they are needed. Promotion to higher levels of management is primarily based on technical expertise- merit or seniority. Communication chains are primarily downloaded and take the from of instructions and commands. This is an example of a Matrix structure used in Mars: Chief Executive The Mars Organisation structure is a grid showing the different ways an individual can be affected by authority. Here the projects need authority of people from each functional area and individuals will have to report to two managers. Organisational structures are divided by 1 product, 2 process, 3 customer, 4 geographical area. Division by product is when the organisation is separated by product lines. The advantages of a Mars matrix organisational structure is that it promotes an increased coordination between departments because it cuts across departmental boundaries-it encourages greater flexibility and creativity produced by cross fertilisation of knowledge and skills. It also allows for the involvement of relatively junior staff in Mars, giving them valuable experience in a wider field for the expression and application of their popular skills. The staff lower down the line structure can also gain valuable management development in a project team, preparing them for promotion. The involvement from specialists in other areas reduces the risks of resources being wasted on projects with no future. Matrix structures do have their disadvantages, the existence of a matrix structure in Mars and project teams can lead to confusion as individuals are involved in a large number of different relationships creating a complex pattern of authority and responsibility. A line manager may resent a subordinate receiving orders from anyone other than him or herself. 2.4e Centralised Organisations A centralised organisation is when decisions are made at the top of the organisation and the activities are carried out centrally. E.g. if a item needs to be purchased then all the purchases must go through the purchasing team. NO BODY has the authority to purchase separate items. Mars is not an example of a centralised organisation. Centralisation is where an organisation carries out its activities centrally in the business, so for example if an organisation wished to purchase equipment the purchasing department would carry it out, because no one else has the authority to do that. Most of the decisions are taken by employees at the top of the organisation and further down, they dont need to make decisions. An advantage of centralisation is the fact that the management team is aware of how much internal and external factors effect each individual department and the organisations general, meaning decisions can be made, based on what Mars needs as a whole. 2.4f De-Centralisation Is when each department manager has the ability to organise his own services making the decision on a day to day bases for his functional area. Mars is an example of a decentralised organisation; because the authority to make decisions on many activities is put to managers and sometimes maybe even supervisors, which is what takes place in Mars. This means that each department manager has the ability to organise there own services, making the decision on a day to day basis for their functional area. 2.4g The relationship between Culture and structure and management: There is a clear relationship between the structure and the culture of the Mars organisation. Tall organisations tend to have a culture based on a them and us attitude, which depends on where individuals stand in the hierarchy. There is likely to be a authoritarian culture. Mars have a tall organisational structure and also a tall hierarchal structure. The managing Director is at the top and below are seven departments. Each department is made up of a team. This means that an organisational chart shows the position of your company at a particular time- needs reviewing. It can show anomalies and efficiency- shows faults in fundamental structure. It also shows new employees and shows a broad outline of the company and where they fit in. It is also essential for the day to day planning Flat organisations tend to be more democratic, with multi directional flows of communication between organisational members, there is more likely to be a team approach. Matrix structures are more democratic than tall organisations. In the matrix people will mix with people from more than one functional area, so there is less likely to be a situation where departments become defensive of their territories. The matrix involves process teams this creates bonds between its team members and development of ideas. Hierarchical organisations are based on a top down approach which a main emphasis on communication. Centralised organisations are likely to lead a power based authoritarian structure. The centre of the organisation or team leaders will make or major dictions of the company. Distrust may be a major aspect from the centre of the organisation, people not involved or surrounded by the decision makers ill feel pushed out and unwelcome. An advantage of centralisation is the fact that the management team is aware of how much internal and external factors effect each individual department and the organisations general, meaning decisions can be made, based on what Mars needs as a whole. Decentralised organisations are most likely to be based on democratic structures teamwork and empowerment. Mars are not Delayering they are not laying people off when they want a flat organisational structure. This has not happened in Mars but this has happened in Nestle in 2002 who closed plants and made redundancies.

