I have finally finished the task of steps 7-10… well I hope! Check it out and let me know what you think!
We have got to make some decisions – well working as a head of department and currently going through a bit of a messy break up, decisions are being thrown at me left, right and centre. From all directions – at home, at work, socially and family orientated. Decisions need to be made or else we are going no where. I wish there was a tool like accounting in life to help in making decisions like in businesses, wouldn’t life be so much easier?! Starting to read chapter 8 was quite easy, I know about making decisions, not at the level of a manager committing limited capital into operations however, in smaller terms for a firm. I am currently deciding on whom to hire for our new building, who should I put in charge of our new building which has taken us so long to put a contract on? What policies and procedures are relevant to this building, what should I put in our starter kit? And the list goes on.
Focusing on what costs are relevant to the decision certainly makes sense to me, why would you start complicating it by involving costs that stay the same no matter what decision. It certainly would make decision making a lot easier by breaking it down this way. Can’t say that I have ever done this though, I tend to over think everything so every little bit of information is a factor to me. Then I moved onto what I call the morbid story in the chapter of time being limited, we are all going to die. Which is true however most of Martin’s stories I found myself laughing at, not this one! I understand that nothing lasts forever and that businesses need to act on opportunities if they arise. Learning about opportunity costs and replacement costs seemed different to me as I thought a cost was just a cost. And then Martin went on to explain more costs, so many costs to consider. This is why most people in the financial industry have limited to no hair – stress!
Then I started reading about contribution – how true! How many people can honestly say they seek to contribute to those around us? I do the normal things, say if someone dropped something I would go pick it up for them and return it or if someone was lost I would help them navigate their way but that isn’t genuinely seeking to contribute. I have created 2 questions in peerwise revolving around the equation CM = S – VC to get into my head and hopefully remind others that this is the relationship to remember as Martin says. Hopefully I have got it down! It was a good point in the reading to have another story to put it all into reality, the story of Robinhood. It certainly makes sense to not have products that are negatively impacting upon the contribution margin, it is strange that a new chief executive was the one that saw this and created change to build the business up again. Why didn’t the old chief executive do this?
Reading about making product-mix decisions with two constraints was also quite easy to read and understandable especially as it put back into context of the Robinhood story. Seeing all the information listed in a table simplified the process even more for me which was good. Even when deciding which products to use with the shortage of steel was made quite easy when simplified into a table to see the total amounts. I don’t think a business would cull all of the products like that as it would most likely lose customers however it certainly makes sense to make the most for total contribution margin.
I then move onto long term decisions. I can completely understand the time value of money, a dollar is certainly more important in my pocket today then a possible dollar in one year’s time. Reading this actually reminds me of a speaker back in high school, I think he was discussing depression and self confidence however he took a $20 out of his wallet and said who wants this $20 – obviously everyone put up their hands. Then he put it on the ground and stomped all over it and asked the audience again who wanted it and everyone still put up there hand. The message was not matter what happens the $20 is still worth the same. A little off topic to what we are discussing but for some reason this story just popped into my head and I had to write it down.
I started looking at the equations for calculating the accounting rate of return and got a bit nervous however once again Martins stories came to the rescue. Putting the equation in to context of the Airline buying planes and then to put all the information into a table certainly made it a lot easier to follow. I think putting this into practice might be difficult for me though as although I can follow what is being said I can’t understand the process completely. I then moved onto the payback period which made complete sense, something I would imagine to be very helpful in making decisions. It would certainly be something I would want to know if I put $100 in something when would I be likely to see that $100 again and then to see profit. The payback period approach is certainly something I understand a lot more then the ARR approach especially with the break down and also with the table showing all of the totals.
As I read on to discounted cash flow again I find myself at ease with reading and comfortable with the learning that I am gaining. The story of Martin’s $1 cup of coffee was great! I don’t think I had started drinking coffee by that year but I am sure I wasn’t too far off. Then it started all going down hill as I started to read internal rate of return. I’m not sure why but nothing really sunk in and I found myself rereading the paragraph a few times. I am hoping we do not have to put this in practice in the next steps as I have no idea how to do this method. So I cautiously moved on to the next part which is the net present value approach. This approach made sense to me in concept and I certainly understood it a great deal more then the internal rate of return however once again I think I would need to see it done and perhaps talked it out a bit more before having to actually do this approach. Then qualitative factors was a breeze to read as I was asking myself through the chapter this is all about the financials however there is more the play then just the numbers in a firm.
