Financial Controller Education

Ericsson Nikola Tesla d.d.ETK/F

Controller Education I

THE CONTROLLERS ROLE IN ETK INCOME STATEMENT ´vs. BALANCE SHEET DEFINITION OF COST OF SALES CASH FLOW METHODOLOGY ACCOUNTING TRAINING OF TYPICAL TRANSACTIONS

LUNCH COST PER HOUR CALCULATION STANDARD COST CALCULATION FIXED vs VARIABLE COSTS ETK INCOME AND COST DRIVERS KEY RATIOS BALANCED SCORE CARD CONSOLIDATED ACCOUNTING

Date 28/4 Time 9-16

Agenda:Agenda:


FINANCE Presentation

FINANCIAL STATEMENTS

provide financial information of the company’s activitiesdone at regular intervals - monthly, quarterlyfiscal year ( 12 month reporting period ) correspond to calendar year

Balance sheet Income statement Statement of changes in financial positions ( Cash flow

statement ) Notes

provide financial information of the company’s activitiesdone at regular intervals - monthly, quarterlyfiscal year ( 12 month reporting period ) correspond to calendar year

Balance sheet Income statement Statement of changes in financial positions ( Cash flow

statement ) Notes

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BALANCE SHEET

shows the status of the company assets, liability and equity on a certain day Balance sheet structure on 991231

Assets 85 Liabilities 60

-cash - supplier

-acc.receivable - payroll

-inventories - customer downpayment

- fixed assets - loans

Equity 25

Total 85 Total 85

shows the status of the company assets, liability and equity on a certain day Balance sheet structure on 991231

Assets 85 Liabilities 60

-cash - supplier

-acc.receivable - payroll

-inventories - customer downpayment

- fixed assets - loans

Equity 25

Total 85 Total 85

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INCOME STATEMENT = PROFIT OR LOSS STATEMENT

financial description of the company’s total activities within a certain period ( during one year ) difference between company sales and cost during the same period

Income statement structure for I -XII 99

Sales 50

Costs - 45

Profit 5

financial description of the company’s total activities within a certain period ( during one year ) difference between company sales and cost during the same period

Income statement structure for I -XII 99

Sales 50

Costs - 45

Profit 5

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STATEMENT OF CHANGES IN FINANCIAL POSITION

focuses on the company’s financial development from the view of cash flow during a given period reflects the payments received and payments made during the period link between Income statement and Balance sheet

Cash flow structure:

Cash flow Opening Balance

+/- cash provided by operations

+/- changes in working capital and investments

Cash flow Closing Balance

focuses on the company’s financial development from the view of cash flow during a given period reflects the payments received and payments made during the period link between Income statement and Balance sheet

Cash flow structure:

Cash flow Opening Balance

+/- cash provided by operations

+/- changes in working capital and investments

Cash flow Closing Balance

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CASH FLOW

Positive impact on Cash flow decreasing of Material on stock ( - ) inventories decreasing of Operating expenses ( + ) net income customer payments ( - ) acc. receivable supplier liabilities ( + ) acc. Payable

Negative impact on Cash flow increasing of Material on stock ( + ) inventories increasing of Operating expenses ( - ) net income payments to suppliers ( - ) acc. payable customer credits ( + ) acc. receivable

Positive impact on Cash flow decreasing of Material on stock ( - ) inventories decreasing of Operating expenses ( + ) net income customer payments ( - ) acc. receivable supplier liabilities ( + ) acc. Payable

Negative impact on Cash flow increasing of Material on stock ( + ) inventories increasing of Operating expenses ( - ) net income payments to suppliers ( - ) acc. payable customer credits ( + ) acc. receivable

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INCOME STATEMENT

LEGAL REPORTING CORPORATE REPORTING

( cost based ) ( activity based )

Domestic sales Net sales

Foreign sales Cost of sales

Other income Margin

Changes in inventories Operating revenues

Material costs Operating expenses

Payroll costs - technical expenses

Depreciation - selling expenses

Reserves - general and adm. Expenses

Other costs Operating income

Income before taxes Financial revenue/expenses

Income before taxes

LEGAL REPORTING CORPORATE REPORTING

( cost based ) ( activity based )

Domestic sales Net sales

Foreign sales Cost of sales

Other income Margin

Changes in inventories Operating revenues

Material costs Operating expenses

Payroll costs - technical expenses

Depreciation - selling expenses

Reserves - general and adm. Expenses

Other costs Operating income

Income before taxes Financial revenue/expenses

Income before taxes

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INCOME STATEMENT - Main report

Net sales 50 Financial income 1

Cost of sales - 26 NUMERATOR IN ROCE 7

MARGIN 24

Financial expenses - 1

Operating revenues 0 INCOME BEFORE TAXES 6

Operating expenses - 18

- technical expenses Taxes - 1

- selling expenses NET INCOME 5

- gen. and adm. Exp.