1,000 Word Essay On THE LOVE STORY :: essays research papers

  Ã‚  Ã‚  Ã‚  Ã‚  There are many positive things and negative things about the movie and the story. In the movie you have a chance to see what Elizabeth looks like. That alone could be a positive and negative thing. The movie is more glamour than thought. In the movie your mind has more free will so therefore this is the better of the two. The thought in the movie that, there is unlimited communication between the two, takes away your imagination and the curiosity of what they will say and how they will say it in the last message between the two of them. The changing of the time period was a very smart and interesting thing done in order for the movie to fit exactly into place. In the story the little details is what makes it important. Such as the marble floor in the Post Office, or that in the story, the Post Office is small. All of these little details are left out in the movie. Although it doesn’t seem like a great deal, the little details do play a large part in the importance of the Postal Office in the story. Although the story seems more simple in the â€Å"word† sense, it also leaves a lot of room for the mind to wonder what it is like back in the 1800’s. Therefore the story is more open for the mind and it is more pleasing.   Ã‚  Ã‚  Ã‚  Ã‚  Ã¢â‚¬Å"A girl in a high-necked dark dress with cameo brooch at the collar. Her dark hair was swept tightly back, covering the ears, in a style which no longer suits our ideas of beauty. But the stark severity of that dress and hairstyle couldn’t spoil the beauty of the face that smiled out at me from that old photograph.† This above is the description stated in the story that described Helen Elizabeth Worley. This description is not of lustrous beauty, but of the true love he felt for her. This statement and description is made at the end of the story. The movie gave you the chance to make your opinion on looks before you even began to know her. You are sort of forced by your eyes to make judgments on her personal appearance in the movie. When you make judgments on appearance then you don’t get the picture of this story, or any story for that matter. The imagination is one of the most powerful tools you can have, and in the movie you don’t use it that often, because the movie paints the picture for you.

Communication between Men and Women

As everyone knows by now, there is a difference between a man and a womans outer appearance. What some people do not realize is that a man and a woman are also different in communication techniques. Generally speaking, men and women fall into two categories when dealing with communication techniques. When men talk, it is for giving information. Deborah Tannen says this informative speaking is report-talk. Report-talk as defined by Deborah Tannen is public speaking. Women on the other hand, use small talk to communicate. Small talk is a conversation which is usually considered to be short and meaningless. Deborah Tannen states that this communication technique of women is rapport-talk. Rapport-talk as defined by Deborah Tannen is private speaking. This essay will discuss the following: (1) How Deborah Tannen and John Gray are similar in respect to their views on communication between men and women (2) how Tannen and Gray are different in their views on communication between men and women (3) the effects that result from these different types of communication (4) which essay is in agreement with my personal opinion and (5) the suggestions about communication from the essay. Deborah Tannen and John Gray are two authors who have many similarities. One similarity is the fact that both authors notice that men and women do speak differently. Tannen suggests that the way that men and women communicate is something that is learned from the early stages in life. From childhood, men learn to use talking as a way to get and keep attention. So they are more comfortable speaking in large groups made up of people they know less well-in the broadest sense public speaking. From childhood, girls criticize peers who try to stand out or appear better than others. People feel their closest connections at home Both authors realized men and women have different ways of talking. However, their views on the communication techniques are different. Deborah Tannen suggests that For most men, talk is primarily a means to preserve independence and negotiate and maintain status in a hierarchical social order. Deborah Tannen also suggest that women talk when with one or a few people they feel close to and comfortable with John Gray however says To fully express their feelings, women assume poetic license and use various superlatives and metaphors, and generalizations. Men mistakenly take these expressions literally. Because they misunderstandthey commonly react in an non-supportive manner. John Gray believes men use speech as a way of conveying facts. Women tend to look for support when they are talking, but do not ask for it; they feel the request is well implied. John Gray also theorized that when a man is upset or stressed he will automatically stop talking and go to his cave to works things out. Men are unable to express their feelings as well as women and this is why they go into a cave. Also men do not want to worry their partner. Men try to make their partner happy. Men think that their partner will be happy if they do not have to worry about the man. Women tend to believe that you can never abandon a friend who is upset. It doesnt seem loving to abandon someone when they are upset. Women instantly want to support men in the way they want to be supported, her intentions are good but it is counterproductive. Men show love by not worrying.

