SINgapore Engineering
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Transcript of SINgapore Engineering
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1. INTRODUCTION OF THE COMPANY
Singapore Engineering Works established in 2062 B.S at Prithvimarg, Pokhara is the
modern technology in the arena of high fabricated all kinds of aluminium door and
windows. It is in the great leap with in the short period of its establishment and the
company is in the summit of success. Well experienced staffs (Working for more than 12
years) are now working for the company, situated in Prithvimarg, Pokhara Singapore
Engineering Works. The basic purpose of the company is to construct Aluminium
windows, door and all kinds of aluminium works etc. The company has the direct import
from the leading aluminium production companies of the world. It has its own factory
and godawn.
The main purpose of this company is to manufacture doors and windows made from
aluminium and this company is an also famous for any kinds of aluminium related works.
Rapid, reliable and reasonable price are the main things the company always believe in,
are successfully running the works in private houses and different organization.
In the current world, deforestation in one of the burning problem and headache for most
of the developing countries, so using Aluminium door and windows for private houses
and offices reduce the deforestation in one hand and in other hand light weight, dust
proof, long life duration is other significance of Aluminium.
Vision:
To be a Company of global repute in the Aluminium Sector
Commitment to excellence
Commitment and competence of the people
Customer satisfaction
Team Work
Mission:
To achieve growth in business with global competitive edge providing satisfaction to the
customers, employees and community at large.
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2. INTRODUCTION OF THE MANAGEMENT ACCOUNTING
Management Accounting is the branch of accounting that produces information for
managers within an organization. It provides the basis to make informed business
decisions that will allow them to be better equipped in their management and control
function. It is the process of identifying, measuring, accumulating, analyzing, preparing,
interpreting and communicating information that helps managers fulfill organizational
objective. Managers prepare budgets and design and implement control systems. All
managers have an obligation to use resources wisely. If used intelligently, accounting
information contributes to efficient operations and helps both profit seeking and non-
profit organizations to achieve their objectives. Information generated are usually
confidential and used by management, instead of publicly reported.
The term management accounting is composed of 'management' and 'accounting'. The
word 'management' here does not signify only the top management but the entire
personnel charged with the authority and responsibility of operating an enterprise. The
task of management accounting involves furnishing accounting information to the
management, which may base its decisions on it. It is through management accounting
that the management gets the tools for an analysis of its administrative action and can lay
suitable stress on the possible alternatives in terms of costs, prices and profits, etc.
(Weekes-Marshall, 2011)
One simple definition of management accounting is the provision of financial and non-
financial decision-making information to managers.
According to the Institute of Management Accountants (IMA): "Management accounting
is a profession that involves partnering in management decision making, devising
planning and performance management systems, and providing expertise in financial
reporting and control to assist management in the formulation and implementation of an
organization's strategy".
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3. SIGNIFICANCE OF MANAGEMENT ACCOUTING
Managers use accounting information for making short term planning and control
decisions, for making non-routine decisions and for formulating overall policies and long
range plans. The purpose of management accounting in the organization is to support
competitive decision making by collecting, processing, and communicating information
that helps management plan, control, and evaluate business processes and company
strategy
Managerial accounting is therefore concerned with the provisions and use of accounting
information to managers within organizations, to provide them with the basis to make
informed business decisions that will allow them to be better equipped in their
management and control functions.
Managerial accounting is significance because of the following reason.
Assistance in planning and formulation of future
Managerial accounting guides management in planning the activities of the business.
Planning is deciding in advance what is to be done when it is to be done. Ever year
management plans are prepared in terms of budgets.
Help in controlling performance
Actual performance will be compared to the standard performance, targets, plans, and
standards on the basis information from the managerial accounting. This helps to
pinpoint the lacking responsibilities for taking corrective actions against a weak spot.
Help in coordinating operation.
The management accounting help the management coordinating the activities of the
concern by getting prepared functional budgets and coordinating the whole activities
of the concern by integrating all functional budgets into one.
Help in the solutions in the strategic business problems
Whenever there is a question of starting a new business expanding or diversifying the
exciting business, strategic business problem has to be solved the management
accountant helps in solving problems and decision making whether labour should be
replaced by machinery or not.