OPERATING MARGIN 6

Net sales 50 Financial income 1

Cost of sales - 26 NUMERATOR IN ROCE 7

MARGIN 24

Financial expenses - 1

Operating revenues 0 INCOME BEFORE TAXES 6

Operating expenses - 18

- technical expenses Taxes - 1

- selling expenses NET INCOME 5

- gen. and adm. Exp.

OPERATING MARGIN 6

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INCOME STATEMENT - Main report

NET SALES - equal to income from products and services sold to customer COST OF SALES - cost of goods and services sold to customer MARGIN - profit, difference between Net sales and Cost of sales OPERATING REVENUES - revenue which is not Net sales OPERATING EXPENSES - all technical, marketing and admin. exp.

-technical expenses

- selling expenses

- gen. and adm. Exp. OPERATING MARGIN - difference between sales/revenue and cost/expenses FINANCIAL INCOME - interest , G/L on foreign exchange on cash, bank acc. NUMERATOR in ROCE - ROS*CTO - shows the profitability of the company FINANCIAL EXPENSES - interest, G/L on foreign exchange on loans INCOME BEFORE TAXES - result of the company activities

NET SALES - equal to income from products and services sold to customer COST OF SALES - cost of goods and services sold to customer MARGIN - profit, difference between Net sales and Cost of sales OPERATING REVENUES - revenue which is not Net sales OPERATING EXPENSES - all technical, marketing and admin. exp.

-technical expenses

- selling expenses

- gen. and adm. Exp. OPERATING MARGIN - difference between sales/revenue and cost/expenses FINANCIAL INCOME - interest , G/L on foreign exchange on cash, bank acc. NUMERATOR in ROCE - ROS*CTO - shows the profitability of the company FINANCIAL EXPENSES - interest, G/L on foreign exchange on loans INCOME BEFORE TAXES - result of the company activities

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COST OF SALES

CONTENTS Cost of goods SOLD

- direct material

- direct labour

- overhead cost - fixed ( depreciation,maintenance, rents, management and administrative cost )

- variable ( indirect material )

- other cost


- direct material

- direct labour



- other cost

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BALANCE SHEET - Main Report

Cash 5 Long term loans 10

Accounts Receivable 25 TOTAL LIABILITIES 60

Inventories 35

Property,Plant, Equipment 20 Capital stock 15

TOTAL ASSETS 85 Retained Earnings 5

Net profit for the year 5

Accounts Payable 5 TOTAL EQUITY 25

Customer downpayment 10

Accrued liabilities 10 TOTAL LIABILITIES

Short term loans 25 AND EQUITY 85

TOTAL CURRENT LIABILITIES 50

CAPITAL EMPLOYED ( 85 - 50 ) 35

Cash 5 Long term loans 10

Accounts Receivable 25 TOTAL LIABILITIES 60

Inventories 35

Property,Plant, Equipment 20 Capital stock 15

TOTAL ASSETS 85 Retained Earnings 5

Net profit for the year 5

Accounts Payable 5 TOTAL EQUITY 25

Customer downpayment 10

Accrued liabilities 10 TOTAL LIABILITIES

Short term loans 25 AND EQUITY 85

TOTAL CURRENT LIABILITIES 50

CAPITAL EMPLOYED ( 85 - 50 ) 35

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KEYRATIOS

values for measurement company performance, profitability, productivity and liquidity

% ROS - Return on sales % ROCE - Return on capital employed CTO,times - Capital turnover ITO,times - Inventory turnover ATO,times - Accounts receivable turnover

values for measurement company performance, profitability, productivity and liquidity

% ROS - Return on sales % ROCE - Return on capital employed CTO,times - Capital turnover ITO,times - Inventory turnover ATO,times - Accounts receivable turnover

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CHART OF ACCOUNTS

Systematically ordered list of all General ledger accounts, defined according to accounting principles

Contents

- accounts number

- accounts name

- control information for each G/L account

Systematically ordered list of all General ledger accounts, defined according to accounting principles

Contents

- accounts number

- accounts name

- control information for each G/L account

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FINANCE Presentation General Ledger Chart of Accounts