Realism in Oedipus the King Essay - 1234 Words

Realism in Oedipus Rex This essay will examine a feature of Sophocles’ tragedy which causes the reader to doubt the realism underlying the literary work. Specifically, the essay will consider the feasability of the belief at that time – that the Delphi oracle possessed credibility with the people. At the outset of the drama the priest of Zeus and the crowd of citizens of Thebes are gathered before the royal palace of Thebes talking to King Oedipus about the plague which is ravaging the city. The king is sorely troubled and laments the sad situation. Then he says: I have sent Menoeceus son, Creon, my consorts brother, to inquire Of Pythian Phoebus at his Delphic shrine, How I might†¦show more content†¦Whats amiss? CREON Banishment, or the shedding blood for blood. This stain of blood makes shipwreck of our state. And for the duration of the tragedy the characters explicitly or implicitly acknowledge their total belief in the directions of the Delphic oracle as the only means of ridding Thebes of the plague. Historically speaking, did the Delphic oracle have such credibility among the populace? For an answer to this question we go to The Histories of Herodotus. Herodotus was called the â€Å"Father of History† by Cicero and others. He lived and wrote in the fifth century BC just like Sophocles. As a contemporary, Herodotus knew and wrote about the beliefs and customs of the ancient Greeks as an historian, not as a litterateur. Herodotus was therefore interested in a factual presentation, not in an imaginative presentation such as Sophocles sought for as a dramatist. Herodotus, therefore, can be relied upon to either substantiate or contradict the validity of the situation in Oedipus Rex where the realism of the drama rests considerably on the claimed belief in the infallibility of the Delphic oracle. Let us examine a portion of The Histories that describes Athens, since Sophocles lived in Athens and wrote for an Athenian audience and even had Oedipus die at Colonnus, a suburb of Athens. In Book V Herodotus describes the engagement between the Athenians and the Boeotians, who were defeated; then another victory for AthensShow MoreRelatedThe Use of Chance in Oedipus vs. Chronicle of a Death Foretold1172 Words   |  5 PagesJillian Smith anderson IB English Period 2 4 November 2012 The Use of Chance in Chronicle of a Death Foretold versus Oedipus the King Chance can serve many different purposes in works of literature. 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Art Deco Architecture in the US the Dawn of Deco

African Of African American Culture - 1572 Words

There is no doubt that African Americans have a rich cultural background and history like the many different ethnic groups who settled in the New World, whose origins lie in another country. For this reason, America was known as the melting pot. However, the backgrounds of each of these cultures were not always understood or, in the case of African Americans, accepted among the New World society and culture. Americans were ignorant to the possibility of differences among groups of people until information and ideas started to emerge, particularly, the African retention theories. This sparked an interest in the field of African culture and retention in African Americans. However, the study of African American culture truly emerged as a result of increased awareness in America, specifically through the publication and findings of scholarly research and cultural events like the Harlem Renaissance where all ethnicities were able to see this rich historical culture of African Americans. There were many who became dedicated to this field of study, but two of the most predominant researchers and scholars of the African retention theories were Lorenzo Turner and Melville Herskovits. While both researchers examined different aspects of culture, Herskovits and Turner were both convinced that there was indeed African retention in African American culture and society (Wade-Lewis 402). Turner specifically researched linguistic retention, while Herskovits researched many aspects of theShow MoreRelatedAfrican American Culture in a Modern American Dominant Sociology2841 Words   |  12 PagesAfrican American Culture in a Modern American Dominant Sociology Intro to Sociology September 3, 2010 Janice Caparro African American culture in the United States refers to the cultural contributions of Americans African descent to the culture of the United States, either as part of or distinct from American culture. 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Financial Decision making Assessment

