Finance and Accounts

Finance and Accounts

Costs
-Fixed – are not influenced by the amount produced but can change in the long run e.g., insurance costs, administration, rent, some types of labour costs (salaries), some types of energy costs, equipment and machinery, buildings, advertising and promotion costs
-Variable – vary directly with the amount produced, e.g., raw material costs, some direct labour costs, some direct energy costs
-Total Costs (TC) = Fixed Costs (FC) + Variable Costs (VC)
lAverage Costs = TC/Output (Q)
–AC (unit costs) show the amount it costs to produce one unit of output on average
lMarginal Costs (MC) – the cost of producing one extra or one fewer units of production
–MC = TCn – TCn-1


Revenue
-Total Revenue – also known as turnover, sales revenue or ‘sales’ = Price x Quantity Sold
-TR = P x Q
-Price – may be a variety of different prices for different products in the portfolio
-Quantity – could be global sales


Profit
-Profit = TR – TC
-Normal Profit – the minimum amount required to keep a business in a particular line of production
-Abnormal/Supernormal Profit – the amount over and above the amount needed to keep a business in its current line of production


Occurs where Total Costs = Total Revenue
–Start-up costs – fixed costs
–Running costs – variable costs
–Revenue stream depends on price charged
–‘Low’ price – need to sell more to break-even
–‘High’ price – lower level of sales required before breaking even


Purpose of Accounts
-Provide information for stakeholders – customers, shareholders, suppliers, etc.
-Provides the opportunity for the business to monitor its own activities
-Provides transparency to enable the firm to attract investment
-Reduces the chance for fraud – not 100% successful!!


Profit and Loss Account
-Shows the flow of sales and costs over a period
-Shows the level of profit or loss made
-Shows what has been done with the profit or loss


Balance Sheet

-A snapshot of the firm’s position at a point in time
-Shows what a company owns (assets) and what it owes (liabilities)
-Balance Sheet shows what assets a company has (use of funds) and where the money came from to acquire those assets (source of funds)

Pricing Strategies

Pricing Strategies are:

Penetration Pricing
-Price set to ‘penetrate the market’
-Low’ price to secure high volumes
-Typical in mass market products – chocolate bars, food stuffs, household goods, etc.
-Suitable for products with long anticipated life cycles
-May be useful if launching into a new market

Market Skimming
-High price, Low volumes
-Skim the profit from the market
-Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out)
-Examples include: Playstation, jewellery, digital technology, new DVDs, etc.

Value Pricing
-Price set in accordance with customer perceptions about the value of the product/service
-Examples include status products/exclusive products
Companies may be able to set prices according to perceived value.

Loss Leader

-Typical in supermarkets, e.g. at Christmas, selling bottles of gin at £3 in the hope that people will be attracted to the store and buy other things
-Purchases of other items more than covers ‘loss’ on item sold

Psychological Pricing
-Used to play on consumer perceptions
-Classic example - £9.99 instead of £10.99!

Going Rate (Price Leadership)
-In case of price leader, rivals have difficulty in competing on price – too high and they lose market share, too low and the price leader would match price and force smaller rival out of market
-May follow pricing leads of rivals especially where those rivals have a clear dominance of market share

Tender Pricing
-Many contracts awarded on a tender basis
-Firm (or firms) submit their price for carrying out the work
-Purchaser then chooses which represents best value
-Mostly done in secret
A European consortium led by Airbus recently won a contract to supply refuelling services to the RAF – priced at £13 billion!

Price Discrimination
-Charging a different price for the same good/service in different markets
-Requires each market to be impenetrable
-Requires different price elasticity of demand in each market
Prices for rail travel differ for the same journey at different times of the day

Absorption/Full Cost Pricing
Full Cost Pricing – attempting to set price to cover both fixed and variable costs
Absorption Cost Pricing – Price set to ‘absorb’ some of the fixed costs of production

Destroyer Pricing/Predatory Pricing
Microsoft – have been accused of predatory pricing strategies in offering ‘free’ software as part of their operating system – Internet Explorer and Windows Media Player - forcing competitors like Netscape and Real Player out of the market.

Contribution PricingMarginal Cost Pricing
-Marginal cost – the cost of producing ONE extra or ONE fewer item of production
-MC pricing – allows flexibility
-Particularly relevant in transport where fixed costs may be relatively high

Aircraft flying from Bristol to Edinburgh – Total Cost (including normal profit) = £15,000 of which £13,000 is fixed cost*
Number of seats = 160, average price = £93.75
MC of each passenger = 2000/160 = £12.50
If flight not full, better to offer passengers chance of flying at £12.50 and fill the seat than not fill it at all!


