Finance Management
Finance Management
Budgeting process for Ellioti
Budgeting for a retail business is an allocation of money. It is a process in which plans are made to determine what expenses the business will incur. Planning expenses will make it easy to know before hand, how much cash will be available for business. Ellioti can use a budgeting process in which its business segments develop their plans according to the requirements of their corporate goals.In order to make Ellioti perform better than its competitors, segment managers should prepare sales budget, which they intend to use. Forming a budget and not complying with it may lead to failure. Managers are also required to calculate the operating profits and return on investments which they intend to use.
Each segment of Ellioti must prepare the budget of its own in and then present it to the upper management in order to get approval. Managers of each segment must make changes as per instructed by the upper level. In Ellioti, the road maps for operations should only be those budgets that are approved by professionals. Budgets must be reviewed monthly or quarterly, to track yearly budget and check that whether the performance is meeting expectations or not. As a part of such performance check, minor changes should be welcomed if there are some chances occurring of being off track to the road map (Inc.com n.d.).
Decision making value of full and Marginal Costing
Absorption Costing
Full costing or Absorption costing includes anything that is a direct cost in manufacturing a product. It's a traditional approach to product costing. It treats cost of all manufacturing components, both variable and fixed, as inventorial cost or product cost that is why it is also known as full costing. It is appropriate for financial reporting.
Marginal Costing
It is a modern approach to product costing. It includes only variable production cost, (Direct material + Direct Labor and variable overhead) as product or inventorial cost, and fixed overheads are treated as period cost. It is more appropriate for internal reporting and facilitates decision making by using models for analyzing breakeven, cost volume profit analysis, margin of safety and degree of operating leverage.
Profit Calculation
It is clear that cost of a product under marginal costing will always be lower than that of absorption. When it comes to profits, it will depend on the relationship between volume of sales and volume of production.
Functional Presentation
When Profit Ending Inventory
Production = Sales AC=MC (AC Vs MC) no change
Production>Sales AC>VC Increased by
(Fixed Overhead in Additional units)
Production
Helpful Conditions
Valuation Of inventory
In the financial accounting area there is a strong argument of using “absorption costing” to value inventory, according to financial accounting concepts cost can never be expensed until it is disposed off, advocates of absorption costing claim that fixed cost comprise part of the cost of production. There is no strong argument for using variable costing for valuing inventory for financial reporting purpose.
Short term Decision making
Marginal costing is specifically useful for short term decision ...