Questions: Assignment Tasks Ambien PLC is a manufacturing company operating in the UK. You have recently been taken on in the position of Financial Controller. You have been asked by management to produce an assessment of a number of current issues facing the company as it seeks to expand its operations. Your assessment should be in the form of a formal business report, which would be suitable for presentation to the senior managers of Ambien PLC. Issue 1 Working Capital Management and Variance Analysis The company utilizes a bank overdraft to manage its short term working capital needs. But the Managing Director has mentioned that he is fed up of being in the red and would like some information on the profitability and short term capital planning of the company. He has presented you with the last three months cash budgets (both budgeted and actual: Cash Budget for the three months ending 30th October 2014 Budgeted Actual August September October August September October ,000 ,000 ,000 ,000 ,000 ,000 Cash Receipts 210 200 125 205 200 120 Capital Received 500 500 Br Fwd. Cash on Hand/(OD) -200 -200 Total 10 700 125 5 700 120 Rental Rates 5 5 5 5 5 5 Admin Sales Expenses 3 3 3 3 4 4 Distribution Expenses 2 2 2 1 2 2 Direct Labour 25 25 25 30 30 30 Cash Purchases (Raw Materials) 50 50 50 50 55 60 Capital Investment 50 50 Taxation Paid 500 500 Managerial Wages 20 20 20 20 20 20 Total 105 605 155 109 616 171 Balance -95 95 -30 -104 84 -51 Crd. Fwd. -95 0 -30 -104 -20 -71 The following information is also relevant: A depreciation charge of 10,000 was made during the period. All raw materials are paid for at the end of the month of delivery, the company keeps one months supply based on sales projections (i.e. the stock purchased and paid for during the month is used up in the following months production). Cash receipts represent the companys credit terms of two months to its customers. The sales department have forwarded the following information to you: Actual Sales (,000) for: September October 150 200 Projected Sales (,000) for: November December January 210 150 125 Section One of your report should include the following: A numerical variance analysis of the previous financial quarter along with a detailed written commentary as to the variances discovered and what might have caused them. This should include your recommendations as to how to improve the production variances in the future. A Budgeted and Actual Profit and Loss statement for the period, as well as a Budgeted Profit and Loss Statement and Cash Budget for the current quarter. You will need to make some judgements as to the expenses likely to be incurred in the quarter based on your analysis of the variances above. Assume no further capital investment or taxation paid during the quarter. A detailed written analysis of the short term working capital requirements of the company with suggestions recommendations on how to improve the situation. Issue 2 Capital Investment Appraisal The previous Financial Controller oversaw the recent capital investment of 500,000 in new PM. Unfortunately he left his working notes in a mess and other than a brief analysis of cash in-flows and out-flows there is not much in the way of proper analysis of this expenditure. Due to your recent studies in the area of capital investment appraisal you feel that you can offer the company a far better analysis of the investment and establish more robust procedures for evaluating future capital investment. In your briefing with the Managing Director you have learned that the company to date has operated a hurdle for capital investment of 3 years to payback. You mentioned at the time that payback is an inferior system for capital investment appraisal, but the MD did not have time to listen to your ideas regarding Net Present Value and the time value of money. The analysis of cash in and out flows is presented here: Capital Investment Appraisal Year 0 1 2 3 4 5 Cash Out-Flows - Cost of Machinery -500 - Feasibility Study -20 Total -520 0 0 0 0 0 Cash In-Flows - Reduction in Direct O/H 200 150 150 100 100 - Residual Value of the Machinery 50 Total 0 200 150 150 100 150 Net Cash Flow -520 200 150 150 100 150 The following information is also relevant: The company has a cost of equity capital of 14% and a cost of debt capital of 6%. The company is geared 50:50 debt to equity. The feasibility study refers to a long term project on the viability of purchasing new PM. The previous FC has included this as a direct cost of the project Section Two of your report should include the following: A derivation and explanation of the companys weighted average cost of capital. A detailed analysis of the capital project, including payback analysis (bearing in mind the companys existing capital budgeting hurdle) and an analysis of NPV. A detailed commentary on the primacy of NPV analysis as a capital investment appraisal tool along with recommendations on the future capital budgeting processes at the company. Issue 3 Foreign Trade, Exchange and Risk Management The company is currently planning to expand its operations into new production facilities in Europe. The company has developed a new product which is to be sold in Europe. The Raw Materials