PERCENTAGE OF ANNUAL AVERAGE METHOD

This document will give you the understanding of the percentage of annual average method in measuring seasonal variations of business maths.

PROCEDURE

The first step is to eliminate the effect of the trend. To this end, compute the simple averages for each year and divide each of the given monthly or quarterly observations by the corresponding annual- average, expressing the result as a percentage.

The next step is to average the percentages with a view to removing the cyclical and irregular variations and computing the seasonal indices. For this purpose, sort out these percentages by months or quarters and find the monthly or quarterly average percentages using either the mean or the median. In case of mean, discard the extreme percentages under each month or quarter. If the 12 monthly or the 4 quarterly average percentages do not average 100 adjust them by multiplying each of them by a suitable factor that will make the average of all the percentages equal 100. The resulting 12 or 4 percentages are the required indices.

• The Ratio To Trend Method

In this method, the trend values are obtained for each time period by fitting a least-squares trend line either to the observed time series data or the annual averages. The rest of the computational procedure is the same as that of the ratio-to-moving average method. But this method is inferior to the ratio-to-moving average method as the seasonal index computed by it includes cyclical and irregular variations.

LINK RELATIVES’ METHOD

Short but Comprehensive introduction to Link Relatives Method in Measuring Seasonal Variation for Business Maths.

DEFINITION

A method for computing indexes by dividing the value of a magnitude in one period by the value in the previous period. In relative link method of seasonal variations, link relatives are calculated for all the values of the data.

PROCEDURE

Link relatives = value of a year/ value of previous quarter or month * 100

Then we calculate the sum of link relatives for each quarter or month. Average of these totals is calculated by dividing the totals by the total number of years in a quarter or month. Chain indices are calculated from these averages. Chain indices = average link relative of the year * chain index of previous year / 100. For first month or quarter, two chain indices are calculated. Adjustment factor is calculated by taking difference of two chain indices of first month or quarter and dividing it by number of months or number of quarters. The seasonal indices are calculated by subtracting adjustment factor from second quarter or month, twice of adjustment factor from third quarter or month and so on. The seasonal index for first quarter or month remains hundred.

STEPS

• Compute the link relatives by expressing each monthly or quarterly value as a percentage of the proceeding monthly or quarterly value
• Arrange the link relatives by months or quarter and find an appropriate average of these relatives for each month or quarter usually median is used
• Convert the average (median or mean) relatives into a series of chain relatives by setting the value of January or the first quarter as 100, and caring the process to include the first unit of the next period.
• A discrepancy due to trend increment (positive or negative) exists between the chain relative for the first January or quarter and that for the next prod. Adjust the chain relatives for the trend component by subtracting one-twelfth of the discrepancy from the value of February, two-twelfth from the value of march and so on or by subtracting one-fourth of the discrepancy from the relative of seco9nd quarter, two-fourth from the third quarter relative and three-fourth from fourth quarter relative.
• To obtain seasonal indices reduce the, adjusted chain relative to the same level as January or the first quarter by multiplying each of the adjusted chain relatives by the correction factor that will make the average of the all indices equal100. These final figures are the desired indices of seasonal variation.

STEPS TO COMPUTE SEASONAL INDEX

There are six steps required to compute the seasonal index as mentioned below:

• Calculate the four quarter moving total
• Compute the four quarter moving average
• Center the four quarter moving average
• Calculate the percentage of actual value to moving average value
• Calculate the modified mean for each quarter
• Adjust the modified mean

Calculate The Four Quarter Moving Total

Find the centered 12 monthly (or 4 quarterly) moving averages of the original data values in the series. A moving total is associated with the middle data point in the set of values from which it was calculated. Because the first quarter was calculated

• Compute The Four Quarter Moving Average

Express each original data value of the time-series as a percentage of the corresponding centered moving average values obtained in step(1).