ACC. GROUP FROM TO DESCRIPTION B/S P/L

0 000000 099999 Assets X

1 100000 199999 Current assets X

2 200000 299999 Short and long term liability X

3 300000 399999 Material X

4 400000 499999 Business costs X

5 500000 599999 Internal cost transfers X

6 600000 699999 Production , finish goods X

7 700000 799999 COS and revenue X

8 800000 899999 Business financial result X

9 900000 999999 Capital and reserves X

ACC. GROUP FROM TO DESCRIPTION B/S P/L

0 000000 099999 Assets X

1 100000 199999 Current assets X

2 200000 299999 Short and long term liability X

3 300000 399999 Material X

4 400000 499999 Business costs X

5 500000 599999 Internal cost transfers X

6 600000 699999 Production , finish goods X

7 700000 799999 COS and revenue X

8 800000 899999 Business financial result X

9 900000 999999 Capital and reserves X

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ACCOUNTING

Double entry bookkeeping: DEBITS equal CREDITS

DEBITS increase ASSETS

DEBITS decrease LIABILITIES

CREDITS increase LIABILITIES and EQUITY

CREDITS decrease ASSETS

Double entry bookkeeping: DEBITS equal CREDITS

DEBITS increase ASSETS

DEBITS decrease LIABILITIES

CREDITS increase LIABILITIES and EQUITY

CREDITS decrease ASSETS

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ACCOUNTING

An INCREASE in SHAREHOLDERS EQUITY is a CREDIT

Consequently, NET INCOME for the year must be a CREDIT

INCOME /REVENUES are CREDIT entries

COST/EXPENSES are DEBIT entries

An INCREASE in SHAREHOLDERS EQUITY is a CREDIT

Consequently, NET INCOME for the year must be a CREDIT

INCOME /REVENUES are CREDIT entries

COST/EXPENSES are DEBIT entries

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ACCOUNTING EXAMPLES

Incorporation of a company with a share capital of 5 MHRK, paid in cash Acquisition of machinery and equipment for 4 MHRK

Payment of liability of fixed asset acquisition

Hire of personnel, monthly salary cost of 0,1 MHRK

Purchase of raw materials 0,4 MHRK

Sale of first production 0,8 MHRK

Incorporation of a company with a share capital of 5 MHRK, paid in cash Acquisition of machinery and equipment for 4 MHRK

Payment of liability of fixed asset acquisition

Hire of personnel, monthly salary cost of 0,1 MHRK

Purchase of raw materials 0,4 MHRK

Sale of first production 0,8 MHRK

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ACCOUNTING - example 1

INCORPORATION OF COMPANY

BALANCE SHEET BALANCE SHEET

Assets -cash 5 MHRK Share capital 5 MHRK

INCORPORATION OF COMPANY


Assets -cash 5 MHRK Share capital 5 MHRK

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PURCHASE OF MACHINERY AND EQUIPMENT


PP&E Accounts Payable

equipment 4 MHRK Supplier 4 MHRK

PURCHASE OF MACHINERY AND EQUIPMENT


PP&E Accounts Payable

equipment 4 MHRK Supplier 4 MHRK

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PAYMENT OF LIABILITY OF FIXED ASSETS ACQUISITION


Accounts payable Assets

supplier 4 MHRK Cash 4 MHRK

PAYMENT OF LIABILITY OF FIXED ASSETS ACQUISITION


Accounts payable Assets

supplier 4 MHRK Cash 4 MHRK

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HIRE OF PERSONNEL

INCOME STATEMENT BALANCE SHEET

Expenses Liabilities

gross salary 0,1 MHRK Payroll liabilities 0,1MHRK

HIRE OF PERSONNEL

INCOME STATEMENT BALANCE SHEET

Expenses Liabilities

gross salary 0,1 MHRK Payroll liabilities 0,1MHRK

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PURCHASE OF RAW MATERIAL


Assets Accounts Payable

inventories 0, 4 MHRK Supplier 0,4 MHRK

PURCHASE OF RAW MATERIAL


Assets Accounts Payable

inventories 0, 4 MHRK Supplier 0,4 MHRK

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SALE OF PRODUCTS

BALANCE SHEET INCOME STATEMENT

Assets Net sales

Acc. receivable 0,8 MHRK Sale of product 0,8 MHRK

SALE OF PRODUCTS

BALANCE SHEET INCOME STATEMENT

Assets Net sales

Acc. receivable 0,8 MHRK Sale of product 0,8 MHRK

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ACCOUNTING - example

INCOME STATEMENT

INCOME- Net sales 0,8 MHRK

COST - Salaries - 0,1 MHRK

Net income/profit 0,7 MHRK

INCOME STATEMENT

INCOME- Net sales 0,8 MHRK

COST - Salaries - 0,1 MHRK

Net income/profit 0,7 MHRK

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ACCOUNTING - example

BALANCE SHEET

ASSETS LIABILITIES

Cash 1,0 MHRK Salaries 0,1 MHRK

Acc. receivable 0,8 MHRK Supplier 0,4 MHRK

Inventories 0,4 MHRK

PP&E 4,0 MHRK EQUITY

Capital 5,0 MHRK

Profit 0,7 MHRK

TOTAL 6,2 MHRK TOTAL 6,2 MHRK

BALANCE SHEET

ASSETS LIABILITIES

Cash 1,0 MHRK Salaries 0,1 MHRK

Acc. receivable 0,8 MHRK Supplier 0,4 MHRK

Inventories 0,4 MHRK

PP&E 4,0 MHRK EQUITY

Capital 5,0 MHRK

Profit 0,7 MHRK

TOTAL 6,2 MHRK TOTAL 6,2 MHRK

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FI-AM Presentation General Ledger Chart of Accounts

Account types

A asset

D customer

K vendor

M material

S general ledger

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FI-AM Presentation General Ledger Posting key

Debits customer Credits customers01 Invoice 12 Reverse invoice02 Reverse credit memo 11 Credit memo 05 Outgoing payment 15 Incoming payment

Debits Vendors Credits Vendors21 Credit memo 32 Reverse invoice 22 Reverse credit memo 31 Invoice25 Outgoing payment 35 Incoming payment

Debits General ledger Credits General ledger40 Debit entry 50 Credit entry

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Balanced Scorecard

IntroductionExample of ETK BSCExample of MU Croatia BSCCan we use it on lower level?Back to agenda

ERICSSON Concept on: http://esenpnt104.ericsson.se/lme


Our business will not look the same...