for the new product are being shipped in from the United States. At the time of the order 1 = 1.385 $US. The first consignment of Raw Materials cost $500 per unit in direct materials for each unit of production, payment must be made in full on dispatch of the Raw Materials. Further; production, distribution and selling costs are estimated to be 300,000. The selling price per unit is projected to be 750. The first consignment of Raw Materials is due to be delivered from the US in three months from the date of the order. The company has predicted production demand of 1000 units of production in the first run. The company has negotiated with its bank a 3 month forward rate contract of 1 = 1.435 $US. The previous FC had taken some advice from a FOREX expert on the likely volatility of the exchange rates between Euros and Dollars. He has produced an analysis that the forward rate predicted by the bank could vary by as much as 15% either way. The new production facility has been financed by the issuing of debentures in the European debt markets. The total value of the bonds is 500,000. Section Three of your report should include the following: A numerical analysis of the total profit or loss that can be expected if the company sells all units on production. This analysis should include the current price, the forward rate and should be adjusted for the predictions that the forward rate could vary by as much as 15%. A written commentary on the nature of risk, bearing in mind that the company has taken on debentures in a foreign currency.This commentary must include recommendations for mitigating the identified risks. Answers: Issue 1: Working Capital Management and Variance Analysis Variance Analysis Variance Analysis Particulars Budgeted (,000) Actual (,000) Variance (Actual Budgeted) (,000) Aug Sep Oct Aug Sep Oct Aug Sept Oct Direct Material 50 50 50 50 55 60 0 5 10 Direct Labour 25 25 25 30 30 30 5 5 5 Overheads 30 30 30 29 31 31 -1 1 1 Material Variance It can be observed that the variances of previous quarter of material are respectively 0, 5000 and 10000. It has gradually increased from one month to another month. This is not favourable for the company. It may be the causes such as hike in market price of material, purchasing of standard materials than lower quality, strong bargaining power of vendors, inefficiency in buying by the procurement staffs, excluding of discount due to purchase of smaller sizes (Diriba, 2013). The company should implement better practices of procurement such as inviting the suppliers with price quotations. Purchase should be at larger size and Procurement staff should increase their negotiable skill. Labour Variance Labour variance of every month of the quarter is 5000 which is adverse and there is no improvement from one month to another month. Reason behind of it may be increasing of minimum wage rate, inefficiency in hiring, hiring of large number of skilled labour or existence of strong negotiation by the labour unions. To convert into favourable position, the company should do effective planning on hiring of labour and should reformulate the standard cost of labour (Bragg, 2001). Overhead Variance Here, overhead includes Rent Rates, Admin Sales Expenses, Distribution Expenses and Managerial Wages. On the above table, variance indicates that the company was favourable in the month August where the actual cost was less than the budgeted cost. But suddenly, it has increased in the month of September and it is also remain same in October. This is due to increase in Admin Sales Expenses and Distribution Expenses. Admin Sale Expenses and Distribution Expenses of the organization should be properly managed to reduce the cost. Profit Loss Statement Budgeted 000(AUG) 000(SEP) 000(OCT) PERTICULARS Cash receipts (sales) 210 200 125 less: Cash purchase ( raw materials) 50 50 50 Gross Profit 160 150 75 less: Rental Rates 5 5 5 Admin and sales expenses 3 3 3 Distribution expenses 2 2 2 Direct Labor 25 25 25 Managerial wages 20 20 20 Net profit before Tax(NPBT) 105 95 20 less: Taxation paid 500 Net profit after tax (NPAT) 105 -405 20 Budgeted profit loss account is the expected figure of income and expenses. It is made periodically to plan for the future income and expenses. Actual ACTUALPERTICULARS 000(AUG) 000(SEP) 000(OCT) Cash receipts (sales) less: 205 150 200 Cash purchase ( raw materials) Gross Profit 50 55 60 less: 155 -5 150 Rental Rates Admin and sales expenses 5 5 5 Distribution expenses 3 4 4 Direct Labor 1 2 2 Managerial wages 30 30 30 Depreciation 20 20 20 Net profit before Tax(NPBT) 96 -66 89 less: Taxation paid 500 Net profit after Tax(NPAT) 96 -566 89 Actual profit loss statement is compared to budgeted profit loss account to find out whether the company is meeting the plan. Here, the budgeted and actual profit loss account statement show that the company has earn less profit than budgeted in the month of August. In the month of September, it has more loss than the budgeted. But, it has earned more profit in month of October than the budgeted. Company is incurred loss in the second month of a quarter because the tax is paid in the second month of a quarter. 