Job Of The Accounts Department example essay topic

Pre-amble Custometal Pty Ltd has been trading since 1992 under a couple of different names before becoming a proprietorship in 1998. Since its conception in 1992 it has been with the same owner and trades today as a sole proprietorship. Custometal's customers consist of the construction industry across Melbourne. Custometal is what is known in the industry as a metal work sub-contractor, with our scope of works basically consisting of custom fabricating all metal items excluding structural steel and items that can be mass produced. Custometal's company structure consists of 1 general manager, 2 accounts staff, 2 estimating staff, 1 foreman, 2 leading hands and 16 tradesmen, 4 labourers and one apprentice. Being a trade based company; really what we are selling is the time and skills of our workforce more then a physical end product of their labour.

1.0 Introduction Being a trade based company; Custometal's budgets are not as easy and strait forward as those of manufacturing, retail or even most services companies. Like most companies, we have sales targets, administration budgets, and services budgets that can be fixed, but our workshop budgets and production-based budgets rely heavily on the amount of contracts we have and the type of products we have to supply. The flow of Custometal's budgets like most are circular, therefore it is difficult to talk about communication of budgets without talking about reporting procedures and how activities are controlled and monitored. The production cycle of our products starts with the estimating department, once the contract is awarded, the estimating department communicates the budget to the production staff who intern communicate the budget to the tradespeople. With the aid of the accounts staff, the production staff monitor and control the budget though the production cycle and report the outcomes back to the estimating department and the general manager and this analysis is used by the estimating department to refine quoting procedures and formulate estimates for similar jobs. 2.0 Roles of the departments 2.1 Estimating Department The estimating department is responsible for formulating production budgets by providing quotes to Custometal's customers.

By submitting quotes, the estimating department enters into a legal agreement with the customer where they are agreeing that if a contract is awarded to Custometal, we will undertake the works at the price stated. The quote and the documentation provided by the customer become legal documents stating the following: . The product on offer - Tender documents are a package that includes a scope of works, written specifications of the product, requirements such as Australian standards to conform with and conditions that the product has to stand up to, detailed drawings and bills of quantities. It is not uncommon to receive a tender package with upwards of thirty drawings and one hundred pages of specifications that don't provide enough information to quote confidently. For this reason, a quote is provided with a detailed description of the product and quantity on offer... Price - The quoted amount.

It is common practice when quoting a job not to include GST in the quote, as it is not a cost to the company, but a cost to the consumer. For this reason, all quotes carry the line "Prices exclude GST.".. Validity of the quote - Customers may require a quoted price to be firm for a stated period of time. Likewise, variable costs may make it impossible to firm up a price for extended periods of time, in which a clause will be added to the quote of "Prices are valid for 'x amount' of days. In many cases, the estimating department is quoting to a customer who is tendering for a job themselves; in this case it may be up to 6-8 months before a contract is awarded.

In this case it is the acceptable practice for our customers, once they have been awarded a contract, to allow us to review our quote and adjust accordingly. Slight increases in price at this point are acceptable to update variable costs, but these costs are closely scrutinised by the customer for their validity... Exclusions - If the estimator has identified that there are variable costs that are either outside our usual scope of works or there is not enough information to formulate an accurate price, those costs will be written up as exclusions. As quotes are a legal document, the more detailed the quote is, the more detailed the quote is, the less chances there are of being legally forced to provide a product that hasn't been allowed for. 2.2 Production department The production department's staff consists of a foreman, 2 leading hands and the GM (general manager). It is the job of all four production staff to undertake the job of PM on several projects at once.

Under the production staff are the tradesmen, labourers and apprentice. It is the job of a project manager to manage a complete a project on time and on budget. As the scope of the projects that undertakes is relatively small, a project manager at Custometal is expected to also fill the roles of contracts administrator and drafts person. Due to the varied nature of projects undertaken, the choice of which PM is suitable for which job depends on experience and technical knowledge. 2.2. 1 The Foreman The foreman of Custometal is also the owner of the company. Being an experienced and qualified tradesman and possessing many years of project experience, the foreman is responsible for managing a high number of smaller jobs.

The Foreman also undertakes the roll of workshop manager, overseeing maintenance and maintaining the stores required by the workshop. 2.2. 2 The Leading hands The leading hands are both tradesmen who have a combined roll as project manager and tradesman. The leading hands are mainly utilised as project managers on bigger jobs where large amounts supervision is required both in the workshop and out on site. On some jobs that are more complicated a leading hand may be teamed up with either the foreman or GM as a contracts administrator to lessen the paperwork burden. 2.2. 3 The GM Being a mechanical engineer, the GM is responsible for technical issues pertaining to design and drafting of complicated jobs. The general manager also undertakes the role of PM (project manager) on technically difficult jobs where his skills as an engineer are needed.

