Strategic Accounting for Decision Making

Strategic Accounting for Decision Makingoverseer Service miniskirt Market.Contents (Jump to)AbstractChapter 1 IntroductionChapter 2 The Mini MarketsChapter 3 Conclusions and Recomm closeationsT equal to(p)sAbstract adept of the key factors in achieving scum bag line performance in any bloodline enterprise is a complete understanding of how cont pulling equals contribute to the attainment of serviceability. Walters and Giles (2000)1 peak off that coach-and-fours who exercise flexibility in timing of decisions provide themselves with options in equating the viability of opportunities. The utilization of strategical story in decision-making represents a exhalation from past accounting practices whereby it was used to predict m whizztary performance and thusly report on what was achieved. Todays accounting theory sees this go as an ongoing active comp anent in business operations. The fitting utilization of varied accounting principles permits business owners and passe nger cars to use past conducts as a foundation for predicting future performance as well as the performance for the addition of impertinent product lines. Horngren et al (1997)2 indicate that efficient intentionning along with telling control represent critical factors in the achievement of business objectives. They go on to state that by dint of effective planning tendencys atomic number 18 selected with more c be and stimulant drug and that the achievement of goal objectives c each(prenominal)s for the utilization of effective controls.The introduction of a new divide in a miniskirtskirt nutrient mart represents an application of the foregoing whereby the employment of strategic accounting for decision making is a transit by which the business can be evaluated from differing operational perspectives. The foregoing setting shall be use to explore and pose solutions and answers to business conditions and questions with respect to varying business decision-making ar eas inwardly this setting.Chapter 1 IntroductionThe SettingAn enterpriser in South Wales postulated that the brass instrument of a mini grocery selling a limited mutation of varied food items would be able to establish a basis and survive in a competitive environment that included major(ip) super marketplaces, Tesco Safeways, Asda along with otherwise dismissions. The main theme for the foundation of this enterprise was found upon offering consumers convenience as well as quality religious service in an establishment where they could purchase either a single or multiple items quickly. The foregoing concept proved successful, as this entrepreneur was able to add three more mini markets in the area.And success brings with it the pick up to innovative, improve operations and seek areas of opportunity to continue growth. In bon ton to be successful when a business goes by dint of expansion an entrepreneur needs to evolve into a professional manager and understand non on ly how to delegate, but how to lead as well as fall and plan. And since sales and profi bowness are the barometers by which business is measured, the wideness of beingness able to forecast revenues and expenditures, identify probabilities, analyze operations, and control costs are key comp championnts of strategic accounting. The foregoing principles became spare as a result of attending a University course for Budgetary Planning and Control. In dictate to develop a more sophisticated and effective form, the assistance and input of the managers of the memorys was not only an necessary component, it was vital in gathering discipline as well as insight on the unmarried operations. Simons (1987)3 emphasizes that accounting represents an informational as well as control mechanism that managers must utilize to understand the varied components of their business and mold their accounting systems in call of information gathering and construction, to fit the needs of the entity.B ackground Facts and FactorsIt was noticed that one of the store managers, located in Aberdare, was committed but lacked the expertise to exploitally participate in the formal Budgetary Planning and Control system that was being implemented. As a result is was agreed that the caller-out would give birth for this manager to attend a course conducted at the Glamorgan Business betroth Weekend MSC Accounting programme. At a get together that called together all of the store managers it was explained that hence forth apiece store would be rated and evaluated on its individual performance rather than the prior classify consolidation basis. This entailed each manager producing a yearly budget for their outlet in consultation with their surgical incision managers to generate figures for each retail area. The boilersuit line management organisational structure of the four mini markets is as follows accede 1 Organizational StructureManaging DirectorNewport Penarth Cowbridge AberdareEa ch manager was directed to compile the pursuitProfit and Loss Account for their individual mini markets for the period ending 31/21/04,a division of staff salaries,employee composition by mini market section, dowry of substructure quadruplet allocated to sections,asset value