1.2.1 Assumed Current Quarter Profit Loss Statement Budgeted PERTICULARS 000(NOV) 000(DEC) 000(JAN) Cash receipts (sales) 210 150 125 less: Cash purchase ( raw materials) 55 55 55 Gross Profit 155 95 70 less: Rental Rates 5.25 5.25 5.25 Admin and sales expenses 3 3 3 Distribution expenses 2.2 2.2 2.2 Direct Labor 25 25 25 Managerial wages 20 20 20 Depreciation 10 10 10 Net profit before Tax(NPBT) 89.55 29.55 4.55 less: Taxation paid 475 Net profit after Tax(NPAT) 89.55 -445.45 4.55 Actual PERTICULARS 000(NOV) 000(DEC) 000(JAN) Cash receipts (sales) 205 150 200 less: Cash purchase ( raw materials) 55 60 66 Gross Profit 150 90 134 less: Rental Rates 5.25 5.25 5.25 Admin and sales expenses 3 4 4 Distribution expenses 1.1 2.2 2.2 Direct Labor 30 30 30 Managerial wages 20 20 20 Depreciation 10 10 10 Net profit before Tax(NPBT) 80.65 20.65 64.65 less: Taxation paid 475 Net profit after Tax(NPAT) 80.65 -454.35 64.65 Assumptions for Profit and loss statement: We are assuming that rental and rent has been increased by 5% for next quarter Cash purchase has been increased by 10% Distribution expenses has been increased by 10% Managerial wages, direct labour, Admin and Sales expenses are remain constant. Taxation rate has been decreased by 5% for next quarter. In the current financial quarter, the profit of the company has reduced in the month of August and incurred more loss in the month of more loss in the September than the budgeted. But, in the month of October, the earned amount of profit is more high than the budgeted. This is happening due to the variance of cash receipts on sales. Cash Budget PERTICULARS 000(NOV) 000(DEC) 000(JAN) RECEIPTS: Cash receipts 150 200 150 Capital receipts 200 200 Cash in hand / overdrawn -71 -30.35 263.2 TOTAL RECEIPTS 79 369.65 613.2 PAYMENTS : Rental and Rates 5.25 5.25 5.25 Admin and sales expenses 3 4 4 Distribution expenses 1.1 2.2 2.2 Direct Labor 30 30 30 Cash Purchase ( Raw Material) 60 55 60 Capital Investment Taxation Paid Managerial Wages Depreciation 10 10 10 TOTAL PAYMENTS 109.35 106.45 111.45 Balance -30.35 263.2 501.75 Crd Frd -30.35 0 0 Assumptions for Cash Budget Next quarter Capital Received for the month of December and January are 200000 Cash budget is estimated cash flows both inflows and outflows for a specific period. Analysis of Working Capital Management Working capital is the short-term capital required to invest for continuing the day-to-business. It is the outcome of time lag between expenses related to purchasing of raw materials and cash collection through selling of finished goods. There are components of working capital such as inventories, cash payables, cash receivables. Each component has contribution to working capital. Working capital is changed time to time for the proportion of the components. Liquidity and profitability can be decided by the requirement of working capital which creates effect on the decisions of investing and financing (Sagner, 2011). If working capital requirement is very less, it may require less amount of financing. As a result, more cash is available for shareholders. But at a same time less amount requirement of working capital may decrease the sales volume. So, profitability may be affected. For good financial health of an organization, it is very important to manage the proportion of components of working capital management. Operating cycle is an important tool of analyzing the components of working capital (Preve Sarria-Allende, 2010). All the components are converted in terms of days such as average days taken to collect the account receivables, average days taken to turn over the sale of a product and average number of days taken for paying the account payables to supplier. Less amount of account receivable means company follows strict collection policies and provides a less amount of credit to sell. As a result, cash inflow can be increased. Following a strict collections policies and less credit may decrease the sale and profits of the company can be reduced. Increase in accounts payables availing a longer credit period from supplier means taking of low quality materials which can reduces the profitability. Decrease in inventory, company may fall in crisis to sell. There are aspects of working capital: Current Assets and Current Liabilities. The issues can be raised from the both aspects. Current assets are short-term fund to meet the short-term liabilities. Current assets include cash, accounts receivable and inventory, etc. The issues related to current assets may be keeping too much inventory, allowing customer too much time to pay the credit amount. Current liabilities include accounts payable, short-term debt, etc. The issues related to current