I think overall I understood the concepts and why the approaches are in place and how they assist managers in making decisions. Putting these approaches into practice at this point in time I would be very uneasy about however I haven’t honestly looked at my next steps in the assignment so I am not sure what I am needing to do –I hope it isn’t these approaches though! Once again I think the stories broke it up when needed and the tables made it simpler to read and process. As the chapters get more in depth with information I am finding it less like a novel to read although still as entertaining in parts certainly a lot of information as well.
As I took out chapter seven to begin reading the title – Budget for the short term – certainly made me feel relaxed as I work on my own personal budget and am quite at ease with the task and enjoy working on it. Moving on to studying the topic was certainly a relief from the previous chapters which I found quite difficult to comprehend and I had to re-read the chapters multiple times. As I create my own personal budget it revolves around what I want for my future, my plans and dreams, which is certainly very similar to what is being described in this chapter as what a manager does for a firm. The story about how much Martin walks certainly resonated with me in regards to finally taking the first step into studying accounting. I have been thinking about it for years and have finally taken the first step this year and enrolled and have started the process. Firms need to take the first steps to make theirs plans and dreams a reality.
The reason for budgeting part of the chapter makes sense to me as they are the same reasons as I have a budget for myself. I look at my salary coming in for the year and look at all my bills that come out regularly and what my future plans will need savings wise. What my short term plan is to assist in my long term goals. Make sure that I don’t have too many big night outs which will affect my budget and my plan moving forward otherwise I would need to revisit the budget or perhaps revisit going out so much. Co-ordination and communication in a budget I can see why they are so important, when working in hotels there are so many different departments that need to work together to make the hotel run. I never knew anything other than my department of front office budget wise and I believe as a worker I would have been better motivated within the business if I had a clear picture of what was expected and the plan for the big picture.
The story Martin wrote about the baggage handlers running the first bag up to the conveyor belt actually made me laugh out loud – of course the baggage handlers thought of that to get bonuses. It certainly is in people’s interest to get more money where they can – it certainly makes sense. When I worked in hotels they made an incentive for staff who signed up over a certain amount of guests to the loyalty program and to do that we would include free internet (or something of the like) to get those guests who weren’t as interested to sign up to sign up with us straight away at check in. Internet would usually cost about $24.95 per day so the hotel, although they were getting their sign ups, were losing money through the incentive as the staff to get over the limit for the remuneration prize.
Once again this story of England creating the road map for Wellington, New Zealand reminds me of the new Executive Assistant Manager (second to the general manager) came in and tried to implement change within our department however had never worked in hotels, didn’t know how our department ran so the changes she was trying to implement for cost savings ended up being a mess. More complaints from guests which then meant management of the department had to deal with it. I think it is a good idea to have management on the ground as well as head office managers working together to create a budget that is suited to the running of a firm and the big dreams of the firm. It certainly makes sense why there is a thing called participative budgeting.
I enjoyed getting the examples for the budgets of purple chocolates although not sure I would create a chocolate business so close to Cadbury chocolate! It does make it difficult to see the whole picture when they aren’t getting paid for 2 months of they do not pay for things straight away but who in business actually does this anyway? Then looking at the budgeted income statement also threw a curve ball at me when the profit was in positive but then the cash was in negative, I didn’t think it could actually work that way. I thought all spreadsheets told the same story just from different point of views. So this is where I got a little bit confused about the reading. Finally moving onto the budgeted balance sheet it provided me the answer – the negative in cash is due to increase in assets. So we need the completed 3 budgeted sheets to get the whole story of the firm. Everything else made sense to me however putting it into practice could be a different story.
Responsibility accounting also makes complete sense to me as you want to see how each part of the firm is doing. This way if there is a part that is dragging down the profit compared to all other aspects that is where a manager needs to concentrate to see if it is worth keeping or whether something can be done to make it a more profitable department. Moving onto measuring performance also made complete sense to me. I think measuring performance should be about the specific works that person is doing, I can’t believe the manager of Methven stayed so long. McKechnie should have made the performance of each firm not as a whole as it is unfair and that is how you end up losing good employees. Which at the end of the story, they ended up losing the whole part of that firm.