Target Pricing
-Contribution = Selling Price – Variable (direct costs)
-Prices set to ensure coverage of variable costs and a ‘contribution’ to the fixed costs
-Similar in principle to marginal cost pricing
-Break-even analysis might be useful in such circumstances

Cost-Plus Pricing
-Setting price to ‘target’ a specified profit level
-Estimates of the cost and potential revenue at different prices, and thus the break-even have to be made, to determine the mark-up
-Mark-up = Profit/Cost x 100

Influence of Elasticity
-Calculation of the average cost (AC) plus a mark up
-AC = Total Cost/Output

Human Resource Management

human resource management

-Selection
-motivation
-Productivity
-Trade Unions
-Training
-Reward system
-Development
-Discipline
-Employment Legislation
-Recruitment

Recruitment

-Advertising
-Job description
-Person specification

-The process by which a job vacancy is identified and potential employees are notified.
-The nature of the recruitment process is regulated and subject to employment law.
-Main forms of recruitment through advertising in newspapers, magazines, trade papers and internal vacancy lists.
-Job description – outline of the role of the job holder
-Person specification – outline of the skills and qualities required of the post holder
-Applicants may demonstrate their suitability through application form, letter or curriculum vitae (CV)

Selection

Short Listing
Interview
Presentations
In-tray exercises
Psychometric testing
Aptitude testing

Employment Legislation

Equal opportunities
Descrimination
Union Recognition
Contracts
Health and Safety
EU directives

Discrimination

Crucial aspects of employment legislation:
–Race
–Gender
–Disability

Discipline

Grievance Prosedures
Dismissal
External Agencies-ACAS, Tribunals, EU

Development

Oppotinies
Promotion
Personal Development
Continuing Personal Development

Training

New skills
New systems
Imrove efficiency

Rewards System

Pay
Benefits

Trade unions

Role
Necessitty of consultation

Productivity

Output per worker per period of time
Measuring performance

BUSINESS OWNERSHIP

Business ownership
in the private sector
1) Sole traders ; for example shops, restaurants, etc.business activitiy owned financed and controlled by private individuals because of tis sector some advantec and disadvantec which are unlimited liability, limited acces to capital, potential for long hours, lack of continuity . advantec are easyto set up, personel incentive, flexibility, high degre of control
2)Partnershipowned, financed and controlled by two or m0re peopleadvanteges are greater access to capital, easy to set up, shared responsibilitydisadvanteges are unlimited liability,deciosions of one partner binding on the rest, parnership dissolved on death of one partner
3) Limited companiesprivate limited companies (Ltd) owned by 2 and 50 shareholderspublic limited companies(Plc) owned by minimum of two limited companies have issues which are diarce between oenership and control, must publish accounts, PLCs shareholders maybe large institutions, PLCs can be large, complex and posses.
4) Co-operativesownership finance and control in hands of members, exists for the benefit members
5) Franchises ; for example are body shop, Mcdonals, BurgerKingMethod of business ownership backed by established. owner gets to run a business with less " riskS.become very popular. speed way for business to expand
6) Charities

SECTORS OF BUSINESS

Private sector and Publicsector

Business activity has got four sector;
1)Primary sector;exraction of raw materials from earth. mining, fishing, agriculture, forestry
2)Secondary sector; prosessing of raw materials or semi-finished product
3)Tertiary sector; service industries, transport, finance, distrubution, comunication...
4)Qartenary sector; healt, education,research,..
There are two sector on business that are private sector and public sector.In public sector are managed and controled by persons of goverment. lamps ,clear of streets,university, roads.schools,museums and arts,economic devolopments, parks water,etc are in public sector. Private sector are managed and control by business man For example BP isdepend on private sector.Markt power,socil issues,sales , quality, servise, glad of costumer,guarantee of product are very important for private sector.In Turkiye private sector very important . in this sector first mainbody is quality and salary of worker. most producing in short time and most quality are very very (much) moneyin public sectors for example; mining, hidroelectric and termoelectric, meteoroloji,etc...generally workers are changed and fired by boss sometimes during sutiation of workers in private sector . Bec. performans of workers are important.