liabilities may be getting of short-term period to pay the suppliers and increasing of borrowing to keep running the business. The cash collection policy of the company is not favourable. The payment to suppliers is done at the end of the month of delivery where customers avail two months for payment of credit amount. So, cash collection does not efficient to meet the payment to suppliers. Issue 2: Capital Investment Appraisal Section One: Derivation of Weighted Average Cost of Capital The company financed both equity and debt capital in equal proportion. Tax rate is not included. So, the weighted average cost of capital is as follows: Particulars Value (%) Proportion Cost of equity (%) 14 0.50 Cost of debt (%) 6 0.50 WACC 10 A company has different sources of finance such as Equity, Debt, Retained earnings, Short-term and Long-term Loan. Weighted average cost of capital is the average of all the sources of capital. Here, the company has two sources of capital, Equity and Debt. WACC is calculated by using the following formula: WACC= (Proportion of Equity Cost of Equity) + (Proportion of Debt Cost of Debt) WACC is the average rate of return which is expected to compensate all the different investors of the company. Here, the WACC is 10% that means company has to pay $0.10 against $1to its investors. It is helpful to gauge the expense of funding in future projects. It is also used in discounting cash flows for appraising the capital investment. Lower WACC means the company decides to increase its use of cheaper financing sources. If the cost of debt less than the cost of equity, the companys weighted average cost of capital will decrease. In case of this company, it is observed that the proportion of equity and debt capital is equal and also the cost of debt is less than the cost of equity. That means the company would like to face less risk for its capital investment. Section Two: Payback analysis and NVP analysis 2.1. Pay Back Analysis Calculation of Pay Back Period Year Cash Out-Flows Cash In-Flows Cumulative Cash In-Flows 0 -520 1 200 200 2 150 350 3 150 500 4 100 600 5 150 750 Payback Period 3.20 Payback period is calculated to find out the length of time required to recover the cost of investment. According to that the decision is taken whether to undertake the project or not. Longer the payback period is not suitable for investment (Peterson Drake Fabozzi, 2002). It is usually expressed in years and calculated by using following formula: Payback period = Cost of Project / Annual Cash Inflows Cash Inflows are accumulated by year until the Cumulative Cash Inflow becomes positive in respect of its total investment. Here, Cumulative Cash Inflow becomes positive in the 4th year. So, Payback period is 4 years but in exact, it would be 3.20 years. The drawbacks of Payback back period are as follows: 1. Payback period method does not consider time value of money. But some companies modified this method by adjusting the time value of money to get to get the discounted Payback period. 2. According to Payback period method, the better investment is that one which has the shorter payback period. But it ignores the any benefits that occur after the payback period. So, it does not measure profitability. 2.2. NPV Analysis Year 0 1 2 3 4 5 Cash Outflow -520 Cash Inflow 200 150 150 100 150 Discount Rate 10% 0.90909091 0.826446281 0.751315 0.683013 0.620921 Present Value 181.818182 123.9669421 112.6972 68.30135 93.1382 Total Present Value 579.92 Net Present Value 59.92 A rate of return is assumed or set to discount the net cash inflows from a project. Here, rate of return is assumed 10% which is equal to Weighted Average Cost of Capital derived in previous in previous task. If, NPV is positive or zero, the project is accepted and project is rejected when it is negative. In case two or more excusive projects having positive NPVs, highest NPV project is accepted (Langdon, 2002). Here, the NPV is positive (59.92). So, the project may be accepted by the company. 2.3. Primacy of NPV Analysis Net Present Value (NPV) is the present value of net cash inflows expected from a project including residual value, if any, less the initial outlay of the project. NPV is used in Capital Budgeting to measure the profitability of an investment or a project. It is one of the most reliable methods because time value of money is adjusted by using discounted cash inflows (Pettinger, 2000). To calculate the NPV, first the present value of net cash inflows is determined from a project. The net cash flows may be equal or may different. If they are equal, present value can be calculated by using the present value of formula of annuity. However, if they are different the present value of each individual net cash inflow calculated separately (Costantini, 2006). NPV of annuity is calculated by following formula: Where, R is the net cash inflow expected to be received each period; i is the required rate of