A Report on Balanced Scorecard system of Premier Cement Ltd.docx
-
Upload
mushfikus-salehin -
Category
Documents
-
view
363 -
download
14
Transcript of A Report on Balanced Scorecard system of Premier Cement Ltd.docx
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
1/24
4 | P a g e
Origin of the report
This assignment has been undertaken as a part of our course F-302 (Managerial Accounting)
under the BBA program. The report under the headline "Balanced Scorecard and Master Budget
Analysis of Premier Cement Ltd." has been prepared towards this purpose. Here we have
selected Premier Cement Ltd. To show the process of Master Budget and Balanced Scorecard
approach.
Objectives of the report
The objectives of the report includes the following
Show the master budget of Premier Cement Ltd.
To learn about BSC.
To gain the knowledge of Strategic Management approaches and systems.
How balanced scorecard transforms strategy into action and desired behavior.
To know the application of BSC in real life.
Improve decisions and better solutions.
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
2/24
5 | P a g e
Methodology
For preparing the report we have collected data from Premier Cement Ltd. We have visited their
business places for collecting data. Since the master budget and balanced scorecard is a modern
accounting tool so it is not fully visible in all the business strategies. For preparing the report we
have collected data what were available to them through annual reports and periodicals and
assumed the rest necessaries to make the report a successful one.
L imitations of the report
The major limitations we have encountered so far are:
Lack of experience on our part has acted as constraints in the way of meticulous
exploration on the topic.
Lack of data.
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
3/24
6 | P a g e
About Premier Cement L td.
Premier Cement Mills Limited is one of the leading innovative cement manufacturers in
Bangladesh. Manufacturing EUROPEAN standard product using the best raw materials and
technical excellence for ensuring dependability and superiority of its outputs. The products
provide strength and durability to buildings of high dimensions, roads, bridges, and infrastructure
that speeds up the line of commerce, and to houses providing comfort and security to families
across Bangladesh, India, Myanmar, etc. Premier Cement is known as one of the top cement
brands in Bangladesh. Associated companies adhere to the same demanding standards as they
provide construction materials such as Ready Mix Concrete, Block, Pipe, and other pre-stressed
concrete units to the Government, Builders, and Manufacturers. They enjoy a good history aswell as a sustaining reputation in Bangladesh.
Premier Cement Mills started commercial production on March 12, 2004 with its 1st unit having
a production capacity of 0.6 million tons per annum. In January 2011, Production Unit-2 was
installed with a capacity of another 0.6 million ton per annum.
From November 2012 Premier Cement started production with its 3rd and 4th Units, having a
combined annual capacity of 1.2 million tons, in order to meet the additional market demand.
Now the company runs with an annual production capacity of 2.4 million tons (8,000 tons per
day) with 700 employees involved in its operation at both home and abroad.
The company uses the most sophisticated cement plant namely FLS SMIDTH of Denmark,
Packer from HAVER & BOECKER GmbH Germany and machineries maintaining European
standards and qualities. The factory is located at West Muktarpur, Munshiganj. On the front side
of the factory land is the Dhaka-Munshiganj road and on the rear side is the river Shitalakhya
which meets with the river Dhaleshwari and further downstream, both the rivers falls into the
mighty Meghna. Thus the factory site has marvelous accessibility both by land and river.
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
4/24
7 | P a g e
Vision and Mission
Work towards the development of the society through sustainable growth and high
quality performance.
Provide satisfaction to customers, an enjoyable working environment for the employees
& to create value for the stakeholders
They have very basic, well specified goals and objectives. These include:
To improve comprehensively on the current success areas.
To improve the brand image
To satisfy the customers.
To be among the top 5 cement manufacturers in Bangladesh,
To earn reasonable profits.
To capture the target market share.
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
5/24
8 | P a g e
Balanced Scorecard
A balanced scorecard can be thought of as a strategic chart of accounts for a company. Balance
scorecard captures both the financial and non-financial elements of a business's strategy and it
discusses the cause and effects of the relationships that drive business results. It is a combination
of quantitative and qualitative measures; it acknowledges the expectations of the differentstakeholders of a business and relates an assessment of performance to choice of strategy.