BUSINESS ORGANISATION

Business Functions

Human Resources
Sales and Marketing
Research and Devalopment
Production/Operations
Customer Service
Finance and Accounts
Administration and IT

Human Resources

Recruitment and retention
-job description
-person specifications
Dismissal
Redundancy
Motivation
Professional development and training
Health and safety and conditions at work
Liaison with trade unions dismissal and redundancy aren´t the same dismissal: when you lose your job
redundancy: company loosing money and you loose because of the company

Sales and Marketing

Market research
Promotion strategies
Pricing strategies
Sales strategies
The sales team
Product-advice on new product development, product improvement, extension strategies, target markets
Pricing strageties: what is the price going to be

Research and Development

New product development
Product improvements
Competitive advantage
Value added
Product testing
Efficiency gains
Cost savings
Value added: They look to see how to add value the product
Efficiency gains: saving money, saving costs
Production / Operations
Acquiring resources
Planning output-- labour,capital,land
Monitoring costs
Projections on future output
Production methods
Efficiency
They will buy primary raw materials. They plan the output, how much it costs (product) , which way to use for the production.
Customer Service
Monitoring Distribution

After sales service

Handling consumer enquiries
Offering advice to consumers
Dealing with customer complaints
Publicity and public relations
How product distribute ,
after-sales service: repair the machine if it brokes down
customer complaints: if the product is bad , they give the money back if they don´t dealing with customer complaints

Finance and Accounts

Cash flow
-monitoring income/revenue
-monitoring expenditure
Preparing accounts
Raising finance
-shares
-loans
Links with all other functional areas
How much money goes in and out. They control the cash flow, prepare all movements of money Links with all other functional areas: all other departments

Administration and IT

Managing estates: cleaning, health and safety, maintenance, security
Reception
Clerical work: reporting, recording, record keeping, communication
Overview of quality control
Use of IT systems
clerical work: paper work
IT: information technology systems in the company
Organisation Charts
You have boss and he/she gives differents types of jobs. Different departments
Pyramid structure is the same as chart.
Centralised/Entrepreneurial: managing director in the centre.This is similar organising the jobs in the university.
Matrix structure: All people try to solve the project and they work on it

QUANTITATIVE AND QUALITATIVE FACTORS IN DECISION MAKING

Quantitative Factors

-how much is it going to cost
-how much are we going to sell
-you have make someone redundant(it isn't nice but it is for money)
***Manchester united until very recently was bought by one person and this person controll the whole team, isn't good idea because supporters don't like it..
Decision Trees = The Process
economic growth rises....0.7
economic growth declines....0.3
0.7 x € 300.000 = € 210.000 0.3 x € 500.000 = € -150.000........................a net benefit figure of + € 60.000
if the probabilities change,
economic growth rises....0.5
economic growth declines....0.5
0.5 x € 300.000 = € 150.000
0.5 x € 500.000 = € -250.000..........................in this instance the net benefit is - € 100.000 the decision looks less favourable !!

Qualitative Factors

-Qualitative factors look to take account of these other issues that may influence the outcome of a decision
-Can be wide ranging and especially need to consider the impact on human resources and their response to decisions

SWOT

A decisions (for example, investment in a new production plant) could be considered not only in financial terms but also to apply other techniques of decision making to look at wider issues:
A SWOT analysis might be part of this:
strengths,weaknesses,opportunities,threats

PEST

Might also need to factor in other external issues that might influence the decision making process which can be summarised as:
–Political
–Economic
–Social
–Technological
Political could be in its widest sense, e.g. the internal politics of a firm as well as the national and international political effect
The decision to site a series of wind turbines in a coastal area might be justified on financial grounds but:
–What is the reaction of the local community?
–Does government policy support such planning developments?
–Are there social impacts
– e.g. noise pollution, damage to eco-systems, etc?
Such factors may make the difference between success and failure

Human Resources Management

Impact on a firm’s human resources is essential to consider, in particular the effects on:
–Motivation
–Morale
–Recruitment and Retention
–May be difficulty to assess and measure
–May need to distinguish between short term effects and long term

Decision Making

Eventual decision may rest on the balance between the perceived effects of quantitative and qualitative. If the long term effect on the workforce for example was to reduce productivity or increase absence because of the impact on motivation and morale, the fact that a decision makes financial sense may be shelved! Qualitative by its nature, therefore, is very subjective