Question

Chapter 11:

1. Describe the three typical locations for service firms.
2. Briefly summarize low customer contact businesses.
3. Describe the key issues in leasing.
4. Differentiate manufacturing layouts from retail store layouts.
5. Define sales promotion and briefly describe the four major techniques used in sales promotions.

Chapter 12:

1. What are the limitations of a balance sheet?
2. Describe the mechanics of a cash flow statement.
3. Briefly explain cost-volume-profit (CVP) analysis.
4. Briefly discuss the different types of budgets that make up the master budget.

What are some of the common management decisions that can be aided by the use of accounting information and procedures? Explain.

Answer 1

2. low customer contact businesses: Low-contact service, also known as quasi-manufacturing, is characterized by the low level of direct contact with customers. Examples include mail-order stores, research laboratories, and the home offices of banks and real estate firms. In these situations, work is more standardized, with less customization of the work flow. Here, low-contact customer service is offered, where, organization addresses customer concerns and problems as they come up. This strategy typically doesn't gather a lot of information to identify specific solutions. Low-contact customer service typically keeps customers at arm's length, dealing with entry-level service reps and seldom reaching top-level managers or executives when a problem occurs

3. key issues in leasing:

1. Premises: Tenants should do their due diligence and consider their needs when evaluating space for rent
2. Use: Tenants should check that the space is zoned for its intended use, since typically landlords will not warrant that a space is suitable for a particular use.
3. Delivery. The premises should be delivered in compliance with all laws and with all building systems in good working order and repair. The lease should clearly delineate the work being done by each party to prepare the space for occupancy and any deadlines for completing such work.
4. Fixed Rent (a/k/a Base Rent): Check for market consistency, how it is structured,  Will there be a free rent period etc.
5. Operating Expenses and Real Estate Taxes
6. Responsibilities pertaining to maintenance and repairs
7. Default. Tenants should request cure periods and no acceleration of rent, unless over fair market value
8. Assignment and Subleasing. Landlord’s consent should be reasonabl
9. Security
10. Term of the Lease

Manufacturing Layout: In manufacturing, facility layout consists of configuring the plant site with lines, buildings, major facilities, work areas, aisles, and other pertinent features such as department boundaries. While facility layout for services may be similar to that for manufacturing, it also may be somewhat different—as is the case with offices, retailers, and warehouses. Because of its relative permanence, facility layout probably is one of the most crucial elements affecting efficiency. An efficient layout can reduce unnecessary material handling, help to keep costs low, and maintain product flow through the facility.Two types: Process Layouts-Found primarily in job shops, or firms that produce customized, low-volume products that may require different processing requirements and sequences of operations. Process layouts are facility configurations in which operations of a similar nature or function are grouped together and Product Layout- found in flow shops (repetitive assembly and process or continuous flow industries). Flow shops produce high-volume, highly standardized products that require highly standardized, repetitive processes. In a product layout, resources are arranged sequentially, based on the routing of the products. In theory, this sequential layout allows the entire process to be laid out in a straight line, which at times may be totally dedicated to the production of only one product or product version. The flow of the line can then be subdivided so that labor and equipment are utilized smoothly throughout the operation.
Retail Layout: The interior has two main components- Store Design: The use of strategic floor plans and space management, including furniture, displays, fixtures, lighting, and signage and Customer Flow: This is the pattern of behavior and way that a customer navigates through a store. While the exterior retail store layout includes exterior store design and customer flow, it also includes the following factors: Geographic location of the retail store (real estate), Size of the building and length of the walkways accessible from the entrance and exit, Use of furniture and exterior space for people to gather and interact, Style of architecture of the retail building, Color of paint and choice of exterior building materials, Design of the physical entrance and exterior window displays (https://www.smartsheet.com/store-layout)

Sales Promotion: The process of persuading a potential customer to buy the product. It is a a type of Pull marketing technique. There are two types of sales promotions; a)Consumer Sales Promotions: Any sales promotion activity that you do keeping the end consumer in mind is known as consumer sales promotions. At the end, the result should be an action from the consumer. b) Trade Sales Promotions:If your promotional activities are focused on Dealers, distributors or agents, then it is known as trade promotions

Major Techniques of Sales Promotions:

1. Price-off Deal- In this technique, the price of the product is lowered for some time

2. Loyalty Reward Program: The consumers are given certain points or credits, every time they use the company's product/service

3. Trade-ins: involves lowering the price for consumers in exchange for old goods. Computer companies, automobile companies and golf equipment manufacturers are usually the ones who make use of such promotional methods

4. Price Pack Deal: The consumers are given something "extra" at the same price. For instance, on 1000 ml shampoo pack, 200 ml extra is given free i.e. at the same price.

5. Coupons and Contests: Free coupons are generally included in the print advertisements. Consumers can carry these coupons and avail discount on buying the company's product or service, by showing it to the retailers while making a purchase. These days mobile coupons are becoming very popular too.Contests like writing slogans, poems etc. about the company's products are often used by corporates to promote their offerings amongst the potential buyers.

Limitations of Balance Sheet:

1. It is prepared on a historical cost basis. Changes in prices are not considered.
2. Window-dressing may be done in Balance Sheet.
3. Historical Cost of Balance Sheet does not convey fruitful information.
4. Different assets are valued according to different rules
5. It cannot reflect the ability or skill of staff.
6. It is measured in terms of money or money’s worth. That is, only those assets are recorded in it which can be expressed in money.
7. In inflationary trend, if the readers are not expert may mislead.
8. Balance Sheet has some fictitious assets, which have no market value. Such items are unnec­essarily inflate the total value of assets.