The GM also wears the hat of purchasing officer in able to maintain the cost centre budgets of consumables, store and maintenance. 2.2. 4 The Tradesmen Due to the varied skills required by our customers, we employ tradesmen of different skills bases. In our employ we have experts in sheet metal, boiler making and fitting and turning, each with their own expertise in different fields of their trade. 2.3 Accounts department It is the role of the accounts department to record financial transactions within the organization. Through the use of a computerized accounting program, accrued accounting procedures are used to track assets and liabilities and communicate the financial position of Custometal to internal departments external entities such as the Taxation department. Annually the skills of an external accounting consultancy are used to audit the accounting practices used within the company and rectify any shortfalls of the accounting system.

Custometal however doesn't fall into the category of a proprietary company that requires a formal audit by the taxation department, as our considerably low cash flow and sole proprietor status don't warrant concern. Further information on the financial reporting of Custometal can be found in the section titled "Reporting financial outcomes". 2.4 General Manager The role of the GM (general manager) of Custometal is to oversee all departments. As is a small company, the role of general manager extends minor roles in each department.

The GM also manages the cost centre budgets of all departments with acquisitions having to be approved by the GM before orders can be placed. 2.4. 1 Roles in the accounts department The GM takes on the role of what would be considered the financial officer of a bigger company. Although the responsibilities of conforming to accounting principles is contracted out to a consultancy firm, the roles of financial forecasting and budgeting are carried out by the GM. Further information on forecasting and budgeting can be found in the section labelled "Reporting financial outcomes". 2.4. 2 Roles in the estimating department The role of the GM in the estimating department is mainly that of a temporary estimator. If the estimators are falling behind in their work or there is a period of time where an estimator is on leave, the GM will step in and help out with estimating.

3.0 Communication of Budgets 3.1 Communication from estimating to production Once a job is quoted, it is entered into an electronic estimates register that records to whom the job was quoted, what the project was, the date it was quoted and the sum of the quote, the paperwork is then stored for a period of 24 months before being destroyed. The key to communicating the budget to the production department is in the regime of 'never throw anything out'. 3.1. 1 Formulating the quote The estimating department usually breaks down their quotes into the following sections: . Materials - These consist of raw materials needed to produce the end product. When formulating the cost of these materials, the estimator works out the units of the material needed, obtains a quote for the materials and adds a margin appropriate to the conditions. It is accepted practice to pass on the costs of the material plus 10%-15% of their costs for administration, but the estimator also has to estimate the variable cost of the material due to price rises from the supplier that may occur before an order is placed...

Processing of materials - Due to the complexities of fabricating our products and the cost of specialist machinery, subcontractors are used to produce parts or provide a specialist finish such as galvani sing. Our estimators calculate this price by either obtaining a quote from the subcontractor or applying a formulated rate based on past experiences... Labour - As Custometal is a trades based company, labour is the most important inclusion in the quote sum. The most effective method of quoting labour is to use the data collected form similar jobs to calculate how much time is required to complete a task. This information is communicated to the estimating department either by referring to reports collated by the production and accounts staff or by physically asking the advise of the production staff. The amount of hours required to complete a job is then multiplied by an hourly rate that labour is to be charged out at...

A sketch - The estimator will sketch exactly what it is he is allowing for in the quote. This helps to paint a picture in their own minds as well as clearing up any confusion that may occur down the track. 3.1. 2 Communicating the quote When a quote is accepted and a contract is signed, the estimating department hands over all documentation to the production department for review, during which correspondence between the PM (project manager) and the estimator is also required to communicate a clear scope of works. The package includes the following items: . Quotes submitted to the customer - It is common for the estimating department to provide more then one quote to a customer before a contract is awarded. Reasons for this vary from changes in design to reducing a price in order to win the contract.

Each of these quotes gives the PM a background into the quoting and procedure as well as spelling out exactly what material, processing and labour have been allowed for... Tender documentation supplied by customer - The tender documentation, including drawings that have been provided by the customer give the PM a greater indication of the tasks that are at hand. When the estimator is preparing a quote, they will also highlight what has been allowed for which gives a greater scope of works to the PM then words alone... The contract - Contracts spell out exactly what is required. Contracts contain a scope of works, agreements to the timing that is required, agreements of site conditions such as VBIA (Victorian Building Industry Award) and provisions of amenities, and legal implications of defaulting on the contract. The contract is the bottom line as far legal responsibilities, but 99.9% of the time it doesn't state anything different then the quote and the tender documentation.