• Center The Four Quarter Moving Average

Arrange these percentages according to months or quarter of given years. Find the averages over all months or quarters of the given years

ADVANTAGES OF PERIODIC BUDGETING:

These are following advantages of periodic budget applications in a manufacturing company:

• Periodic budget clarifying the business planning.
• Establishing coordination between functions of different departments.
• Measuring and controlling the work efficiency.
• It helps to manage the business finance.
• Informing about the business plans to the related parties.
• Normally there are following objectives of Budgeting:

RECOMMENDATIONS

In view the study I’d like to recommend that:

• The company should factor in some slack and make sure that you have more than enough money socked away or coming in before expanding the business or taking on new employees.
• While many firms draft a budget yearly, small business owners should do so more often. In fact, many small business owners find themselves planning just a month or two ahead because business can be quite volatile and unexpected expenses can throw off revenue assumptions.
• Don’t be afraid to shop around for new suppliers or to save money on other services being performed for your business. This can and should be done at various stages, including when purchasing or starting up a business, when setting annual or monthly budgets, and during periodic business reviews

CONCLUSION

Periodic budgeting is the powerful tool to control company expenses and to achieve the expected revenues. There should be strong coordination among each department and among each element of periodic budget to achieve the desires results and to maximize the company’s profitability.

QUALITIES OF GOOD BUDGET

This document will get you understanding of best qualities of good budget within in an organization.

Department managers in a business make decisions every day that affect the profitability of the business. In order to make effective decisions and coordinate the decisions and actions of the various departments, a business needs to have a plan for its operations. Planning the financial operations of a business is called budgeting.

• Responsibility

To prepare the budget one should be the responsible an dwell defined authority.

• Comprehensiveness

Budget should show the entire financial position of the organization in board details.

• Flexibility

A good budget should have certain flexibility so its implementations can be made easy.

• Reliability

The information of budget which estimates should be reliable as much as possible.

• Integrity

A good budget should involve the assurance that the fiscal program as enacted and as intended. Budget is plan prepared for individual capital expenditure projects.

• Coordination

Different units in the company must also coordinate the many different tasks they perform

• Control

Once a budget is finalized, it is the plan for the operations of the organization. Managers have authority to spend within the budget and responsibility to achieve revenues specified within the budget.

PROFIT & LOSS ACCOUNT / STATEMENT OF COMPREHENSIVE INCOME

Here is a report that will assist MBA students in their assignments of how to prepare loss and profit report for a manufacturing firm.

For the Six month’s period ended December 31, 2009

BALANCE SHEET

This balance sheet is a specimen for MBA students to get training and understanding of how to prepare balance sheets for any manufacturing company.

as at December 31, 2009

CASH FLOW STATEMENT
Here is a dummy report of how to prepare cash flow statement for a manufacturing company. This is to assist MBA Students for better understanding in this concern.

For the Six month’s period ended ended December 31, 2009

TYPES OF BUDGET PLANS

A dummy budget report of PEL for MBA students to get an understanding of how budgeting is generally done at any manufacturing company We tried to cover the types of budget plans not exactly for the said company.

There are following types of budget applications are practiced at Pak Elektron Limited:

• An operating budget
• A capital expenditures budget
• A cash flow budget

OPERATING BUDGET

An operating budget for a specific period is the detailed projection of all estimated income and expenses during a given future period. At Pak electron limited the operating budget covers, records Sales, Production costs, & other related activities. The operating budget must be reviewed, discussed, and coordinated by a press’s director, financial manager, and department managers. The director’s involvement in the budgeting process is extremely important. The director should provide subordinates with initial guidelines, review all proposals as originally submitted, request revisions, resolve differences between subordinate managers, and ensure balance and consistency in the final budget. Budgeting should be essentially a line function carried out by line managers. The financial manager and staff should provide information and other technical support, but budget negotiation and decision making should involve only those managers who are in some way responsible for a particular function.

