Hi guys,

Please find attached my draft for steps 3-5. Please feel free to leave me any feedback, and I can do the same for you.

When I started reading this chapter I found that a lot of the information appeared quite familiar to me. For example, the fact that decisions required the managers to predict the future to a certain extent. This is what I wrote about in the previous step, as myself being a manager, I have to somewhat predict my customers behaviour with what product they will want to buy. I use their old buying patterns and I look into what they have bought previously throughout the year, as well as what they bought at the same time last year. I also compare this to other stores results and see if I can see a pattern in customer trends or in the locality of the customers trends. By the locality I mean that I look through the reports or stores close to me to see whether customers are buying the same products as what my customers are, or if my store is an anomaly.

A short term decision for myself as a manager would be to work out the buying trends of my customers during a particular season. So I would have researched all other stores, and I also looked at what fashions were coming into this season, as I found that my customers loved a cheap price, as well as loving neutral colours. So then I would look at the new arrivals and I would contact my buyers and inventory control and organise what stock to get sent to my store. I would still get the new colours of the season, but only the cheap products, as that’s what my customer loves. They love a good bargain! Whereas a long term decision for me would be whether to sign another lease at the location that we’re in now, or whether we have enough staff or not enough staff. With staff it can be very tricky and can really affect the profit of a store. Which is why it is so important to have the correct contracted hours that are needed, and the right type of people working. For example, the customers that enter my store can seem to be stand offish and want to just be left to their own thing and will call if they need assistance. This is completely different to every other store, as customer’s are approached by sales assistants when they walk in the door and are helped right away. So when looking for staff for my store I had to make sure I didn’t get the classic ‘pushy’ sales person, I needed people who would not take offense at being told no, but who are still great sales people.

I have never heard of the concept of a ‘sunk cost’ before reading this chapter. But as I read on, I find it very relevant to my workplace. Advertising for example is a sunk cost within a business. As this cost has already been paid, and you can’t go back and say you want your money back. An example I can think of for this is my store had just opened up but I wasn’t seeing the profit margin that we wanted at that time, so I looked into the advertising. I found out that we had paid for advertising for another company to provide, but it wasn’t working. I was still having customers walking through the doors a year later saying that they didn’t even know the store was open. I felt that advertising was definitely a sunk cost at that time and I didn’t see the benefit of it. So I made a decision along with my area manager and we contacted the advertising department, and told them we needed so much more advertising as well as more deals for our customers. Because again, my customer loves a bargain! And it worked! Our profit has started to increase due to this advertising cost and promotions. I guess this leads onto the part where Martin stated to focus on what is relevant.

I chose to focus my attention on advertising at that point in time as I had already done all of the research and found out my customer buying patterns and what my customers liked. Now I needed to focus my attention on drawing people in and turning them into a regular customer, which is why I focused solely on advertising and working out ways we can increase this at minimal costs to the business. Because overall, this advertising comes out of my gross profit, and I want the gross profit as high as I can possible get it. This again leads onto what Martin said about how everything is limited. I knew this when going into this store, as our lease is limited unless we can turn a profit. Meaning that we have signed a lease for a certain time period, so in this case time is limited.

Now reading on I come to the section about contribution. I completely agree with what Martin wrote, and I actually think about this daily at my workplace, and it is ‘Where can I make a difference?’. Where can I actually make an impact within my store? I have brainstormed over many months this particular question, and to be honest it is a work in progress. I focus on a few products in one week, and I can see an increase in sales of these products. So then I would focus on different products the next week, and again I would either see an increase or decrease in sales in these products. It is all about what I am actually contributing, and is it actually making a difference in the short-term or long-term on the store? If the answer is no, then I move on to something else and try to contribute towards sales in this way instead. You could say I did what Robinhood did in the 1990’s. I reduced my stores product range and I saw an increase in profit.