3.2 Communication from production to estimating. Most of the communication that estimating receives from production is detailed by profit and loss statements and variance reports. On completion of a job, the PM will provide a profit and loss statement and a variance report detailing what the estimator had originally budgeted for and what the outcome of the job was. This is all carried out through an informal meeting with explanations of the variances being tabled verbally rather then in a formal written report. The goal of this procedure is to educate the estimating staff on where their price was, not to lay blame for any discrepancies, thus maintaining harmony between departments. Although this communication isn't in a written form, it is still very analytical.

It is the aim of Custometal to complete jobs with a profit margin of 5%-25% above budget. Even though a result in budget profit margin of 0% above budget still means that the company is maintaining its costs, it is a KPI that we make money not just keep afloat. A profit margin of 25% above budget indicates that the estimator may have overestimated, which could indicate that we may be able to win more contracts his prices were closer to the completions' price. Records of all jobs are also kept in the accounts software so at any time an estimator can print out any number of valuable reports on any job. 3.3 Communication between estimating and accounts The accounts department require communication from the estimating department to record the contract sum of contracts that they have been awarded. The accounts department uses this information to track and allocate funds to specific job budgets and to formulate invoices to the customers on completion.

Uniquely the estimating department carries out the entering of the contract into the accounts computer software. Two years ago it was identified that the accounts department was entering jobs into the computerized accounting software in a way that facilitated their billing categories. This created a situation where the production department was maintaining their own budget documentation instead of using the information collated by the accounts department, hence there was double handling of budgets. On review of this situation, it was discovered that the cause of the problem was that the accounts department had limited knowledge of production and that production and estimating had limited knowledge of accounts. The solution to this problem was to educate the estimating and production departments in the basic use of the accounting software. This solution wasn't without its teething problems.

Staff became precious, there was high resistance to change and the accounts system at the time was not as efficiently set up as it could have been. The general manager was the only member of staff possessed enough knowledge in production and accounts procedures make the system work and my knowledge of the particular accounting software was not extensive. In hindsight it may have been more cost effective to hire a consultant to restructure the accounting software to our requirements instead of attempting to do it ourselves. Through perseverance between the GM and accounts we were able to set up a system that allowed accounts to carry out their tasks as well as reporting budgets in a manner that became more effective for the estimating and production departments. The big advantage of the estimating staff having knowledge of the accounts software is that they can generate any number of job statements any time they need.

One of the most valuable of these statements is the profit and loss statement, which provides a brief overall picture of how a job performed. The main piece of information that is valuable to the estimating staff is 'how much time was spent on a job?' this is where education on accounting software becomes important. The accounting software allows the user to change the parameters of the search, making it possible to isolate aspects such as job hours, material costs, supplier and subcontractors used. 3.4 Communication between Production and accounts Production relies on accounts to keep track of time and money that has been spent on a job.

As it is the job of the accounts department to pay suppliers and employees, production budgets are easily tracked through the accounts system by billing costs on a job against that job's budget. Entering invoices and labour hours into the system makes it possible to collate any number of useful reports at the click of a button. Jobs are tracked through the accounts system by the job number that they are allocated. When materials are ordered, the job number is entered as the order number, this allows accounts to enter costs against a job without having to chase back through records.

Orders are also placed using the accounting software, so costs are automatically entered against jobs. Likewise, employees record the time they are spending on a job by recording a job number on their time card. The most useful of reports generated by the accounting software is the profit and loss report, as it gives an overview of resources allocated to a project and the costs incurred in a very broad report. Using the accounting software the production staff can change the parameters of the report to display more detail such as suppliers, date ordered and even down to which employee is booking time on the job.

This is particularly useful as it can be used to analyse problems with production and cost blow out. The accounts department relies on the production department to be able to invoice at the end of each month. This is communicated in a written form detailing the job number, percentage to be invoiced and the sum to be invoiced. 3.5 Communication within the production department. Budgets are communicated by the PM (project manager) to the tradesmen by tabling a scope of works. On acquisition of a contract, the PM will table a scope identifying to the tradesman the job number, a description of the items in the scope including technical specifications and quantities, and technical and architectural drawings required for production.