of each cost center inside their mini markets,and, a Forecast of Profit and Loss for the six month period 01/01/05 through 30/06/05The foregoing produced an interesting response from one of the department manager of General Groceries at the Aberdare mini market. The depth psychology of al-Qaedaing space in that section found that at that place was under- apply space that could be put to better use. The manager had conducted virtually research and uncovered that there was no stance in Aberdare where one could have icons developed or enlarged. The idea was broached with the store manager and after gathering of some additional information regarding the cost of film it was included in reports to be presen ted at a meeting of managers and the owner. These were to consist of the followingA comprehensive comparison of the Aberdare and Penarth mini markets that includes their relative strengths as well as weaknesses.An analysis of the profitability of the profit centres in Aberdare.Because each mini market was henceforth to be rentd as individual business entities, options as well as constraints with regard to raising cracking to expand operations at the Aberdare position also were to be included.Budgetary planning and control was delegated to the manager of the Penarth mini market. The foregoing was based upon the fact that all managers had attended a seminar on this subject matter.Proposals for new revenue sources.Report on working capital management emphasizing debtor control and the lack of a combine between it and profit / cash flow.Presentation of the Forecast Balance carpenters plane and Profit and Loss Account for the Aberdare Super Service mini market in 2005.Chapter 2 Th e Mini Markets2.1 A comprehensive comparison of the Aberdare and Penarth mini markets that includes their relative strengths as well as weaknesses.In developing a basis for comparison of the Aberdare and Penarth the constant that is attributable to both locations is the general layout of the locations and organizational style. As shown by Table 3 the Penarth mini market does not have a sales area devoted(p) to pelter drinks and cigarettes as well as a separate defined space for the administrative bunk. And while the specifications do not provide information on this point, the allocation of 50% of space in the Penarth mini market to stores would calculate to indicate that this area also is utilized for administrative functions. The other deflexion in general layout between the two subject locations is the absence of sousing drinks and cigarettes section at the Penarth mini market. As these products represent traffic builders as well as profitable items, alcoholic drinks at the P enarth mini market they are assigned to the general groceries area for alcoholic drinks and most credibly checkout location for cigarettes. This aspect indicates a weakness in the Penarth mini market as the sales of alcoholic drinks and cigarettes contributed 7% to revenue.Table 2 Organization of Aberdare / Penarth Mini MarketsThe allocation of 50% of floor space to stores in the Penarth mini market represents a sizeable amount of area devoted to a non-sales function and would seemingly create a more littered layout for the remaining departments. For consumers accustomed to the spacious layout of major supermarkets much(prenominal) as Tesco Safeways, and Asda the exit of floor space at Penarth as well as unambiguous section for alcoholic drinks and cigarettes could negatively affect sales performance. However, the in operation(p) profit as shown by Table 4 for both locations is extremely close, transcription 19% for Penarth and 17.4% for Aberdare.Table 3 Financial similes for the Penarth and Aberdare Mini MarketsPenarth Aberdare2.2 An analysis of the profitability of the profit centres in AberdareIn calculating the profitability of each department at the Aberdare and Penarth mini markets, areas 3 (stores) and 7 (administrative piece) need to be take in enact to calculate the relative profitability of the remaining sales areas. The calculations relating to the aforementioned were derived from Table 5 below.Table 4 Organization of Aberdare / Penarth Mini MarketsClearly, the stores (3) and administrative office (7) do not contribute to sales, and thus are cost expense areas. The following Table 6 distributes gross profitability against sales departments. An area that stands out in the analysis of these two locations is that Penarth has 50% of its available space devoted to stores a non-sales area. In contrast, Aberdare devotes just 22% of its available space to this department (stores) and another 5% for administrative function thus losing just 27% as opposed to 50%. The share of profitability figures for Penarth sales sections double as a result of deducting the 50% allocated to stores. By comparing the two mini markets in this air it is apparent that the Penarth mini market has a higher ratio of sales division attributable to the departments utilizing the remaining floor space. The largest discrepancy occurs in the frozen food section which is the third most profitable department at Aberdare (47,387.5) as well as ranking third in terms of sales (174,375) behind general groceries, which ranks first