Moving onto the payback period. I found this an extremely interesting read. It is safe to say I will be using this within my work life now, as I find it very useful in finding out when my store will be in the payback period. I really liked the formula and example that was used and it helped clarify to me that the payback period is equal to the initial investment divided by the cash flow. This will show many months or years it would take for a firm to be in the payback period.

Overall, this chapter has shown me that there are a lot of factors that have to be considered by managers when making either short-term or long-term decisions. Factors can vary from economic factors such as constraints in the market or the value of money at today’s rate. For managers to make good and profitable decisions for their firms, they need to really research and consider these economic factors and remember that opportunity costs can’t be forgotten.

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I personally love having budget’s, so when I read the beginning of this chapter I was excited for what was to come. I have a wedding coming up within the next 2 years so I am on a budget so I can save for this and have it payed off before the big day! I created a budget that included all of our expenses and income, so I could work out how much money we would need to save each week to reach our goal of $25,000. I then took a step back and really looked to see if it was a realistic goal. This is where I thought of birthdays throughout the years, Christmas etc. I also looked at whether we could cut back on any expenses, maybe not as many takeaways, or somehow lower our electricity bill? A budget can be very difficult to stick to, trust me I would know, but it is a great tool for personal use and for firms. It helps to achieve your personal goals, in my case, my wedding, and for firms it helps them achieve their goals as well.

For example, whenever I do a roster at work for my team I always have budgeted hours that I stick to. I don’t go over them, if anything I under schedule people so that there is a back up of hours. If I was to schedule hours over the budgeted hours then this would eat into my gross profit. Unless I worked out that the return on investment would be worth it. Would it be worth it to schedule more than my budgeted hours over Christmas? Will my return on investment be profitable? These are all things that I think of whenever I do a roster for my store. Other variables also play a factor into this, I look into penalty rates for my team and I put the strongest sales representatives on weekends, rather than week days. This provides a strong return on investment for me as whom I have scheduled on weekends/public holidays are really earning their wages and it turns out to be profitable for me and my store. My company has an incentive at the end of each month, whether a store has achieved their sales budget and gone 6% above their gross profit budget, then money is payed out to everyone at the store. So as a manager, I have to really stick to budgets and KPI’s (Key performance indicators), which is where my planning comes into play.

I am not involved in a participative budgeting for my store. Budget’s are created within the head office and then are given to me. I then have to work out ways as to how my store will stay within the budget. I would love to be a part of participative budgeting, as I really love setting goals and working out how you can achieve them. A downside of me not being involved in participative budgeting, is that the head office don’t work in stores 24/7 like I do, and I know when it’s busy or when it’s not. I know that it’s busier on a weekend then it is on a weekday at my store, but this is not the same for every store. I am not involved with master budgets either, but we do get told how much our salaries cost us weekly, and at the end of each month I am sent a report that shows the salary costs, sales budgets and actual and per labour hours worked. I can see how useful master budgets are to managers as it incorporates all different budgets into one. It includes direct labour, materials, finished goods, manufacturing overhead, production, sales and administrative budgets.   

The next section that stood out to me was the part about sales and production budgets. I completely agree with what Martin wrote about how a production manager, in my case, my buyer and inventory control, forecast what production levels are achievable for each of the products that we sell. I am in contact every day with inventory and buyers requesting more of a certain product that sells really well at my store. Again, every store is different, my customers love cheap and coastal products, so that’s where myself, as a sales manager steps in and ensures that we have enough of these products to keep my customers happy. So the buyers and inventory then look into the production lines of all of the stores, and they pull the products I need from another stores inventory and send it to me. Vice versa, I do not sell a lot of high priced products at my store, so they have ceased producing products like these for my store, and I have sent these products to another store that sells them really well.

As I have stated above, I never receive an income statement or balance sheet for my store. I am sent a different report, so I use this to analyse what I am doing within my store and how I can effect a positive change. I think me being a manager has given me a better insight into how budgeting effects a firm and an individual. I am feeling more confident after reading through this chapter and am excited to get back to my budgeting for my personal goals now!