One notable exclusion to the documentation that is passed on to the tradesmen is the exclusion of a budgeted figure. It has been found that passing on a budget figure to the tradesmen can be detrimental as their understanding of the financial dealing of the company are dismal. Disclosing financial information to trades people can also lead to claims for wage increase. One example of this is a couple of years ago an employee discovered that our hourly labour rate was 250% of his hourly wage and used this as his basis for a 100% wage increase claim. Although the companies reasoning for this discrepancy was explained to the employee, we would only accept our justification when a union official informed him that it was all above board. The PM of each job is responsible for the managing of their respective budget, but communication is required between production staff to ensure costs are kept at a minimum by allocating resources appropriately.

By having one member of the production team acting as a purchasing officer, time and money are saved through ordering in bulk. The production department also maintains the maintenance budget, which can highly variable and requires attention from all production staff. The most important task of the production department is the allocation of human resources to each particular job. Communication between production managers is vital to ensuring that jobs are completed on time and on budget. Different tradesmen have different skills, so the production staff must not only allocate the right amount of human resources to a job, but they also have to keep in mind the skills of the tradesmen. A communication deficit within production is easily recognised as it causes confusion therefore problems are rectified expediently.

It has been found that the main cause of confusion is with technical specifications that if misunderstood will effect the budget. Rectification of these problems consists of further explanation of technical issues when they arise, but generally communication is clear and concise. 3.6 Communication between the GM and departments. As Custometal is a small company, the GM (General Manager) is never far out of the loop; hence communication is less formal and is usually in terms of verbal communication. One aspect of the GM's job is to monitor and control the finances of the company, hence the GM's intervention is usually only sought when a budget has is deemed to be uncontrollable and remedial action needs to take place. As the GM also wears the shoes of the financial manager, it is the GM's responsibility to manage financial trends within the company by setting and maintaining KPC's (key performance criteria).

KPC's within Custometal consist mainly of setting sales targets to the estimating department and profit margin targets to both estimating and production. As with other departments, the GM relies heavily on accounts for precise communication of finances. For further information refer to the section on financial reporting. 3.7 Review of communication. Due to the nature of our product, if budget communication is lacking, technical specifications are usually also lacking, automatically prompting questions being asked.

The outcome of the communication package is tested by the outcome of the budget. The responsibilities of each department are clear-cut; each department has an understanding of the objectives, processes and account abilities of the departments. A fortnightly meeting is held to report the company's position and table any problems within the organization. During this meeting the question 'what can other departments do to make your job easier', recommendations are discussed and analysed for their viability before any action is taken. 4.0 Managing a program budget Program budgets are perhaps the hardest type of budget to manage due to the fact that their terms are locked in by a legally binding contract.

4.1 Responsibilities for budget outcomes. The responsibility for the outcome of the budget is the responsibility of both the estimator who formulated the quote and the PM who managed the job. 4.1. 1 The estimators responsibilities As mentioned in section 2.1 Estimating Department, it is the estimator's role to formulate the program budget during the tender stage. This first stage is of the upmost importance for the success of the project, due to the contractual nature of this budget, there is no way that the contractual sum can be renegotiated.

As mentioned in section 3.1. 2 Communicating the quote, it is the responsibility of the estimator to communicate in writing the scope of the project to the project manager. The estimator's responsibilities are not so much written, as they are accepted roles of his job description. 4.1. 2 The Project Managers responsibilities The project manager is responsible for the job to be completed as per the contract sum and contract parameters, mainly being time constraints. The account abilities of the project manager are spelled out in the contract and are generally accepted for a project manager. 4.2 Variations to the contract budget As a contract is a legally binding document, the contract sum cannot be altered.

The instance that a contract sum can be altered is if there is a design change that has cost implications, but it is accepted that any change in contract sum has to be justified and is closely scrutinised. Contractually variations to the contract sum have to be approved, usually by the customer's architect or quantity surveyor. If approval isn't granted for the variation, the case is referred to arbitration, which proves to be costly to the side that is found to be in the wrong. As it is seen to be very damaging to argue with a customer over the cost of a job, quite often it is easier to accept a loss on a project to maintain harmony, then to argue and loose a customer. 4.3 Contingency plans It is a fact that many businesses fail due to underestimating a budget, in these instances contingency plans need to be in place to keep the business afloat.