Mechanics of a cash flow statement: The statement of cash flows, or the cash flow statement, is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how money is being spent. The CFS is important since it helps investors determine whether a company is on a solid financial footing.Creditors, on the other hand, can use the CFS to determine how much cash is available (referred to as  liquidity) for the company to fund its operating expenses and pay its debts. The operating activities on the CFS include any sources and uses of cash from business activities. In other words, it reflects how much cash is generated from a company's products or services. Receipts from sales of goods and services, Interest payments, Income tax payments, Payments made to suppliers of goods and services used in production, Salary and wage payments to employees, Rent payments, Any other type of operating expenses.n the case of a trading portfolio or an investment company, receipts from the sale of loans, debt, or equity instruments are also included. When preparing a cash flow statement under the indirect method, depreciation, amortization, deferred tax, gains or losses associated with a noncurrent asset, and dividends or revenue received from certain investing activities are also included. However, purchases or sales of long-term assets are not included in operating activities.

Cost-volume-profit (CVP) analysis.: Used to determine how changes in costs and volume affect a company's operating income and net income. CVP analysis requires that all the company's costs, including manufacturing, selling, and administrative costs, be identified as variable or fixed.

Cost-volume-profit (CVP) analysis is a method of cost accounting that looks at the impact that varying levels of costs and volume have on operating profit. The cost-volume-profit analysis, also commonly known as break-even analysis, looks to determine the break-even point for different sales volumes and cost structures, which can be useful for managers making short-term economic decisions.

The cost-volume-profit analysis makes several assumptions, including that the sales price, fixed costs, and variable cost per unit are constant. Running this analysis involves using several equations for price, cost and other variables, then plotting them out on an economic graph.

The CVP formula can be used to calculate the sales volume needed to cover costs and break even, in the CVP breakeven sales volume formula, as follows:

Breakeven Sales Volume= FC/CM, where FC= Fixed Costs, CM= Contribution Margin= Sales-Variable Cost

The contribution margin is used in the determination of the break-even point of sales. By dividing the total fixed costs by the contribution margin ratio, the break-even point of sales in terms of total dollars may be calculated. For example, a company with $100,000 of fixed costs and a contribution margin of 40% must earn revenue of $250,000 to break even.

CVP analysis is only reliable if costs are fixed within a specified production level. All units produced are assumed to be sold, and all fixed costs must be stable in a CVP analysis. Another assumption is all changes in expenses occur because of changes in activity level. Semi-variable expenses must be split between expense classifications using the high-low method, scatter plot or statistical regression.

different types of budgets that make up the master budget: The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, and also includes budgeted financial statements, a cash forecast, and a financing plan

The budgets that roll up into the master budget include:

• Direct Labor Budget: 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 layoff requirements. Typically presented in either a monthly or quarterly format. The basic calculation used by the budget is to import the number of units of production from the production budget and to multiply this by the standard number of labor hours for each unit
• Direct Materials Budget: calculates the materials that must be purchased, by time period, in order to fulfill the requirements of the production budget. It is typically presented in either a monthly or quarterly format in the annual budget. In a business that sells products, this budget may contain a majority of all costs incurred by the company
• Ending Finished Good Budget: calculates the cost of the finished goods inventory at the end of each budget period. It also includes the unit quantity of finished goods at the end of each budget period, but the real source of that information is the production budget. The primary purpose of this budget is to provide the amount of the inventory asset that appears in the budgeted balance sheet, which is then used to determine the amount of cash needed to invest in assets
• 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 budge
• Production Budget: calculates the number of units of products that must be manufactured, and is derived from a combination of the sales forecast and the planned amount of finished goods inventory to have on hand (usually as safety stock to cover for unexpected increases in demand). The production budget is typically prepared for a "push" manufacturing system, as is used in a material requirements planning environment.
• Sales Budget: Contains an itemization of a company's sales expectations for the budget period, in both units and dollars. If a company has a large number of products, it usually aggregates its expected sales into a smaller number of product categories or geographic regions; otherwise, it becomes too difficult to generate sales estimates for this budget. The sales budget is usually presented in either a monthly or quarterly format; presenting only annual sales information is too aggregated, and so provides little actionable information
• Selling and Administrative Expense Budget: Comprised of the budgets of all non-manufacturing departments, such as the sales, marketing, accounting, engineering, and facilities departments. In aggregate, this budget can rival the size of the production budget, and so is worthy of considerable attention. The selling and administrative expense budget is typically presented in either a monthly or quarterly format. It may also be split up into segments for a separate sales and marketing budget and a separate administration budget.

Some of the common management decisions that can be aided by the use of accounting information and procedures: Financial accounting allows a business to keep track of all its financial transactions. It is the process in which the company records and reports all the financial data that go in and out of its business operations. The accounting data is recorded on a series of financial statements including the balance sheet, income statement, and cash flow statement.There are three main areas where financial accounting helps decision-making:

• It provides investors with a baseline of analysis for—and comparison between—the financial health of securities-issuing corporations.
• It helps creditors assess the solvency, liquidity, and creditworthiness of businesses.
• Along with its cousin, managerial accounting, it helps businesses make decisions about how to allocate scarce resources.

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