…our reporting can’t look the same


What is Balanced Scorecard?

The balance scorecard concept is used– to measure our present performance and how well we are prepared for the future

– to recognize our own “Intellectual capital “ ( the collection of intangible resources, which contribute to the success and value of a company)

The BSC is methodology how to– put in relation business trends and business objectives

– link action to strategy

The BSC

– keep us focused on business performance

– push us to measure our strategy and each important activity

– push us to review our business concept permanently


Visualize vision and strategies

Thebalance

scorecardmodel

Focus on Key Performance

Indicators

Balance of business

perspectives

Driver for performance

improvements

The Balance Scorecard modelA common toolbox

Link action with strategy

Stay balanced Stay focused

Drive action


Corporate Business perspectives

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Financial

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Employee

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Internal efficiency

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Customer1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Innovation

Relationship with customers and distributor, business / market / product position and brand images.

Performance of processes and support

systems.

Knowledge, skill, motivation, behavior, ability, etc.

Traditional items presented in

financial statements.

Intellectual property and renewal.


CustomerCustomer

FinancialFinancial

InnovationInnovation

InternalInternalefficiencyefficiency

EmployeeEmployee

Ericsson Nikola Tesla d.d. BSC perspectives and KPI-sEricsson Nikola Tesla d.d. BSC perspectives and KPI-s

• Net Sales & Growth• Income before taxes• Cash flow• ATO (A/R-NS)• ITO (Inventory-CoS)

• New products development & sales• Consumer product sales growth• Market share GSM• Services sales

• Customer satisfaction• In Service Performance• Time with Customer

• Sales/employees• SG&A expenses/sale• TTC lead time• TTC delivery precision• Regional activities, Customer Solution, Services and Design, top 3 position globally

• Competence shift, including rightsizing• Management program• Employee Satisfaction


1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Internal efficiency

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Innovation

Ericsson Nikola Tesla d.d. BSCEricsson Nikola Tesla d.d. BSC

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Employee

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Customer

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Financial

ExampleExample


1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Financial

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Cash flow

Trend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

ITOTrend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

ATOTrend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Income before taxes

Trend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Net Sales & GrowthTrend

99Q1 99Q2 99Q3 99Q4

ExampleExample


1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Innovation

Trend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Market share GSMTrend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Consumer product sales growth

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

New products development and sales

Trend

99Q1 99Q2 99Q3 99Q4

Trend

99Q1 99Q2 99Q3 99Q4

Services sales

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

ExampleExample


1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Internal efficiency

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

SG&A expenses/saleTrend

99Q1 99Q2 99Q3 99Q4 99Q1 99Q2 99Q3 99Q4

Trend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

TTC lead time

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

TTC delivery precisionTrend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Sales/employeesTrend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Regional activities, Customer Solution,

Services and Design, top 3 position globally

Trend

ExampleExample


1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Customer

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

In Service PerformanceTrend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Customer satisfaction Trend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Time with CustomerTrend

99Q1 99Q2 99Q3 99Q4

ExampleExample


1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Employee

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Employee Satisfaction Trend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Management programTrend

99Q1 99Q2 99Q3 99Q4

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Competence shift, including rightsizing

Trend

99Q1 99Q2 99Q3 99Q4

ExampleExample


CustomerCustomer

FinancialFinancial



EmployeeEmployee• Net Sales MU Croatia• Market Contribution MU Croatia

• Market share in DATACOM• Market share in DN IP• Commercial Service Agreement HT• New network monitoring system

• Headcount MU Croatia• Y2K - Progress of project

• Employee Satisfaction

MU CROATIA BSC perspectives and KPI-sMU CROATIA BSC perspectives and KPI-s

• Market share in GSM terminals• Market share in GSM system

• Market Share in CATV• Customer Satisfaction


MU CROATIA BSCMU CROATIA BSC

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Employee

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Internal efficiency

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Customer1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Innovation

1 5

32 4

On Track

Warning

Off Track

On target

Excellent

Financial

ExampleExample


CustomerCustomer

FinancialFinancial



EmployeeEmployee

??? Possible KPI-s for ETK/F BSC??? Possible KPI-s for ETK/F BSC

•Result of financial activities (interests etc.) •Decrease costs•...

• PARI (EDI) implementation• Switching to new mail system• ISO 9001• SAP/R3 new reports• Controller network • BSC implementation•…•...