in terms of sales (465,000), and dinero (136,260), and dairy products which ranked second (348,750 and 124,775 respectively).Table 5 Percent gainfulness of Aberdare and Penarth Sales AreasIn equating the percentage of sales attributable to each department at the Aberdare mini market, stores (3) along with the administrative office (7) were eliminated as these represent expense (support) functions. In so doing the percentage o f sales differs from the percentage of space allocation in reaching this calculation.Table 6 Comparison of Area Percentage and Percentage of Sales AberdareTable 7 command serviceing overhead time Expense and Net Profit Allocations at AberdareAs one of the points that were mentioned in the meeting of all mini market managers, any activity(s) that was producing a personnel casualty was to be discontinued. The former directive calls into question the stores department at the Penarth mini market. At 50% of the available floor space allocation for that section is grossly out of line with the space allocated at Aberdare at 22%. vexingly, the Penarth mini market does not indicate an allocation for an administrative office while Aberdare has a specific space for this function at 5% of floor space. As the directive indicated any activity that generates a going away is to be eliminated, the 5% allocated for the administrative office at Aberdare needs to be discontinued. The positioni ng of the stores department as well as the administrative office at the rear of the store means that existing floor space for dairy products as well as a portion of general groceries could be expanded from the 5% that will become available. Since the subject of adding a film developing department was broached, the utilization of the added 5% in floor space will be covered in a subsequently section.As administrative functions represent desk space for a computer, files, printer, telephone and ally equipment a small segment of space in the stores area will be utilized for this function. The Penarths stores allocation needs to be reduce to a percentage that approximates Aberdares 22%. This would open up 28% to be devoted to profitable sales such as daybook products and general groceries, significantly expanding these sections as well as providing additional space for small increases in the other departments, fresh meats frozen foods and space for alcoholic drinks and beverages whic h is completely missing from the Penarth mini market.2.3 Because each mini market was henceforth to be operated as individual business entities, options as well as constraints with regard to raising capital to expand operations at the Aberdare location also were to be included.Options for raising capital at each mini market are governed by prudent business practice. The calculation of factors such as interest cover and gearing provide guidelines by which to operate in constraining the raising of capital beyond acceptable levels. Interest Cover represents an important financial variable for business entities in that it provides a gauge concerning the interest paid on the businesses borrowings as measured against its operating profit (HM Revenue Customs, 2005)4. This figure is arriving at by dividing the operating profits of the mini market by the interest paid during the same fiscal period. The preceding ratio illustrates the relationship of gearing with respect to the profit and l oss. manifestly stated, gearing describes the debt compared with the mini markets equity capital (Randall, 2003)5Table 3 Financial Comparisons for the Penarth and Aberdare Mini MarketsPenarth Aberdare2.4 Budgetary planning and control was delegated to the manager of the Penarth mini marketIn fulfilling this aspect of the directives discussed in the managers meeting the balance between improving operational performance through decision making precedes budgetary planning as the direction and modifications to be industrious must first be decided upon and all impacting variables considered. One such example is the allocation of space at the Penarth mini market whereby the stores department occupies 50% of available floor space. The decision making process in this instance revolves around how to reapportion space and to what departments to maximize the return. other decision-making process entails the introduction of film processing at the Aberdare mini market and the allocation of r esources as well as space based upon projections and market research.Decision making entails utilizing a check bring up of steps to assist in arriving at the most viable selection based upon a consideration of factors, facts, influences and secondary options. The following are decision-making procedures to aid in determining what courses of action to takePareto AnalysisThis technique helps to select the most effective changes through following the courses of action that will yield the largest benefits. The technique entails listing the changes that could be make and grouping them into changes that are related. The list items are pass waterd by the basis of profit, customer satisfaction or other titles basing the scores on the profit generated or reduction in complaints, to utilize and example of the two possibilities