Balanced Scorecard recognizes the need to identify and track a number of financial and non-financial measures to provide a broader view of the business. For this purpose, an organization is
not limited to accounting data. A company may select indicators of Process, efficiency, safety
and customer satisfaction or employee morale. This can capture information about current
performance and emphasize leading indicators of future success. The objective is to produce aset of measures matched to the business so that performance can be monitored and evaluated.
Balanced Scorecard was created by Robert Kaplan and David Norton to translate vision and
Strategy into objectives. The balanced scorecard is meant to help managers keep their finger onthe pulse of the business. Each organization will emphasize different measures depending on
their strategy. Management is, in effect, translating their strategy into objectives that can be
measured.
Features of Balanced Scorecard:
It translates company strategy into performance measures
It emphasizes on continual improvement It integrates financial measures with non-financial measures
It provides with personal scorecard besides an overall balanced scorecard
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
6/24
9 | P a g e
Balanced scorecard of Premier Cement
Talking to the executives of Premier Cement we found that the company does not follow the
balanced scorecard approach. But we asked them some qualitative questions regarding their
product and production process and managed to gather some ideas on ways in which the balance
scorecard of Premier Cement can be drawn.
Premier Cement is known as one of the top cement brands in Bangladesh. The associated
companies adhere to the same demanding standards as provided construction materials such as
Ready Mix Concrete, Block, Pipe, and other pre-stressed concrete units to the Government,Builders, and Manufacturers. The company enjoys a good history as well as a sustaining
reputation in Bangladesh.
They import quality raw materials from different countries and carry on production maintaining
the standards and technical excellence. They produce European standard product ensuring
dependability and superiority of its outputs. During production process they give utmost
importance to the safety issues of the employees and carry out rigorous maintenance of their
machines. They look to ensure door to door delivery in time. They use latest IT equipment and
constant surveillance.
Premier Cement looks to train employees, improve interdepartmental communication and
motivate the employees which will assist them to produce quality products. They also look for
ways to reduce their delivery time. Following those processes they like to retain previouscustomers and looks to attract new customers. All these help Premier Cement to increase revenue
and profit margin of the company.
For all those process to be carried out properly Premier Cement can use the Balanced Scorecard.
Necessity of Balanced Scorecard to Premier Cement:
Balance scorecard has been being used by many mangers, because it helps employees to focus
their actions on executing organizational strategies. Under the balance scorecard approach, top
management translates its strategy into performance measures that employees can understandand influence. Balanced Scorecards are seen as a strategic performance management tool andthis can help identify, control and monitor any problems that arise within the organization
therefore it would be wise for an organization to adopt the Balance Scorecard. Balanced
scorecard can help Premier Cement in the following ways-
Improve processes
Motivate and educate employees
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
7/24
10 | P a g e
Monitors your organization progress
Enhances your business information system
It creates greater customer satisfaction Increases financial usage
Builds on other management ideas
Views the actual performances of the organization
Performances are viewed and managed in an ongoing manner Enhances career development programs
Improves productivity and innovation
Ways in which Premier Cement can prepare Effective Balanced Scorecard:
Managers should carefully select performance measures for their own companys balanced
scorecard, keeping the following points in mind-
First and foremost, the performance measures should be consistent with, and follow from, thecompanys strategy. If the performance measures are not consistent with the companysstrategies, people will find themselves working at cross-purposes.
Second, the performance measures should be understandable and controllable to a significantextent by those being evaluated.
Third, the scorecard should not have too many performance measures. This can lead to a lack offocus and confusion.
Barriers to Effective Balanced Scorecard:
The implementation of the strategies undertaken by any corporation is the root of ultimate
success. But a study shows that nine out of ten organizations fail to execute their business
strategies properly. The underlying reasons are Misunderstanding of organizations strategies by the workforce
Fewer discussions in the strategy among the workforces Budget confliction to the strategies Less incentives linked to strategies
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
8/24
11 | P a g e
How Premier Cement can link Balanced Scorecard to Strategy
The Balanced Scorecard was created by Robert Kaplan and David Norton to translate vision andstrategy into objectives. The balanced scorecard is meant to help managers keep their finger on
the pulse of the business. Each organization will emphasize different measures depending on
their strategy. Management is, in effect, translating their strategy into objectives that can bemeasured.