As I read the chapter I was beginning to see that understanding key cost relationships was created to understand the relationship of costs between that of a firm and its customers. A quote really stood out to me while reading this chapter, the one by Kazuo Inamori, ‘Too many people think only of their own profit. But business opportunity seldom knocks on the door of self-centred people. No customer ever goes to a store merely to please the storekeeper’. This just really highlighted to me that nobody will do anything unless it is a profit for them. I can understand what Martin meant when he wrote that ‘a firm’s relationship with its customer is one of exchanging values’. If a business does not see value is selling an item at a certain price, and does not see a profit, then it will not sell it at this price. Vice versa with customer’s. If a customer does not think the exchange of their money for a firm’s product of service is not of value to them, then they will not do it.

As I kept reading through the chapter, there were a few terms that stood out to me such as indirect and direct costs, and cost objects. I classify cost objects as an item in which costs are being measured separately. I can see that is a key concept that is used by managers when they manage the costs of their firm. I classify direct costs as, a cost that can be traced back to its cost object. It is a price that is associated with the production of goods or services. Whereas indirect costs are costs that are not directly associated with cost objects. Indirect costs are costs such as administration, personnel or security costs. This got me thinking about how I have always had an interest in knowing the costs associated within a business. I always like work out how many hours I would need to work, at my hourly rate, to be able to afford a product or service that I want. This would help me decide whether this item was actually worth it or not for me. But how do firm’s work out the price of a good or service, and what do they deem to be beneficial for them? I am keen to find out more.

The next key concept that really stood out to me was the functional-based and activity-based costing systems. I really enjoyed reading through this part and working out the differences between these two costing systems. I define a functional-based costing system as the total costs of all of the activities that are performed by a functional department. It also includes the costs associated with a work group or on an individual level. Fixed costs can be assigned to production overhead to output, on a per head/unit basis. An advantage of a functional-based costing system is that it can be more useful for short-term investors. It can be used to provide a big picture of company expenses, and it shows whether a business if good at managing its costs. Whereas a disadvantage of a functional-based costing system is that it can’t provide the insights that the activity-based costing system can for internal decisions made by management.

I define an activity-based costing system as it assigns costs based on activities performed within a business. It doesn’t add all of the costs that are incurred in individual departments. This costing system considers the time and space that is required for all of the tasks, as well as the number of units that are produced, to work out the cost-efficiency of different operations. I liked the following example, ‘Let’s figure out how much you are spending on utilities to create a product. To do this, you estimate that your total utility bill is $20,000 for the year. You determine that the cost driver impacting your utility bill is the number of direct labour hours worked. The number of direct labour hours worked totalled 1,000 hours for the year. Divide your total utility bill by your cost driver (the number of hours worked) to get your cost driver rate. Your overhead application is $20 ($20,000/1,000 hours). For this particular product, you used utilities for 3 hours. Multiply the hours by the cost driver rate of $20 to get $60’ (https://www.patriotsoftware.com/accounting/training/blog/activity-based-costing-small-business/ ).  I can see that an advantage of an activity-based costing system is that you can really analyse that profit or contribution from each different department, and it can help with product pricing. Whereas a disadvantage of this costing system is that it is much more time consuming compared to the financial-based costing system.

The next section that I found really beneficial was the difference between fixed and variable costs. My understanding of these costs is that a fixed cost stays the same, regardless of the amount of production that goes into something. Whereas a variable costs varies with the amount of production that goes into a product. This got me thinking about a company that manufactures anything. They would be watching to see if a product is popular with their customers, if it is, then they would produce more of that product. Vice versa, if a product is not popular with customers, then they wouldn’t produce much more of that product. That’s where a variable cost would come into play.