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Help in the motivating and communicating information.
Managerial accounting provide information to the person who are interested so that it
guide to a line of actions to be pursued through setting goals ,planning the best and
measuring the performance to increase the effectiveness of the organization.
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4. INTRODUCTION OF MANAGEMENT ACCOUNTING TOOLS
4.1.BREAK-EVEN ANALYSIS
The break-even level or break-even point (BEP) represents the sales amountin either unit or revenue termsthat is required to cover total costs (both fixed and variable). Profit at break-even is zero. Break-even is only possible if a firms prices are higher than its variable costs per unit. If so, then each unit of the product sold
will generate some contribution toward covering fixed costs.
Formulas to calculate Break Even Point for single product:
To calculate the BEP in units, divide total fixed cost by contribution margin per unit.
Using unit price minus unit variable cost, we get Contribution Margin per Unit.
Formula to calculate Break-Even Units under Sales Mix Analysis
4.2.CAPITAL BUDGETING
Capital Budgeting also called as Investment Appraisal is the planning process used
to determine whether an organizations long term investments such as new
machinery, replacement machinery, new plants, new products and research
development projects are worth the funding of cash through the firms capitalization
structure (debt, equity or retained earnings). It is the process of allocating resources
for major capital or investment expenditures. One of the primary goals of capital
budgeting investments is to increase the value of the firm to the shareholders.
A variety of measures have evolved over time to analyze capital budgeting
requests. Let's take look at the most popular techniques for analyzing a capital
budgeting proposal.
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1. Net Present Value:
The difference between the present value of cash inflows and the present value of
cash outflows is the Net Present Value. NPV is used in capital budgeting to
analyze the profitability of an investment or project. NPV analysis is sensitive to
the reliability of future cash inflows that an investment or project will yield.
NPV compares the value of a dollar today to the value of that same dollar in the
future, taking inflation and returns into account. If the NPV of a prospective
project is positive, it should be accepted. However, if NPV is negative, the
project should probably be rejected because cash flows will also be negative.
Formula to calculate Net Present Value (NPV)
2. Internal Rate of Return:
The internal rate of return (IRR) or economic rate of return (ERR) is a rate of
return used in capital budgeting to measure and compare the profitability of
investments. Internal Rate of Return gives a net present value (NPV) of zero,
which is where the present value of the net cash inflows equals the investment. It
is a commonly used measure of investment efficiency.
It is also called the discounted cash flow rate of return (DCFROR). In the context
of savings and loans the IRR is also called the effective interest rate. The term
internal refers to the fact that its calculation does not incorporate environmental
factors (e.g., the interest rate or inflation).
3. Pay Back Period:
Payback period in capital budgeting refers to the period of time required to
recoup the funds expended in an investment, or to reach the break-even point.
For example, a $1000 investment which returned $500 per year would have a
two-year payback period. Payback period intuitively measures how long
something takes to "pay for itself." All else being equal, shorter payback periods
are preferable to longer payback periods.
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5. DATA PRESENTATION AND ANALYSIS 5.1. Calculation of Break Even Point
=2831.56Kg
When company produce 2831.56 Kg of alumunium it will remain at breakeven
point ,where revenue is set equal to expenses or, neither profit nor loss
= Rs. 1274200
5.2 Calculation of NPV, IRR, PBP
5.2.1 Calculation of NPV
Year Cash flow PVIF@10% Present value
1 1772628.75 0.9091 16114496.797
2 2325022.81 0.8264 1921398.85
3 3138780.794 0.7513 2358166.01
4 4237354.071 0.6830 2894112.831
5 5720427.996 0.6209 3551813.743
6 7722577.795 0.5645 4358622.907
7 10425480.02 0.5132 5349313.8
8 14074398.03 0.4665 6565706.681
9 19000437.34 0.4241 8056185.433
10 25650590.41 0.3855 9888302.604
Total present value 46555119.66
Less: initial investment 22500000
NPV 24055119.66
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5.2.2 Calculation of IRR:
At 22% rate of return NPV is positive. Now let us take 23% as rate of return
because if we increase rate of return NPV decrease.