The Measures help managers balance their focus between current and future performance.
Premier Cement can follow simple but efficient protocol to gather information & feedbacks fromrespective fields. They can run their inter-functional assessments over the gathered information
and take decisions to provide superior values to the customer. The link can be shown by the
diagram below:
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
9/24
12 | P a g e
How Balanced Scorecard can convert Premier Cement strategy into Action
The balanced scorecard usually has four broad categories, such as financial performance,customers, internal processes and learning and growth. Typically, each category will have two to
five measures. A sample is shown below:
Premier Cement can improve their business performance by maintaining proper balanced
scorecard. The performance indicators can include improvement in the quality of product in
factory, relationship with retailers and builders, economic development, development in safety
standards. The scorecard provides flexibility in performance measures and the scorecard
measures can be determined properly only if the overall strategy is understood.
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
10/24
13 | P a g e
Breaking down the process in which the
Premier Cement Balanced Scorecard can be prepared
The strategy for Premier Cement is to retain and attract new customers with quality products. So
they focus on the quality of the product. They do not compromise quality for cost. They wanttheir product to be efficient and sustain natural calamity like earthquake. In the following
diagram we tried to shoe the process in which Premier Cement can prepare their balanced
scorecard and can improve financial performance through providing quality products. Different
measures on balanced scorecard are selected based on the qualitative information we gathered:
Train
employee
with new
Improve inter
department
coordination
Increase
employee
satisfaction by
Produce
cement with
quality raw
Attract new
customer and
increase
Retain previous
customers (+)
Quantity of
cement sold
Increase in total Profit margin of
Delivery cycle
-
Financial
perspecti
Customer
Internal
business
Learning
and
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
11/24
14 | P a g e
(+) & (-) shows the desired changes
Demonstration of the possible balance scorecard of Premier Cement:
Premier cement needs to train its employees with modern technology and aware them of
the safety issues that are needed to be followed during production. Improving the coordination between all the department is important because it reduces
delivery time and helps to stay in one common objective.
Increasing employee satisfaction will also encourage them to work efficiently and
maintain timely delivery.
Premier cement supplies cement to both consumer and industrial market. In both the
markets the buyers will want to buy standard quality of cement with imported raw
material and cement made with proper proportion of each materials using modern
technology.
Ensuing standard quality always add up to the quantity sold.
Reduction in delivery time and on time delivery will always attract new customers andassist in retaining previous customers. Also proper packaging is necessary.
Attaining the internal business process properly will increase the market share which will
be beneficial in the long run.
Finally increasing the quantity sold will increase the revenue and profit margin. So, profit
will be attained which will increase the company value.
A balanced scorecard will assist in growth and help Premier cement to sustain their
reputation in the market.
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
12/24
15 | P a g e
Master Budget Analysis
A master budget is the central planning tool that a management team uses to direct the activities
of a corporation, as well as to judge the performance of its various responsibility centers. It is
customary for the senior management team to review a number of iterations of the master budget
and incorporate modifications until it arrives at a budget that allocates funds to achieve the
desired results. Hopefully, a company uses participative budgeting to arrive at this final budget,
but it may also be imposed on the organization by senior management, with little input from
other employees.
The budgets that roll up into the master budget include:
A sales budget, including a schedule of expected cash collections
A production budget
A direct materials budget, including a schedule of expected cash disbursements
A direct labor budget
A manufacturing overhead budget
An ending finished goods inventory budget
A selling and administrative expense budget
A cash budget
A budgeted income statement
A budgeted balance sheet
Premier Cement Ltd follows the master budget process but they mainly emphasis on the cash
budget, budgeted income statement and budgeted balance sheet. With the help of our text book
and the information provided by the Premier Cement personnel we have prepared the other
budgets. Most of the information used in these budgets is hypothetical because Premier Cement
has a variety of materials used in production and complexity as well as vagueness is found
everywhere in the annual report provided by the company.