The final section that really stood out to me was contribution margins. I loved the example that Martin used and how he shows the maths calculations associated with the example. I always learn better when I can see an example in front of me, and if there is a description of how that equation was done. So a contribution margin shows the money that is generated for each of the business’ product sold, after taking away the costs associated. I am still not 100% on this section, but I know when I get stuck into my own company’s contribution margin, I will understand it a whole lot better.

After reading this chapter, I am feeling excited to continue on with the assignment, and put all of these terms into use when analysing my firms financial statements. I feel as if I need to practice working out the fixed and variable costs to understand them a bit more, as well as the contribution margin.

How did I find the restating of financial statements? Well, to be perfectly honest, I really struggled, and I found it extremely challenging. Although, when I got into a rhythm of what I was doing, I started to enjoy it. I know it has taken me longer than other people, but I am a slow learner, and I need to fully understand anything I am working on, and I will not hand any part of an assignment in until I do so. I have to say I loved linking all of my cells within the documents. I felt a sense of achievement when I got my formula’s to equal, and even though I didn’t know I was doing it, I let out a sigh of relief. It’s safe to say I was holding my breath with anticipation nearly the whole time of restating the financial statements. There were a lot of challenging and frustrating times for me, especially when my formulas didn’t match or equal. I know I redid my restated income statement at least five times before I got it to work. But there were also moments of excitement and relief when I did get all of my formulas to equal!

The first thing I did after reading the study guide and watching Maria’s videos, was to classify my items on my statements into ‘O’ and ‘F’. This was more of a check for me so I knew what was operating or financial activities within my firm. There were a few hiccups along the way in which I classified the wrong items as operational, and vice versa. This is where I went onto moodle and the facebook group, and sure enough, someone had to same concern as I did. I also went onto to Studiosity twice during the time it took me to do these steps, as I did struggle classifying all of my activities as operational or financial. After I had finished my restated statement of changes in equity, I reached out for some peer feedback to see if I was on the right track. Which is where I received feedback from Britny.

I did look at my sum of cell 78 and corrected my error. This is where I started to believe that online communication would really help me in this assignment. Moving onto the balance sheet, I actually found this one the hardest. This restated statement also took me the longest time, but after I did that final column and it equalled, massive sigh of relief! You want to know where I had gone wrong in this statement, which had taken me two weeks to find?! I had missed out a whole row… You can imagine how I felt after finding out my error. I couldn’t believe that I had done that! Alright, just need to put that behind me and move onto the final statement, the income statement.

To be honest, I was a little worried starting to restate my income statement as Maria had said during her video that, students often found this statement the hardest to do. Oh good! If I found the other two statements hard, what am I going to think about this one?! Better get cracking! I rewatched Maria’s video about ten times during restating this statement. I went through and I put ‘O’ and ‘F’ beside each item that I believed was operating and financial, I was going step by step with Maria’s video playing beside my statements. When I get to the end and I’m checking whether my OI + NFE = my original statement’s, it doesn’t… I could have easily cried at this point. But I kept hopeful as Maria had found her error seemingly quickly, so surely I could find mine? Nope, I could not. This took me a couple of days, and I reached out for peer feedback but I didn’t hear back from anyone for two days. I reached out to stuidiosity as well but they weren’t 100% sure either, and by this point I had redone this statement four times already. So I e-mailed Maria and asked for her feedback. She replied a day later and gave me some constructive feedback which helped me to find my error. I had put in a total into my operating expenses, silly me. You can definitely bet I won’t be making that mistake again! I took the heading out and once again, a massive sigh of relief, it equalled!!!!

Overall, I found the restating of the financial statements very challenging and frustrating at times. But I also felt a huge sense of accomplishment when I got all of my rows to equal and I understood what I was doing. I think it’s safe to say that I actually had fun during this state of the assignment.

Welcome back everyone! I hope everyone is rearing to go after that break, I know I am! Please find attached my assignment 2, step 1 🙂

Hi guys, please find attached a word document and excel spreadsheet providing my final copy of assignment 1!!!