• Sectors satisfaction• Auditors satisfaction•….•….

• Period-end-closing efficiency• Reporting• Needs for overtime work •…•...

• Competence shift, including rightsizing• Management program• Employee Satisfaction•...

Can You do something similar in your sector?Can You do something similar in your sector?


U sustavu bilanciranja koji primjenjujemo na zalihe, zalihe se iskazuju po troškovima nabave ili po neto vrijednosti koja se može realizirati, ovisno o tome

koja je vrijednost niža.

Trošak zalihe treba obuhvatiti sve troškove kupnje, troškove konverzije i druge troškovekoji su nastali u dovođenju zaliha na sadašnju lokaciju i sadašnje stanje.

Neto procijenjena vrijednost koja se može realizirati je procijenjena prodajna cijena utijeku redovitog poslovanja minus procijenjeni troškovi dovršenja i procijenjeni troškovinužni da se obavi prodaja

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- kupovna cijena (cjenik od dobavljača)- carina i druge uvozne pristojbe- troškovi prijevoza- troškovi čuvanja, rukovanja i drugi troškovi koji se mogu pripisati nabavci, umanjen za diskonte, rabate i subvencije (material burden)

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I. IZRAVNI TROŠKOVI MATERIJALAII. TROŠKOVI KONVERZIJE

1. Izravni trošak rada2. Fiksni opći troškovi proizvodnje3. Varijabilni opći troškovi proizvodnje4. Ostali opći troškovi

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- amortizacija i održavanje proizvodnih zgrada i opreme,- trošak managementa i administracija pogona

Raspored općih fiksnih troškova proizvodnje temelji se na normalnom kapacitetu proizvodnje pojedinog pogona

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Neizravni troškovi koji ovise izravno ili gotovo izravno oobujmu proizvodnje:

• neizravni materijal proizvodnje• neizravni rad proizvodnje• energija utrošena u proizvodnji

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• Definicija troška koji se kapitalizira• Raspodjela troška po vrsti • Budget• Definirati normalni kapacitet proizvodnje• Standardna sastavnica materijala• Standardna sastavnica operacija• Kalkulacija troška direktnog rada/satu za svako mjesto troška• Kalkulacija varijabilnog troška/satu za svako mjesto troška• Kalkulacija fixnog troška/satu za svako mjesto troška• Unos svih podataka u SAP• SAP kalkulacija standardne cijene

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The fundamental philosophy is that all cost should be allocated to the products based on their individual consumption of activities, by means of cost drivers.

The assumption id that all activities performed in the company have a rational purpose, I.e. no costs exist that have no relation to the production. This means that:

1 ACTIVITY COST MONEY - To administrate a production order generates salary and computer costs

2 PRODUCTS CONSUME ACTIVITIES - You administrate a production order because you are going to produce a product

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ADVANTAGES:

• Costs that not directly are depended on the product’s manufacturing time are allocated in the fairer way• Gives better cost relation between high and low volume products• Steering signals for rationalization and choice of range of products

DISADVANTAGES:

• Requires more budget parameters• Requires a higher quality of data input

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• RESOURCES Add value and cause costs; premises, personnel,and machines. E.g. the person in charge of theproduction planning and his/her PC

• ACTIVITIES Everything which is executed in a company can be described as an activity, e.g. the administration ofmanufacturing orders

• COST DRIVERS A quantifiable measurement of the activities whichlinks the products to the activity, i.e. runs the activity.E.g. the number of orders

• OBJECTS The target of the costs; products, services, customers, markets

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Traditional cost control per account:

Shows at the very most how somethingshould be done or has done. Difficult tofind information for continuousimprovements.

Cost control per activity:

Shows what is being done and why.Easy to find information for continuousimprovements

Type of cost Amount

Personnel 3.000Premises 1.500Capital 1.000Computer 500Training 200Other 700

------------------Total 6.900

Activity Amount

Monitoring deliveries 2.000Supplier contacts 1.575Purchase 1.100Order bookings 1.500Order changes 350Forecast 1.475

----------------Total 6.900

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Fixed vs. Variable cost

What is the difference between fixed & variable cost?Why is it important to differ between fixed & variable cost?Example: Which cost are fixed & which are variable?How can we help people to reduce costs?

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What is the difference between fixed & variable cost?

Fixed costs are costs that that we can not change in a short perspective (<1year). A fixed cost is a cost that we will have even if the company is doing bad.

Variable costs are costs that we can change in a short perspective. If the company is doing bad, we can choose not to have this cost.

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Why is is important to differ between fixed & variable cost?

Fixed costs demands big focus before we get it - planning & forecasting - when we have chosen it we can not get rid of it!

Variable costs demands big focus when we need to cut cost quickly because of bad performance in the company.

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Example: Which cost are fixed & which are variable?