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
13/24
16 | P a g e
Sales Budget
The sales budget is the starting point in preparing the master budget. It is an Operating plan for
a period expressed in terms of sales volume and selling prices for each class of product or
service. Preparation of a sales budget is the starting point in budgeting since sales volume
influences nearly all other items. According to their master budget Premier Cement Mills
Limited plans to sell Bags worth 6141 million taka and the average selling price of all their bags
will be around 690 taka
Premier Cement Mills Limited Ltd.
Sales Budget
For the Year Ended June 30, 2013
Quarter
1 2 3 4 Year
Budgeted Sales 2150000 2556,000 2596,000 1598,000 89,00,000
Selling Price 690 690 690 690 690
Total Sales (in
millions)1483.50 1763.64 1791.24 1102.62 6141.00
A schedule of expected cash collections is prepared after the sales budget. Cash collections
consist of collections on credit sales made to customers in prior periods plus collections on
sales made in the current budget period. At Premier Cement Mills Limited, 90% of sales are
collected in the quarter in which the sale is made and the remaining 10% are collected in the
following quarter. The accounts receivable at the end of the year is estimated to be 109.65
million taka.
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
14/24
17 | P a g e
Schedule of Expected Cash Collections (in millions)
Quarter
1 2 3 4 Year
Accounts Receivable,
Beginning Balance46.22 46.22
First-Quarter Sales 1335.15 148.35 1483.50
Second-Quarter Sales 1587.27 176.36 1763.64
Third-Quarter Sales 1612.11 179.12 1791.24
Fourth-Quarter Sales 992.35 992.35
Total Cash Collection 1,026.28 723.24 688.8 998.76 6076.95
Production Budget
The production budget is prepared after the sales budget. It sets forth the units expected to be
manufactured to satisfy budgeted sales and inventory requirements. Expected production volume
is determined by adding desired ending inventory to planned sales and then subtracting
beginning inventory. Premier Cement Mills Limited management believes that an ending
inventory equal to 10% of the next quarters sales strikes the appropriate balance.
Premier Cement Mills Limited Ltd.
Production Budget
For the Year Ended June 30, 2013
Quarter
1 2 3 4 Year
Production 2150000 2556,000 2596,000 1598,000 89,00,000
Add desired ending
inventory of finished
Goods
255600 259600 159800 170000 170000
Total Needs 2405600 2815600 2755800 1768000 9070000
Less beginning
inventory of finished
goods
(257000) (255600) (259600) (159800) (257000)
Total production 2148600 2560000 2496200 1608200 8813000
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
15/24
18 | P a g e
Direct Mater ial Budget
How much material will be required for production and how much material must be bought to
meet this production requirement depends on both expected usage of materials and inventory
levels. Premier Cement Mills Limited has estimated that their budgeted direct material sale
2494.07million taka. That means the production of each Bag will need raw materials worth 283
taka.
Premier Cement Mills Limited Ltd.
Direct Material Budget
For the Year Ended June 30, 2013
Quarter
1 2 3 4 Year
Required Production 2148600 2560000 2496200 1608200 8813000
Cost of Raw
Materials per Bag of
Cement
283 283 283 283 283
Cost of Raw
materials (in
millions)
608.05 724.48 706.42 455.12 2494.07
The direct materials budget is usually accompanied by a schedule of expected cash
disbursements for raw materials. This schedule is needed to prepare the overall cash budget.
Disbursements for raw materials consist of payments for purchases on account in prior periods
plus any payments for purchases in the current budget period. At Premier Cement Mills
Limited, the policy is to pay for 60% of purchases in the quarter in which the purchase is made
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
16/24
19 | P a g e
and 40% in the following quarter. The accounts payable at the end of the year is estimated to
be around 182.04 million taka.