return n are the number of periods And, NPV of different cash inflows is calculated as follows: Where, i is the target rate of return; R1 is the net cash inflow during the first period; R2 is the net cash inflow during the second period; R3 is the net cash inflow during the second period, and so on. NPV having positive value or zero is accepted. In comparison of two projects, the highest NPV project is accepted (Burger Hawkesworth, 2013). The drawback of NPV is that it is based on estimated future cash flows of the project and estimates may far from actual results (Baum Crosby, 2008). This is due to the assumption of discounting rate. In order to result the particular issue, firm or organization can employ Internal Rate Return (IRR). So, in future budgetary process, organization needs use both NPV and IRR as investment appraisal process (Ballantine, Galliers Stray, 1995). Issue 3: Foreign Trade, Exchange and Risk Management 3.1 Analysis of Profit Loss At current exchange rate Current exchange rate: 1=1.385 $US Raw material cost per unit is $500. So, total material cost = $500 1000 units = $500000 Total material in Euro with current exchange rate = 361010.83 Production, distribution and selling cost = 300000 Selling price per unit = 750 Total revenue from sales = 750 1000 units = 750000 Profit = 750000 - (361010.83 + 300000) = 88989.17 At 15% increasing Exchange rate will be 1 = 1.593 $US So, total material cost in Euro = $500000 / 1.593 = 313873.19 Profit = 750000 - (313873.19 + 300000) = 136126.81 At 15% decreasing Exchange rate will be 1 = 1.177 $US So, total material cost in Euro = $500000/1.177 = 424808.84 Profit = 750000 - ( 424808.84 + 300000) = 25191.16 At 3 month forward contract rate Three month forward contract is 1 = 1.435 $US So, total material cost will be in Euro = $500000/1.435 = 348432.05 Profit = 750000 - (348432.05+ 300000) = 101567.95 The above calculation shows that if the company agrees to buy raw materials from US at spot price, the profit will be affected. The materials will be delivered from US after three months of order and the forward rate may vary as much as 15% either way according to the FOREX expert analysis report. So, at the time payment of raw materials, company has to pay more if the currency value of US dollar decreases by 15% rather than increasing. As well as, company will earn more profit if currency value of US dollar decreases by 15% than increasing. But, there is risk associated with it that it may increase or decrease. There is another option for going forward contract. So, if the company chooses to buy raw material from US at 3 three months forward contract rate, it can earn a favourable profit avoiding the risk associated with currency rate. Therefore, it will be a better option for the company to choose the 3 month forward contract rate. 3.2 Risk associated with issuing of debenture in a foreign currency Company has to bear risk to choose the debt financing instrument in a foreign currency. The important risk with foreign financing is foreign exchange risk which makes difficult to control the stable and reliable earnings (Crowley Lee, 2003). Foreign exchange risk depends on the changes of currency rate and value of investment gets affected. When profit is exchanged in domestic currency, earnings of profit from a foreign country can be decreased if domestic currency gets appreciated in respect of the foreign currency. Exchange rate is volatile in nature and it affects on sales and revenue of the company (MacDonald, Menkhoff Rebitzky, 2009). Suppose the company has decided to raise it finance of 500000 through debenture in US currency. Assume that, current exchange rate of Euro in respect of US dollar is 1=1.385 US $. If the Euro currency gets depreciated with US dollar (1=1.152), company has to pay more amounts at the time of interest payment or full payment of debenture (Kikerkova, n.d.). Mitigation of Exchange Risk The exchange risk can be mitigated through hedging the fund. Company can choose to raise the fund through future contract, forward contract and options on currency the currency market (DeRosa, 2011). Suppose the company chooses to issue debenture in foreign currency through forward contract. So, exchange risk can be avoided and company can earn more revenues. References List Books: Diriba, H. (2013).Cost Variance Analysis Under Decomposition Method. SaarbruÃÅ'ˆcken: LAP LAMBERT Academic Publishing. Sagner, J. (2011).Essentials of working capital management. Hoboken, N.J.: Wiley. Preve, L., Sarria-Allende, V. (2010).Working capital management. New York: Oxford University Press. Pettinger, R. (2000).Investment appraisal. New York, N.Y.: St. Martin's Press. Peterson Drake, P., Fabozzi, F. (2002).Capital budgeting. New York, NY: Wiley. Langdon, K. (2002).Investment appraisal. Oxford, England: Capstone Pub. Costantini, P. (2006).Cash return on capital invested. 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