=2.3918
Lets try at 22% & 23%
Year Cash flow PVIF@22% Present value
1 1772628.75 0.8197 1453023.786
2 2325022.81 0.6719 1562182.826
3 3138780.794 0.5507 1728526.583
4 4237354.071 0.4514 1912741.628
5 5720427.996 0.37 2116558.359
6 7722577.795 0.3033 2342257.845
7 10425480.02 0.2486 2591774.334
8 14074398.03 0.2038 2868362.319
9 19000437.34 0.167 3173073.036
10 25650590.41 0.1369 3511565.827
Total present value 23260066.54
Less: initial investment 22500000
NPV 760066.5428
Year Cash flow PVIF@23% Present Value
1 1772628.75 0.8130 1441147.174
2 2325022.81 0.661 1536840.077
3 3138780.794 2.01140.5374 1686780.798
4 4237354.071 0.4369 1851299.994
5 5720427.996 0.3552 2031896.024
6 7722577.795 0.2888 2230280.467
7 10425480.02 0.2348 2447902.709
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8 14074398.03 0.1909 2686802.584
9 19000437.34 0.1552 2948867.875
10 25650590.41 0.1262 3237104.51
Total present value 22098922.21
Less: initial investment 22500000
NPV (401077.7864)
=22.65%
AT 22.65% NPV will be Zero i.e. NPV=NCO
5.2.3 Calculation of Pay Back Period
Year Cash flow Cumulative Cash Flow
1 1772628.75 1772628.75 2 2325022.81 4097651.56 3 3138780.794 7236432.354 4 4237354.071 11473786.42 5 5720427.996 17194214.42 6 7722577.795 24916792.22 7 10425480.02 35342272.24 8 14074398.03 49416670.27 9 19000437.34 6841707.61 10 25650590.41 94067698.02
=5.69years It takes 5.69 years to recover the investment from future cash flow without discounting.
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6. FINDINGS AND CONCLUSIONS
The primary focus of this report was to examine and analyze the data according to the
management accounting tool in the manufacturing company. This study concluded that
break-even and capital budgeting was used as a planning and control tool with the
planning process and for monitoring the cash flow.
The major findings of the whole report have been listed below:
1. When Singapore Engineering Works produces 2831.56 Kg of aluminium it will
remain at breakeven point ,where revenue is set equal to expenses or, neither profit
nor loss.
2. Under Capital Budgeting, NPV is 24055119.66, IRR is 22.65% and PBP is 5.69
years.
3. The net income is Rs 2130662.81 in 2069/2070 and Rs 1578268.75 in 2068/2069.
In the current world, deforestation in one of the burning problem and headache for most
of the developing countries, so using aluminium door and windows for private houses
and offices reduce the deforestation in one hand and in other hand light weight, dust
proof, long life duration is other significance of aluminium. The increasing significance
of aluminium must have increased the productivity of the company. And also from the
above findings it is seen that the IRR is higher, NPV is positive and PBP is shorter period
so the company should continue to produce its product.
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Appendix
Variable expenses
Particulars 2068/2069 2069/2070
Water 12356.11 15389.38
Stationery & Printing 8290 10156
News Paper & Magazines 250 3290
Conveyance 27150 35000
Legal expenses 5554 7164
Purchase 154000 198660
Lunch Expenses 4675 4855
Tour Expenses 45088 58164
Telephone Expenses 12356.11 16789.38
Labor charges 200369.2 258476.27
Transportation 754000 972660
Power/Electricity 45200 58378
Staff welfare 10810 13945
Total Variable Expenses 1283028.42 1652927.03
Fixed cost
Particulars Amount Amount
Salary Wages And Allowances Expenses 540000 540000
Audit fee 10000 10000
Depreciation 194360 194360
Rent 275000 275000
Total fixed cost 1019360 1019360
Other information
Particulars Amount Percentage
Selling price per Kg 450 100%
Variable price per Kg 90 20%
Contribution margin 360 16.97%