Fixed: Employee costs (salary, taxes), IS/IT (computers), Premises (buildings, fees)

Variable: Marketing (advertising, representation), Training (courses), Premises (maintenance, electricity) Over-time, Travel (tickets, hotel).

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How can we help people to reduce costs?

Fixed: Support in planning and showing effects of fixed cost decision.

Variable: Inform people of the need of reducing cost, use equipment more efficient, reduce overtime, stop traveling - make a telephone call

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KEY RATIOS

What does key ratio mean?What is key ratios used for?What different key ratios exist?What key ratios do we use?How are they calculated?

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KEY RATIOS - What does key ratio mean?

KEY = Solution, explanation. (...is the key to the problem...is the key to success...)

RATIO = Relationship, proportion. (...relationship was 1 against 5...the proportion was 2:1...)

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KEY RATIOS - What is key ratios used for?

Key ratios are used to show important measurements for success in a simple and understandable way and to show the measurements in proportion to something.

E.g. If you say that the inventory is 100MHRK in a company it doesn’t say anything if you do not compare it to something else in the company.

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KEY RATIOS - What different key ratios exist?

Cost in proportion to net salesCost in proportion to employeesInventory in proportion to cost of sales (ITO)Sales per employeeCustomer visits per sales employeeReturn on sales (ROS)Account receivables in proportion to sales (ATO)

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KEY RATIOS - What key ratios do we use?

ITO - Inventory in proportion to Cost of Sales (CoS)ROS - Return on sales ATO - Account receivables (A/R) in proportion to sales Sales per employee

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KEY RATIOS - How are they calculated?

ITO = (Annualized CoS)/(Average Inventory)ROS = (Contribution)/(Net Sales)ATO = (Annualized Net Sales)/(Average Accounts receivable)Sales per employee = (Sales)/(Employee)Calculation in Days = 365/ITOAverage = (9812A+9803A+9804A)/3Annualized = 9803A*4 = full year figure

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9812A 9903A9904A

Inventory = 200 150 100CoS = 233

ITO = (233/4*12) / ((200+150+100)/3) = 4.66

ITO = 365/4.66 = 78 Days

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200

150

100

9812A 9903A 9904A

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KEY RATIOS - How ETK/F use key ratios:

KEY RATIOS Change9512A 9612A 9712A 9812A 9903A 9812-9903A

ETK/F costs as % on net sales 1,28% 1,17% 1,03% 0,97% 1,69% 74%

Bankcommissions as % on Net Sales 0,97% 0,49% 0,48% 0,33% 0,39% 17%

No. of supplier inv./empl. 201 311 514 575 667 16%

No. of cust.inv./empl. 161 103 96 135 142 5%

ETK/F efficency

Travelling orders

Customer invoices

No. of employees

Supplier inv.

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

9512A 9612A 9712A 9812A 9903A

No. of inv. & orders

0

10

20

30

40

50

60

70

80

90

100No. of employees

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ETK CONTROLLER EDUCATION

THE CONTROLLERS ROLE IN ETK (LARS) INCOME STATEMENT ´vs. BALANCE SHEET (ANDERS/ZLATA) DEFINITION OF COST OF SALES ( ANDERS/ZLATA) CASH FLOW METHODOLOGY (LARS) ACCOUNTING TRAINING OF TYPICAL TRANSACTIONS (LARS)

LUNCH COST PER HOUR CALCULATION (NEDA,ANDERS) STANDARD COST CALCULATION (VESNA V) FIXED vs VARIABLE COSTS (ANDERS/NEDA) ETK INCOME AND COST DRIVERS (LARS) KEY RATIOS (ANDERS) BALANCED SCORE CARD (BORIS) CONSOLIDATED ACCOUNTING (LARS) SAP/R3 TERMINOLOGY (ANDERS)

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CONTROLLER´S ROLE

UNDERSTAND THE STRATEGY OF THE UNIT YOU ARE CONTROLLING AND BEING PART OF THE UNITS TOP MGMT

INDENTIFY THE FINANCIAL TRANSACTIONS THE UNIT PERFORMS SET UP FINACIAL RELATED TARGETS AND FOLLOW UP EDUCATE YOUR UNIT KEY RATIOS AND CASH FLOW MUST ALWAYS REPORT TO TWO ( LINE MANAGER AND COMPANY CONTROLLER) SHOULD FOCUS ON RISK WHEN EVERTHING SEEMS TO GO GOOD AND

OPPORTUNITIES WHEN THERE IS PROBLEMS DO NOT HIDE ANYTHING REGARDING FINANCIAL ISSUES SHOULD UNDERSTAND ALL CONTRACTS THE UNIT SIGNS

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CASH FLOW

CASH FLOW METHODOLOGY

CASH FLOW IS THE DIFFERENCE BETWEEN CASH IN AND CASH OUT !CASH FLOW DOES NOT SHOW IF YOU ARE PROFITABLE OR NOT!