A CAPITAL EXPENDITURES BUDGET

Capital Expenditures is referred as amount of money needed to spend on capital items or  fixed assets such as land, buildings, roads, equipment, etc. that are projected to generate income in the future. Capital expenditures to be budgeted include replacement, or construction of plants and major equipment. Plan prepared for individual capital expenditure projects. The time span of this budget depends upon the project. Capital expenditures to be budgeted include replacement, acquisition, or construction of plants and major equipment.

In the year under review gross turnover reached at Rs. 6,077 million, which is higher by Rs. 2,094 over the last year showing an increase of 53%. The net profit reflects an increase of Rs. 136 million (96%) on the comparative financial results.

A CASH FLOW BUDGET

A cash flow budget is that which provides an overview of cash inflows and outflows during a specified period of time. This is often called the cash flow, or the cash flow budget.

A cash flow budget is a useful management tool because it:

• Forces you to think through your production and marketing plans for the year.
• Projects your need for operating credit and your ability to repay borrowed funds.
• Projects when you must borrow money and when you can repay it
• Helps you control your finances. By comparing your budget to actual
• Cash flow, you can spot developing problems because of an unexpected
• Drop in income or unplanned expenses, and spot opportunities
• To save or invest funds if net cash flow is higher than expected.
• Helps you communicate your farming plans and credit needs to your

CASH FLOW BUDGET STATEMENT

• If your total projected net cash flow for the year is negative, there are a number of annual adjustments you can make.
• Sell more current assets (crops and livestock). Be careful here, though. Reducing inventories may solve the cash flow squeeze this year, but result in even more severe problems next year.
• Finance capital expenditures with credit, or postpone them until another year.
• Try to reduce the size of intermediate and long-term debt payments by lengthening the repayment period or adding a balloon payment at the end.
• Convert carry-over short-term debt to intermediate or long-term debt by refinancing.
• Reduce non-farm expenditures, or increase non-farm income. Sell intermediate or long-term assets.
• Even when your yearly net cash flow is positive

Some farm business managers operate with a line of credit from their lender, with a maximum borrowing limit, instead of borrowing funds in fixed amounts.

BUDGET

• INTRODUCTION

Financial budget is that which embraces the impacts of the financial decisions of the firm. It is a plan including a Budgeted Balance Sheet, which shows the effects of planned operations and capital investments on assets, liabilities, and equities. It also includes a Cash Budget, which forecasts the flow of cash and other funds in the business. Cash budgeting (cash planning) is a critical part of budgeting because it is essential to have the right sums of cash available at the right times.

While planning a budget can occur at any time, for many businesses, planning a budget is an annual task, where the past year’s budget is reviewed and budget projections are made for the next three or even five years.

• DEFINITION

A Budget is a plan that outlines an organization’s financial and operational goals. So a budget may be thought of as an action plan; planning a budget helps a business allocate resources, evaluate performance, and formulate plans.

PERIODIC BUDGET

Periodic budgeting is budgeting that is done through the year when the goals of a company are modified. A budget is a financial statement that estimates revenues and expenses for an organization over a specific period of time.

MANUFACTURING COMPANY

By the definition manufacturing company refers to those firms that convert raw materials and component parts into consumer and industrial goods.

OBJECTIVES OF PERIODIC BUDGETING

• Setting up the fiscal targets and the level of expenditures compatible with
• These targets. This is the objective of preparing the macro-economic framework.
• Formulating expenditure policies.
• Allocating resources in conformity with both policies and fiscal targets.
• Addressing operational efficiency and performance issues.

BUDGET COMMITTEE

Periodic budgets are plane and prepare by the budget committee which is composed of sales manager, production manager, the chief engineer, the treasurer and the controller. Their principle functions are:

• Deciding general policies
• Request and review individual budget estimates
• Suggest revisions in individual budget estimates
• Approve budgeting
• Analyze the budget reports
• Recommend actions to improve efficiency.