Schedule of Expected Cash Disbursements (in millions)
Quarter
1 2 3 4 Year
Accounts Payable,
Beginning Balance153.50 153.50
First-Quarter
Purchases364.83 243.22 608.05
Second-Quarter
Purchases434.68 289.79 724.48
Third-Quarter
Purchases423.85 282.56 706.42
Fourth-Quarter
Purchases273.07 273.07
Total Cash
Disbursements518.33 677.90 713.64 555.63 2465.52
Manufactur ing Overhead Budget
The manufacturing overhead budget contains all manufacturing costs other than the costs of
direct materials and direct labor (which are itemized separately in the direct materials budget and
the direct labor budget). The information in the manufacturing overhead budget becomes part of
the cost of goods sold line item in the master budget. At Premier Cement Ltd. the estimated
amount of manufacturing budget is 445.61 million taka which implies that the manufacturing
budget for per bag of cement is around 164 taka. The depreciation amount in manufacturing
overhead is 157 million which is depreciated over a straight line basis over the quarters.
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
17/24
20 | P a g e
Premier Cement Ltd.
Manufacturing Overhead Budget
For the Year Ended June 30, 2013
Quarter
1 2 3 4 Year
Required Production 6,79,372 5,00,000 5,85,000 9,53,116 27,17,488
Manufacturing Overhead
per Bag of Cement164 164 164 164 164
Total Manufacturing
Overhead (in millions)111.4 82 95.9 156.31 445.61
Less Depreciation (in
millions)(39) (39) (39) (39) (157)
Cash Disbursements (in
million)72.4 43 56.9 117.31 288.61
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
18/24
21 | P a g e
Direct Labor Budget
The direct labor budget is used to calculate the number of labor hours that will be needed to
produce the units itemized in the production budget. The direct labor budget is useful for
anticipating the number of employees who will be needed to staff the manufacturing area
throughout the budget period. This allows management to anticipate hiring needs, as well as
when to schedule overtime, and when layoffs are likely. The budget provides information at an
aggregate level, and so is not typically used for specific hiring and lay off requirements. Premier
Cement has estimated their direct labor to be 65.09 million taka for 27, 17,488 bags of cement
which means their labor cost per bag is 23.95 taka.
Premier Cement Ltd.
Direct Labor Budget
For the Year Ended June 30, 2013
Quarter
1 2 3 4 Year
Required Production 6,79,372 5,00,000 5,85,000 9,53,116 27,17,488
Labor Cost per Bag of
Cement23.95 23.95 23.95 23.95 23.95
Total Direct Labor
cost (in millions)16.27 11.975 14.01 22.83 65.09
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
19/24
22 | P a g e
Ending F inished Goods I nventory Budget
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
20/24
23 | P a g e
Sell ing and Administrative Budget
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
21/24
24 | P a g e
Cash Budget
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
22/24
25 | P a g e
Budgeted Income Statement
Primer cement Ltd.
Budgeted Income Statement
For the Year Ended June 30, 2013
Amount in Taka
(in millions)
Turnover 6141.00
Cost of Goods Sold (3510.494)
Gross Profit 2630.506
Administrative Expenses 50.51
Profit from Operation 2579.996
Finance Cost 120.79
Profit before tax 2459.21
Provision for income tax --
Total Comprehensive Income for the year 2459.21
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
23/24
26 | P a g e
Budgeted Balance Sheet
Premier Cement ltd.
Budget Balance Sheet
June 30, 2013
ASSETS
Amount in Taka(million)
Non-Current Assets
Property, Plant & Equipment 1289.313
Capital work in progress 82.91
Current Assets
Inventories 61.37
Trade and other receivables 46.23
Advances, Deposits & Prepayments 71.87
Cash and Cash Equivalents 5.18
TOTAL ASSETS 1556.876
EQUITY AND LIABILITIES
Shareholder's Equity 327.488
Issued Share Capital 175.00Retained Earnings(loss) (59.786)
Tax holiday reserve 2.274
Share money deposit 210.000
Non-Current Liabilities 536.297
Long Term Loan 536.297
Current Liabilities and Provisions 693.090
Short Term Loan 400.342
Trade and other payable 36.069
Premier cement mills ltd. 252.491
Provision for Income Tax 252.491
Total Equity and Liabilities 1556.876
-
8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx
24/24
27 | P a g e
References
1. Annual Report of Premier Cement
2.
Website of Premier Cement