WHAT IS CASH IN? CUSTOMER PAYS AN INVOICETHE BANK GIVES A LOAN TO THE COMPANYTHE SHARE HOLDER INCREASES THE SHARE CAPITALTAX RETURNS FROM THE TAX OFFICEINTEREST PAYMENTS FROM BANKS

WHAT IS CASH OUT? PAYMENTS TO VENDORSPAYMENTS OF TAXESPAYMENTS OF SALARIESDECREASES OF SHARE CAPITAL TO SHAREHOLDESDIVIDENDS TO SAHREHOLDERS

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TYPICAL TRANSACTIONS TO BOOKKEEP 1

EXAMPLE: INVOICE FROM CONSULTANT SAP/3 122 HRK INCLUDING V.A.T SIGNS SALES ORDER OF 100 HRK FROM DOMESTIC CUSTOMER DELIVER GOODS TO CUSTOMER AT STANDARD COST 75 HRK DOMESTIC INVOICE OF 1000 HRK WITH 22% V.A.T. EXPORT INVOICE OF 100 USD TO A COUNTRY WITH 15% V.A.T PAYMENTS OF THE EXPORT INVOICE WHERE THE BANK CHARGES 1% IN FEE PROVISION OF THE DOMESTIC INVOICE DUE TO THAT THE COMPANY BECOMES INSOLVENT PURCHASE ORDER TO DOEMSTIC VENDOR 100 HRK RECEIVING GOODS FROM VENDOR - STANDARD COST 950 HRK RECEIVING INVOICE FROM VENDOR AT PURCAHSE PRICE 1000 PROVISION FOR OBSOLETE GOODS IN INVENTORY OF 50 HRK

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BOOKKEEPING TRANSACTION SHEET

ACCOUNT CASHWHAT TRANSACTION CODE AMOUNT D/K IN/OUT

INVOICE CONSULT A/P 122 K NOINVOICE CONSULT G&A 100 DV.A.T ASSETS 22 D

ORDER SIGNING OB 100 + NO

DELIVERY INVENTORY 75 K NODELIVERY C.O.S 75 D

CUSTOMER INVOICE NET SALES 1000 K NOCUSTOMER INVOICE A/R 1220 DV.A.T LIBILITIES 220 K

EXPORT INVOICE NET SALES 700 K NOEXPORT INVOICE A/R 700 D

PAYMENT EXPORT CASH 693 D CIPAYMENT EXPORT A/R 700 KPAYMENT EXPORT SELLING EXP 7 D

PROVSION A/R A/R 122 K NOPROVSION A/R SELLING EXP 100 DV.A.T LIABILITIES 22 D

PURCHASE ORDER NO

GOODS RECEIPT INVENTORY 950 D NOGOODS RECEIPT G.I.T. 950 K

INVOICE VENDOR A/P 1000 K NOINVOICE VENDOR G.I.T 1000 D

PROVISION INVENTORY INVENTORY 50 K NOPROVISION INVENTORY ADJ TO C.O.S. 50 D

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SALARY PAYMENT OF WHERE GROSS SALARY IS 150 HRK AND NET SALARY IS 100 HRK. THE DIFFERENCE IS TAXES.

V.A.T. REPORT AND PAYMENT OF PREVOIUS TRANSACTIONS PAYMENT OF CORPARATE PRE PAID TAX OF 20 10 HOURS WORKED ( STANDARD COST 100 HRK) ON INSTALLATION ON CUSTOMER ORDER INVOICE OF THE MAN HOURS AND PRICE 50 USD PER HOUR CURRENCY RATE OF USD CHANGES + 10% FROM PREVIOUS NOT CLEARED USD TRANSACTIONS GETS INVOICE OF 1 COMPUTER TOTAL PRICE INCLUDING V.A.T IS 22% 122 DEPRECIATION OF PC FOR ONE QUARTER - DEPRICIATION IS 25% ANNUALY

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SALARY ADJ,SELL,GA 150 D COSALARY CASH 150 K

V.A.T PAYMENTS CASH 176 K COV.A.T PAYMENTS LIABILITIES 176 D

PREL CORP TAX CASH 20 K COPREL CORP TAX ASSETS 20 D

TIMEREPORT WIP 1000 D NOTIMEREPORT R&D 1000 K

BOOKKEEPING TRANSACTION SHEET

ACCOUNT CASHWHAT TRANSACTION CODE AMOUNT D/K IN/OUT

INVOICE SERVICE A/R 3500 D NOINVOICE SERVICE NET SALES 3500 KINVOICE SERVICE WIP 1000 KINVOICE SERVICE C.O.S 1000 D

CURRENCY DEV A/R 350 D NOCURRENCY DEV ADJ TO C.OS. 350 K

COMPUTER A/P 122 K NOCOMPUTER FIXED ASSETS 100 DV.A.T ASSETS 22 D

DEPRICIATON FIXED ASSETS 6,25 K NODEPRICIATON GA 6,25 D

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SIGNING OF ONE TRAVELLING ORDER OF 1000 HRK EMPLOYEE PAYS HOTEL BILL IN RUSSIA WITH OWN CREDITCARD VALUE 150 USD EMPLOYEE USES COMPANY MOBILE TELEPHONE 5 MINUTES WITH CRONET ETK PAYS INSURANCE FOR OUR BUILDING FOR 12 MONTHS, VALUE 120 HRK ETK - HT MAKES COMPENSATION OF INVOICES AT A VALUE OF 100 HRK RECIEVES A LOAN OF 2000 HRK FROM A BANK PAY INTEREST 1 MONTH AT ANNUAL RATE OF 12%