MANUFACTURING REQUIREMENTS

Manufacturing Requirements Planning (MRP) programs help coordinate thousands of inventory items when demand for one item depends on demand for another. MRP systems determine when finished products are needed, then work backward to determine deadlines and resources needed to complete the final product on schedule.

USE OF TECHNOLOGY IN MANUFACTURING MIS

Technologies have been developed to control and streamline the manufacturing process. Computers can directly control manufacturing equipment using computer-assisted manufacturing software. Computer-integrated manufacturing software connects all aspects of production together, including order processing, product design, manufacturing, quality control, and shipping. For example, after an engineer designs a product using CAD software, MRP systems can use information from the design as input to plan and order materials. Production scheduling systems can use the design specifications as an input into the scheduling process. And computer-aided manufacturing systems can use the design specifications as input for setup. This greatly improves manufacturing efficiency.

BENEFITS OF MANUFACTURING MIS

A flexible manufacturing system allows a facility to quickly and efficiently change from making one product to making another, often using robotics and other automation. Generally the changeover is computer-controlled.

Finally, quality control has become paramount for manufacturing firms. Control charts or sample testing is used to monitor product quality.

The manufacturing MIS subsystems and outputs monitor and control the flow of materials, products, and services through the organization.

ADVANTAGES OF MIS

These are following advantages of development and management of Information technology in PEL Pakistan:

• Core competency support
• Enhance distribution channel management
• Increase brand equity
• Boost production process
• Expand E-Commerce
• Improve B2B commerce

RECOMMENDATIONS

No doubt the company is well equipped with the technology and IT professionals but even that I’d like to recommend that:

• There should be a continue review of the company polices and procedures regarding IT management to be consistent with the emerging world.
• Latest IT procedures and software must be considered for the old process as well as the new one
• IT professionals must be given periodic training to adapt the current trend in the field of IT.

CONCLUSION

Technology play a very vital role in the development and enhancement of any business so the latest and advanced technologies must be implemented and managed by highly professional to cope up with any complex situation.

MANUFACTURING MIS

Manufacturing MIS is an MIS designed specifically for use in a production environment.

OBJECTIVES OF MANUFACTURING MIS

• Material requirements planning (MRP)
• Determine when finished products are needed
• Determine deadlines accordingly
• Manufacturing resource planning (MRPII)
• Network scheduling
• Improve customer service and productivity
• Just in time (JIT) inventory system
• Inventory and materials delivered right before usage

INPUTS TO THE MANUFACTURING MIS

• Strategic plan or corporate policies.
• Order processing
• Inventory data
• Receiving and inspecting data
• Personnel data
• Production process
• External sources

MANUFACTURING MIS SUBSYSTEMS AND OUTPUTS

• Design and engineering
• Master production scheduling
• Inventory control
• Manufacturing resource planning
• Just-in-time inventory and manufacturing
• Process control
• Computer-assisted manufacturing (CAM)
• Computer-integrated manufacturing (CIM)
• Flexible manufacturing system
• Quality control and testing

INVENTORY CONTROL PROGRAM

Inventory control programs are one component of a manufacturing MIS that relies on the production schedule. Inventory control programs can forecast future production, automatically reorder items when a certain threshold is met, determine manufacturing costs, and develop resource requirements plans from the production schedule.

MIS DEVELOPMENT

The development of sound MIS is the result of the development and enforcement of a culture of system ownership. An “owner” is a system user who knows current customer and constituent needs and also has budget authority to fund new projects. Building “ownership” promotes pride in institution processes and helps ensure accountability.

MIS which meets the five elements of useability is a critical ingredient to an institution’s short- and long-range planning efforts. To achieve sound MIS, the organization’s planning process should include consideration of MIS needs at both the tactical and strategic levels. They should also be used in support of the long term strategic MIS and business planning initiatives. Without the development of an effective MIS, it is more difficult for management to measure and monitor the success of new initiatives and the progress of ongoing projects.