In devising contingency plans, the first thing that needs to be taken into consideration is what can go wrong. There are many things that are accepted that can go wrong with a job to blow out a budget. To determine our risks, we use the analysis tools of SWOT (Strengths Weaknesses Opportunities and Threats), PESTLE (Political Environmental, Social, Technological, Legal and Economical) and Porter's five forces model. SWOT analysis is the main tool that we use to identify our threats, while PESTLE analysis and Porter's five forces is used to analyse those threats. 4.3. 1 The estimator underestimating the budget This is perhaps the common catastrophic threat to a company. Due to the budget being locked in contractually, the only recourse that can be taken is to consolidate these costs and make up the downfall using retained earnings.

Abandonment of the project is totally out of the question due to the legal requirements of the contract stating that if we are unable to complete the works to the contract, another company will be used and we will be back charged the costs of doing so. 4.3. 2 Human error Human error would be the most common threat, but usually it causes the least impact. Human error comes in the form of minor mistakes that are made that increase costs, such as errors in drafting or an employee making a mistake in the fabrication of an item. As human error is so common, it is factored into the estimating of a job by allowing a margin on material and labour costs to offset costs.

Although this margin may not cover the full costs of the mistake, usually all the costs are covered by the margin on the whole job, and retained earnings don't have to be used to make up shortfalls. 4.3. 3 Increases in raw material costs Increases in raw material costs are taken as a given, hence are allow for in the estimating stage and rarely effect the budget. Raw materials in our industry consist mainly of steel costs and cost of consumables such as gas and electricity, as a trades services company, labour costs also have to be considered as raw materials costs. Analyse of raw material cost increases is carried out with the PESTLE analysis.

Political Political influences can be both local and international. Steel prices can be affected by international disputes and labour costs as well as other raw material costs can increase due to industrial disputes. Although it is hard to predict international disputes, the warnings of industrial disputes are clearer as they usually happen around the time of an EBA (Enterprise Bargaining Agreement) negotiation. Environmental In the steel industry there is one clear-cut environmental threat that is Kyoto. The ratification of the Kyoto Protocol means that there will be a steady increase in the cost of steel over time due to manufactures having to comply with greenhouse emission levels. Social We have identified that social concerns don't have an impact on Custometal directly, although they have an impact on political and legislation threats.

Technological Technology is having a dramatic impact on the steel industry at present. Developing nations, especially China and India, are gaining the technology to produce high quality steels at low costs. Legislation Legislation on industrial relations is a big factor in labour costs. In the construction industry, the trades unions are strong enough to be able to ignore legislation as they see fit, but the implementation of legislation attracts down time due strike action. Other legal avenues that affect labour costs are EBA contracts and VBIA (Victorian Building Industry Agreement), both of which are legally binding contracts negotiated by the trades unions that have to be adhered to. Economic The microeconomic factor of supply and demand is the main threat to our business.

Steel, like its raw components, is a commodity and is affected greatly by world demands. Twelve months ago it was estimated that China, going through an economic growth spurt, was consuming 75% of the worlds steel. The on flow of this situation was steel prices where escalating at unprecedented rates. As well as steel we have to take into account transport costs due to an increase in oil prices and increased steel prices due to increases in iron ore, coal and gas prices.

The PESTLE threat analysis is discussed between the GM and estimating department to devise pricing strategies to combat increases in raw materials. Our labour rate is also reviewed on a regular basis to ensure that wage increases and downtime are allowed for. As tender documentation only requires quotes to be valid for 90 days, the threat of cost increases is minimal. 4.3. 4 Loss of equipment Minor loss of equipment from fire and theft are inevitable and costly to our business.

Unfortunatly insurance doesn't fully cover the costs of fire and theft but it does cover some costs. Our contingency plan to combat the effects of fire and theft consist of having insurance policies and having enough capitol at hand to replace lost equipment immediately. The instances of a catastrophic loss of equipment, such as a factory fire, have also been modelled, the result of which is alarming. Loss of 50% of all equipment would result in a major loss of capitol, but the more concerning result would be the loss in downtime that would result. The impact of this downtime would be reneging of current contracts, increased subcontract cost due to the loss of factory equipment and loss of customers from our decreased capacity. The recourse of this would have to be liquidation.

The costs listed above and the costs of retrenching employees from a union workshop would be too much for the company to be able to cover. The contingency plan for this instance is to invoice everything that we possibly can, call in all accounts receivable, sell off assets, payout the employees, pay out the staff and last of all settle whatever accounts payable we are able to. At the end of the process it is expected that there will still be money owing and contracts that have been reneged on, but having the company set up as a proprietary shields the owners' losses. 4.4 Recording systems The recording systems of the program budget are two pronged, they take into consideration both time and money.