indicated. In this manner attention is paid to those items with the highest scores (Reh, 2004)6.Paired ComparisonThrough this technique the importance of options t hat are relative to each other is worked out. The mannerology help in setting priorities when resources are subject to conflicting demands. Placing options on a grid permits the varied options to be compared and then numbered ranging from 0, representing no difference, through 3 which represents major difference(s) are assigned. These values are converted to percentages of the total score (Marsh et al, 2003)7.Grid AnalysisThe utilization of a grid analysis is employed when there are a number of good possibilities or alternatives. The list of options is placed into rows and factors are put into columns. The relative importance of factors comprising the decision is worked out and shown as numbers. These are utilized to apply varying weights to preferences through the importance of the factors. If this is not apparent then paired comparison analysis is utilized (Olsen et al, 2002)8.Decision TreesThis time proven method begins with the decision that needs to be made which is force as a square. Lines emanating from this square are drawn to the right for every possible solution with the explanation written on the line. The end of these lines considers the results and if it is not certain a circle at the end is used to designate this with squares used for decisions. The process is continued until as numerous possible outcomes as can be thought of are considered (Monahan, 2000)9.PMIThe Plus-Minus-Implications technique weighs the pros as well as cons of a decision. The process entails utilizing a table with the headings Plus-Minus-Implications where one writes the positive (plus), negative (minus) and possible outcomes (implications) of taking a peculiar(a) course of action (Hennen, 2004)10. If the decision is not obvious after the preceding then scores are applied in a immanent manner to complete the exercise.Force Field AnalysisThis looks at all of the forces as well as pressures for as well as against change. The process looks to strengthen those forces that s upport the decision and weaken the impact of those forces in opposition. The forces representing change are listed in one column, with those against change listed in the other, then a score is assigned from 1, representing weak, to 5, representing strong are used (Lewin, 1951)11.Six intellection HatsLooking at a decision representing all the possible points of judgement is the basis for this technique. The method forces thinking outside of habitual styles and employs emotional, creative, intuitive, creative as well as negative views so that resistance to change and other factors are considered (de Bono, 1999)12.Cost/Benefit AnalysisThis relatively simple method entails adding up the relative value of a course of actions benefits and then subtracting the costs that are associated with it. These costs may be one time or ongoing. Time is factored into the equation by looking at the period required for payback or breakeven as well as the costs (risks) involved (Gramlich, 1981)13.Budge tary planning represents actions and activities undertaken by a company over a specified period of time whereby the costs and results are contained in forecasts and projections that consider the factors resulting from the decision making process to arrive at the courses of action (Otley, 1978)14 ). While decision-making is utilized to arrive at the answers or solutions, budgetary planning uses elements that have already been decided upon and worked into a coherent plan. Decision-making represents the mannikin when possibilities are considered, whereby budgetary planning entails utilizing elements that are parts of the overall plan for the business entity, both new as well as existing.2.5 Proposals for new revenue sourcesThe manager of the Aberdare mini market was approached by one of the departmental managers who suggested that an unutilized space in the General Groceries section could be used for photograph development, enlargement, etc. The manager presented the following facts t o support the recommendationEquipment utilized in the process of developing and enlargement cost 18,000 with a useable life cycle of three (3) years.Operation of the service would entail hiring an additional employee at 15,000 per annum.The cost of photographic paper would total 0.75, and would represent 36 prints per sheet.The cost of chemicals to develop 36 prints would total 0.40It was suggested that a good marketing furtherance would consist of giving customers a free album with each roll of film that was developed. The cost of each album was presented as 0.80.Competitive set put the figure for developing 36 prints at 5.50.In order to retain customers it was recommended that an offer of a free roll of film be provided customers for each roll brought in for developing.Film could be obtained from Fuji at 0.75 per roll.In conjunction with the foregoing the manager of the Aberdare mini market alert a demand forecast representing film development for the years 2005 through 2007Ta ble 8 Demand Forecast for Films Developed 2005-2007Year200520062007Films processed11,00012,500