MIS DEVELOPMENT METHODS

Management needs to ensure that MIS systems are developed according to a Sound methodology that encompasses the following phases:

• Appropriate analysis of system alternatives, approval points as the system is developed or acquired, and task organization.
• Program development and negotiation of contracts with equipment and
• Software vendors.
• Development of user instructions, training, and testing of the system.
• Installation and maintenance of the system.

USE OF PROJECT MANAGEMENT TECHNIQUES

Management should also consider use of “project management techniques” to monitor progress as the MIS system is being developed. Internal controls must be woven into the processes and periodically reviewed by auditors. In addition, user manuals should be available and provide the following information:

• A brief description of the application or system.
• Input instructions, including collection points and times to send updated information.
• Balancing and reconciliation procedures.
• A complete listing of output reports, including samples.
• Depending on the size and complexity of its MIS system, an institution may need to use different manuals for different users such as first-level users, unit managers, and programmers.

COMPONENTS OF MIS

• Application software
• Computer hardware devices and cables

CHARACTERISTICS OF MIS

• Timeliness
• Accuracy
• Consistency
• Completeness
• Relevance

• Timeliness

To simplify prompt decision making, an institution’s MIS should be capable of

Providing and distributing current information to appropriate users. Information systems should be designed to expedite reporting of information. The system should be able to quickly collect and edit data, summarize results, and be able to adjust and correct errors promptly.

• Accuracy

A sound system of automated and manual internal controls must exist throughout all information systems processing activities. Information should receive appropriate editing, balancing, and internal control checks. A comprehensive internal and external audit program should be employed to ensure the adequacy of internal controls.

• Consistency

To be reliable, data should be processed and compiled consistently and uniformly. Variations in how data is collected and reported can distort information and trend analysis. In addition, because data collection and reporting processes will change over time, management must establish sound procedures to allow for systems changes. These procedures should be well defined and documented, clearly communicated to appropriate employees, and should include an effective monitoring system. Comptroller’s Handbook 5 Management Information Systems

• Completeness

Decision makers need complete and pertinent information in a summarized form. Reports should be designed to eliminate clutter and voluminous detail, thereby avoiding “information overload.

• Relevance

Information provided to management must be relevant. Information that is inappropriate, unnecessary, or too detailed for effective decision making has no value. MIS must be appropriate to support the management level using it.

USE OF IT TECHNOLOGY AT PEL PAKISTAN

PEL Pakistan is the largest manufacturing company of electrical equipments in Pakistan and is equipped with the latest technology to compete the global world. There are following information systems used in PEL:

• Management information system
• Finance MIS
• Manufacturing MIS
• Marketing MIS
• HR MIS
• Networking and web technologies

• Financial Management Information System

Financial MIS provides financial information regarding financial statements, uses and management of funds, and financial statistics for control to all financial managers with in the organization.

• Manufacturing MIS

Manufacturing MIS is an MIS designed specifically for use in a production environment. Manufacturing MIS is required to get:

• Designing and reengineering
• Master production scheduling
• Inventory control
• Manufacturing resource planning
• Just in time report
• Process control
• Quality control

• Marketing MIS

• Support managerial activities in :
• Product development
• Distribution
• Price decision
• And promotional effectiveness

Marketing MIS is comprise of the input of

Sales by customers, sales by sales persons, sales by product, pricing report, total service calls, and customer’s satisfaction.

• Human Resource Management MIS

This MIS is concern with all activities related to employees and potential employees of the organization.

MIS receive the input of:

• Benefit report
• Salary survey
• Scheduling reports
• Training test score
• Job application file
• Need and planning report

OBJECTIVES OF MIS

There are following objectives of MIS:

• Provide timely and needed information
• Provide support to management to achieve corporate goals
• To take quick and effective decisions.
• Identify and resolve any problem