Then finally moving onto the balance scorecard makes complete sense. We used to have guest satisfaction cards in the hotel rooms for guests to complete to let us know how we were going, we would also have employee satisfaction surveys quite regularly to obviously examine how each department was running. I haven’t had much to do with financial performance or delivery performance however I am sure it all works the same way. Overall I am quite at ease with this whole chapter. I found it easy to read and understand and didn’t seem to have many questions written down at the end. I believe that accounting certainly helps us to understand the realities of a firm. Even with where we are up to now in our studies, I am understanding Navitas like I have known the firm for years however I have only been looking at the accounts. I am looking forward to the next chapter and what questions and information awaits me.
Hi guys, I would really like some feedback on my spreadsheet. I am concerned with a couple of things:
I would really appreciate any and all feedback!
What a process… I have finally finished, I think! I still have a couple of questions:
Please find attached my spreadsheet – would love any and all feedback especially in regards to the above questions.
Thanks in advance for all your help!
After completing the reading of chapter five, I was more at ease. I found that the reading went very quickly and didn’t really have to re-read or go over everything so I was feeling pretty comfortable moving on to chapter six. As soon as I started to read chapter six, I was quickly relating the first paragraph about value exchange needing to be of benefit to both parties to my morning coffee ritual at work. I work in Newstead of Brisbane, such a vibrant and up and coming area of Brisbane. When I first started working in the area there were 2 coffee shops to choose from and I chose the one that was the closest and slowly go to know the staff and always felt great going in and having a conversation so the value for me getting a coffee at this venue was higher then the other place. Now there is five coffee shops to choose from with potentially another coming soon. Due to the number of choices, my coffee shop downgraded to another site, further away and most of the staff have moved on to the other coffee shops in the area. So the value I had in my original coffee shop has gone. So I can certainly understand the exchanging of value between firms and customers.
Then moving on to cost objects also made sense to me. I am an organised individual so the concept of making costs ‘tidy’ to make it easier to understand/appropriate resinates with me. Everything in my home certainly has a place and when my mother comes to visit and helps out with the washing up after dinner, I find things in the wrong draws/cupboards! A nightmare – especially when I need to find that ice-cream scoop pronto! Costs make sense overall, every time I walk out the door it seems to cost money. Whether I drive (petrol cost), walk down to the park and get a coffee on the way or stay at home watching TV (electricity) it is all a cost in me living my life just like a firm lives their (business) life. Learning Ryman Healthcare had costs of $600,000 a day, I was in awe. I actually thought to myself – stuff being the manager of that firm. Keeping track of that much money would be an extremely intense position in saying that though I’m sure they have many managers looking after different department’s monies.
I currently am a head of department type figure and we have a new building in which we will need about 5 more staff to look after. So I decided to start looking for staff now and training them at our current building so they aren’t going in “green”. Due to this the labour costs for our current building will be increasing with the training so this will make an impact on the profitability however looking towards the future of when the new building opens up it will hopefully mean that I will not need to spend as much time with the staff there so it will incur less starting up costs due to the increased training costs at the current building and I can concentrate on the bigger items. Like Martin says – the future is unpredictable so we can only but try with what information we have. Reading on about numbers creating reality, I still find this hard to understand at this stage. I still believe that numbers reflect reality. Reality to me is if you spend money, your bank account decreases and if you save money, your bank accounts increases. So depending on the reality describes what numbers you have at the end of the day.
Products of cost objects reminds me of when I was working in food and beverage – a few years ago now. Every so often they would give me an inventory sheet and I would have to go out the back and count how many bottles we had. What a tenuous exercise! The amount of wine and beer that you have to keep in stock just in case one big table just drinks the same thing is just crazy and having to count every single bottle does take a whole night. So this would be the hotel I was working for at the time valuing its inventory of products to calculate profit for the period. I still don’t understand why understating or overstating a firm’s profit matters that much. Doesn’t it all come out in the wash at the end of the day? We can’t just hold onto an expense account – for example an electricity bill – and say sorry can’t pay you until I have sold the inventory that associates to this expense. You still need to pay for your expenses as they come in (or your power may be cut off) and I thought be put into your statements as an expense. Do you have to split it and then hold that portion of it until you sell the associated inventory to cover it? What if it takes years? It doesn’t make complete sense to me as of yet.