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TRAVEL ORDER SIGNED NO

HOTEL BILL PAID EMPL NO

TELEPHONE USE NO

INSURANCE CASH 120 K COINSURANCE GA 10 DINSURANCE ASSET 110 D

COMPENSATION A/R 100 K NOCOMPENSATION A/P 100 D

RECIEVES LOAN CASH 2000 D CIRECIEVES LOAN LOAN 2000 K

INTEREST CASH 20 K COINTEREST GA 20 D

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ETK INCOME DRIVERS( WHAT IS IT THAT WILL CREATE INCOME IN THE FUTURE)

MARKETING ACTIVITIES COMPBINED WITH EASY TO ORDER PROCEDURE HIGH CUSTOMER SATISFACTION THAT WILL CREATE THE CUSTOMER TO COME

BACK - RECOMMEND TO OTHERS ORDERS ON PRODUCTS FROM OUR PRODUCTPORTFOLIO AND WE NEED TO HAVE

UINT MEASURES LIKE – NUMBER OF LINES– NUMBER OF TIMESLOTS– NUMBER UNITS– NUMBER OF HOURS

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ETK COST DRIVERS( WHAT IS IT THAT WILL CREATE COSTS IN THE FUTURE)

NUMBER OF EMPLOYEES NUMBER OF PRODUCTION ORDERS NUMBER OF CUSTOMER ORDERS NUMBER OF PRODUCTS IN THE PORTFOLIO SQUAREMETRE IN REAL ESTATE NUMBER OF TRAVELLING ORDERS

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COST OF SALES


- direct material

- direct labour



- other cost


- direct material

- direct labour



- other cost

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ETK/C Customer services and implementation

W/C No.

W/C code (PS) Description

Organi. Unit

Activity Type

Cost/h 03/99 CC

Capac. Hours

Time repor.

1. WKC001 Network Implementation AXE ETK/C/I TEST 183 20101 45.900

ETK/C/I TESTS 183 20101

ETK/C/I ASSOM 183 20101

2. WKC002 Business Communication ETK/C/B INST 200 20401 49.950

ETK/C/B TEST 200 20401

3. WKC003 System Support ETK/C/S SWPV 230 70104 62.100

ETK/C/S DT 230 70104

4. WKC004 Transmission ETK/C/T INST 236 20301 31.050

TEST 236 20301

5. WKC005 Customer Support Services ETK/C/F CUSS 230 70102 36.450

WKC--- Branch office ETK/C/F 832 70102 9.450

6. WKC006 Customer Development Center ETK/C/C TRAIN 386 70101 14.850

7. WKC--- Local services ETK/C/L HWS 126 70105 13.500

WKC--- Local services (+makete)*** ETK/C/L TCM 400 20201 38.500

1350 m/h yearly 301.750

***Capacity makete 2.500 H/Year 25.000

Tot.excl.makete 276.750 268.316

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COST / HOUR

ETK/C Customer services and implementation

W/C No.

W/C code (PS) Description

Cost center

Organi. Unit

Activity Type Cost/h

Capac. Hours

Time repor.

1. WKC001 Network Implementation AXE 20101 ETK/C/I TEST 183 45.900

20101 ETK/C/I TESTS 183

20101 ETK/C/I ASSOM 183

2. WKC002 Business Communication 20401 ETK/C/B INST 200 49.950

20401 ETK/C/B TEST 200

3. WKC003 System Support 70104 ETK/C/S SWPV 230 62.100

70104 ETK/C/S DT 230

4. WKC004 Transmission 20301 ETK/C/T INST 236 31.050

20301 TEST 236

5. WKC005 Customer Support Services 70102 ETK/C/F CUSS 230 36.450

WKC--- Branch office 70102 ETK/C/F 832 9.450

6. WKC006 Customer Development Center 70101 ETK/C/C TRAIN 386 14.850

7. WKC--- Local services 70105 ETK/C/L HWS 126 13.500

WKC--- Local services (+makete)*** 20201 ETK/C/L TCM 400 38.500

276.750

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Actual hours/sector for 9903

0

4.000

8.000

12.000

16.000

20.000

24.000

28.000

32.000

36.000

40.000

44.000

48.000

52.000

56.000

60.000

64.000

68.000

ETK/C ETK/D ETK/G ETK/P ETK/SI ETK/S

sector

ho

urs

maximum capacity 9903F

services

production

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Documents

Financial Controller Education