I guess this is where I start asking a lot of questions – mainly why? The judgements and assumptions that seems like we have to make just creates nervousness. It’s like a disaster waiting to happen. What happened to numbers being black and white?! Honestly the whole direct and indirect costs just doesn’t make sense to me. Aren’t all costs direct in running a business? There may be different departments however rent, electricity, rates etc. are costs in having a business why do we need to split them into departments. Why can’t the costs just be under sub-headings of what they are? It reminds me of when I worked at a hotel and the GM (general manager) decided to hire an EAM (executive assistant manager) and allocated her salary to FO (front office). So then we had to change our roster due to an additional cost being put into our budget of labour costings. The EAM did nothing for FO. I didn’t understand why the hotel couldn’t just put her salary as part of the senior management of the overall hotel. I still don’t understand why they did this when her salary could have just been apportioned to the different departments that she closely worked with?
Moving onto job and process costing made me confuse and ask why in my head about 10 times. Martin putting it into context of Cadbury did make sense however seemed like a lot of work for something that didn’t need to be. Why not make a heading making chocolate, sales and marketing, maintenance etc instead of splitting the headings into 6 different sub headings for just making chocolate. Why do they need to look at the process like that? They obviously need to have each stage to make chocolate so what does it matter if one part of the process is more expensive if you need to do every process to create the chocolate which is your revenue stream. I still have a lot to learn about this process and probably need to open my mind a lot more. Creating just one set of accounts for internal and external makes complete sense to me though – there is no point having 2 different accounts, there is enough work that just goes into creating one!
The figure 6-2 put the direct/in-direct costs into an easy to read picture. It actually made me understand the concept of apportioning all costs to the production departments so that the products at the end can absorb these costs. So finally after reading 9 pages of chapter 6, it is starting to make some sense, from a simple diagram! Reading about functional-based costing systems seems to bring up my earlier questions – What is the point of dividing costings like rates and electricity between different departments when it has to be absorbed by the product anyway. Why don’t they just have it as a heading of building operational costs, for example, and then it gets absorbed by the product – just skip all the dividing in between all different departments. Don’t you get the same figure? Reading over predetermined overhead absorption rates just made me a little unsure. I re-read it a few times to see if it was just that I hadn’t absorbed the information correctly. It’s just that I don’t really understand why firms do this. Seems like a lot of unnecessary work at the moment to get the same figure at the end.
Finally reading about how costs change I literally let out the biggest sigh! Finally something that is easily understood and so easy to grasp the context of with Martin referring to his son’s band. Martin set everything out with headings that equated to numbers with a total at the bottom – it doesn’t get much better then that! Fixed and Variable costs makes complete sense and I can completely understand how these work – obviously putting this into effect into a lager firm will be the challenge however at the moment I am taking this victory of understanding the reading. The cost-volume-profit analysis also made complete sense to me when Martin put it into context of his son’s band management.
I can certainly understand why it would be important for management to understand where the break even point is. This is the point that all business wants to stay on top of – no person goes into business wanting to just break even. The reason I believe people go into business is to make a profit so to understand where the break even point is, how to get there and what can be done to get past that point is certainly in the best interest of the management of a firm to be on top of. This is where management can take risks and try change as long as they can reach the break even point they haven’t lost anything in trying something new.
Overall I’m a little bit lost perhaps it will start making more sense when I put it all into context for my firm – Navitas (like what has happened previously). There does seem to be a lot of double handling however as I learn more about why we do this and what it achieves at the end I think I will feel better about it. At the moment I have just too many questions and obviously too little knowledge. This is just going to be how it is with studying though – keep reading and practicing until it sticks and makes sense. Well this better be the way it works!
As I started to read chapter 4, I didn’t understand why all the other students had been posting such confused status updates on Facebook from reading it. It starts off well like all of the other chapters. I find myself amused by the fish market story and certainly sucked in straight away like a novel – wanting to know what happens next. As I start reading the first term which comes up that I have never heard about – Restating Financial Statements. What is restating financial statements? What is wrong with the current financial statements? Why do I have to re-do them? Why can’t they be set out the way we require them?
Although already with a tonne of questions, I continue. Reading that the analysis is anything but mechanical made me a little nervous, I work well with black and white – numbers don’t lie… well I didn’t think they did until starting this unit. I found it extremely handy that Martin provided a glossary of the acronyms and I did exactly what he said. Printed it out and kept it with me while reading to refer back to it. I read a few acronyms through the first couple of pages but nothing too crazy however kept my glossary nice and close just in case.
I actually have shares which were given to me and honestly know nothing about them and I think I was like most people in presuming that if my dividends went up then the firm must be doing well and if my pay out dropped the firm wasn’t doing as well. Knowing that at the end of this I will actually be able to look into the firm I have shares with properly and actually understand what I am looking at is quite exciting. I have had these shares for about 6 years so it is certainly about time!
As I turn to the next page (page 3) that is when my eyes opened and my jaw dropped… Oh my, I have hit the mother load of all acronyms! Once I dived into the reading it wasn’t as scary as what I first thought. Putting the information to Ryman Healthcare was extremely helpful. I think if it was just left as the information I would have put the page down and walked off thinking how ridiculous it is! Thankfully I did not walk off and kept reading, although still not 100% sure what I am reading.
Then there was a break from what I call the hard-core reading and put capital into context of real life. Buying a house is the Australian dream; well it certainly is a dream of mine. I am currently saving money in a savings bank account for it to reach a sizeable deposit (capital) to put into a house. Although my capital does fluctuate depending on overseas travel sales! So then I learn another new term – Economic Profit. I am actually starting to understand what I am reading in the aspect of cash flow, dividends, capital and economic profit. I am still wandering why we have to restate a firm’s financial statements though. Why can’t a firm just show all of their earnings? Don’t they want people to see the real value of buying shares in their firm?
Such a random fact but did not know that Kinder Surprise was owned by Ferrero – the things I am learning in this unit is outrageous! I am sure I will find discovering a firm’s operating activities just as exciting as learning what toy is inside a kinder surprise… or will I?! I find that I still have the same questions as above in my first chapter – why do we need to separate the operating and financial activities of a firm and why don’t firm’s just provide these details anyway? I do agree with Martin’s reflections on eating less chocolate, although I wish eating chocolate made it easier to understand why we need to restate financial statements.
And here we go again… acronym galore. I wrote on figure 4-1 next to all the headings so I could digest what it meant. It all makes sense when Martin put’s it in terms of Ryman Healthcare however make’s it seem so easy! I do feel a bit bombarded and a little lost as I read the conceptual view of a firm part of the chapter but at the same time it does make sense. Some of it must have digested as I went onto Peerwise and found that I could answer questions correctly without referring back to the chapter, which was comforting.
Then the chapter moved onto the statement of changes in equity, which from what I can tell is just sorting out the information under operating or financial income headings. This part I seem pretty happy with understanding – just trying to figure out what is financial and what is operational may be the difficult part. The concept I can understand thus far. As I moved to chapter 4.3 I found the concept to be the same. Which brings up my earlier question – why don’t firms just show this information to begin with? Restating the financial statements of Navitas will certainly put it into perspective a lot better as although I can understand the concept I think doing it in reality will be a completely different story.
At first reading about how to restate the income statement seemed the same as the others until the large tip on allocating tax. At first I was completely lost however Martin has explained it extremely well and once again it makes complete sense however actually putting it into practice might make me say something else. When I was first looking at the profitability and efficiency chapter, I think I was a little overwhelmed with the equations. Once I started reading it though Martin’s reality check stories quickly put my mind at ease.
It makes complete sense making an average NOA for the year. Most businesses that I have ever been affiliated with/worked for have grown gradually through the year. Not a random spurt at the end of the year. I suppose this is where research needs to be done in a firm as no firm is the same. Profit Margin I have heard of and been shown before in company’s that I have worked for. I am “one” of those people though that thought profit margin was the end all that showed how the business was doing overall. Oh how wrong I was about a lot of things! Efficiency is certainly a new concept to me however once again I find it makes complete sense but still thinking – why don’t firms show these details in their financial statements? Why do we (the average person) have to restate them?
I think overall once I got my head around all the acronyms it actually makes sense. Especially the way Martin puts it into context – in real life situations. I still feel nervous about having to actually do this in reality. I still have so many questions. Although it makes sense I still don’t understand why firms don’t just do this work anyway if it really shows the economic profit. Unless the firms aren’t wanting us to see the reality, just the shiny, large profit margin number which would have the average person buying shares over. Anyway time will tell and I am certainly looking forward to putting these equations to work on my own firm – Navitas.
Apologies for the lateness – have finally finished going through it. Please find below attachment.
Let me know if this helps!
Please see below feedback for your draft copy of assignment one. I hope this helps you 🙂