Being a trades services company, time has a direct affect of costs, so keeping track of time on a job alerts the project manager of budget blowouts before they happen. The use of a Gantt chart is helpful in spotting potential problems. It compares the baseline data with the current schedule. The use of Gantt charts is limited in its ability in showing how falling behind on one part of the schedule affects the other parts of the schedule. At that point, once the problem is spotted, the use of other problem solving tools is required, for example: brainstorming, SWOT analysis and the use of critical path analysis, are effective tools in problem solving and decision making. Keeping track of resources that are spent on a project is carried out with the use of accounting software.

When a job is entered into the system, funds are allocated to that particular budget. Orders for material are placed through the system and when the invoices are received, accounts receivable debits money from that budget. Likewise, employees' time is monitored through our time card system and payroll debit wages from the respective budget to the amount of our calculated hourly rate. This process is carried out twice a week, providing up to date information to the project manager as to the state of the budget finances. Keeping track of account information in this manner, allows the accounts department to process the finances through the system, allocating correct tax codes and following accounting principles, thus meeting the legal requirements of the Tax Department. To determine where we are at with each item in our budget we use a form of liquidity ratio.

By using this current ratio of current assets allocated to the project / current liabilities of the project, we are able to determine the resources that we are still able to consume in our budget. An example would be our P&L statement showing us that on one item we have a labour budget of $16,200 and labour liabilities of $17,100 and a Gantt chart showing us that we have completed 90% of the project. Hence the liquidity ratio would be (budgeted assets x 90%) / current liabilities, giving us the warning that we are going to be 18% or $2,800 over budget. Although there is no scope for a project manager to claim variation costs to the customer, this information is used to investigate the cause of the variation and hopefully minimise negative impact. As highlighted in section 3.2 Communication from production to estimating, variations are investigated, primarily by the project manager, and discussed with the estimator who formulated the quote in an effort to combat the problem through education. 5.0 Reporting outcomes and financial plans Custometal Pty.

Ltd. is a public company with only one shareholder; hence financial reports take on a layman's tone rather then being tabled for individual analysis by shareholders. The only formal reports that are tabled for external use are the Tax statements required by law. As mentioned in section 3.3 Communication between estimating and accounts, all departments have knowledge and access to the accounting software. This has proven to be a valuable tool in the analysis of financial data as the departments are able to manipulate the reports to with the accounting software, thus using the software to analyse great amounts of information expediently.

5.1 Reports tabled for estimating Estimating use the accounting system to access reports on previous jobs to use "reasonable extrapolation of past experiences" Spiro (4th edition, p 111) in formulating new quotes. The analysis of past jobs by the estimating department is communicated through customized profit and loss reports. The estimator will can identify what material was ordered for the job by adding a supplier field to the profit and loss report and filtering other costs out of the report. The main figure that the estimator is interested in is the labour time spent on the job. Labour costs are reported in this report by removing all non-labour fields and adding a unit of cost field to the report. As the hourly labour rate increases over time, a monitory amount labour is then calculated by multiplying the labour units by the current labour rate.

5.2 Reports tabled for production Production relies on profit and loss reports to maintain their program budgets. The production department uses the accounting system to analyse the finite details of costs being allocated to their job. Profit and loss statements are refined to give an indication of material costs, supplier used and most importantly labour times. The accounting software also allows the PM to check back through the history of the job to verify that quoted material costs, stated on orders, match the price that our suppliers have invoiced. Another useful tool of the accounting software is filtering of time, which is used by the PM to keep track of resources allocated to their budget over a monthly period. At the end of each month we are able to invoice for goods that are completed and in the possession of the customer, hence it is the PM's responsibility to ensure that costs can be invoiced at the end of each month.

Ordering material to an entire job at the start of a contract period causes cash flow problems, as the cost of that material can't be fully recouped before the material has to be paid for. 5.3 Reports tabled by accounts The accounts department use a wide range of reports to keep track of cash flow. The accounts receivable aging summary provides accounts receivable with a list of customers who are operating an account outside their terms. Accounts use cash flow reports to determine the amount of money moving through the company and to highlight any differences between accounts payable and accounts receivable.

Accounts also use statements of financial position and variations to this report to identify and variations to the running costs of the company. The statement of financial position is modified to show highlight variations from month to month, the purpose of this is to highlight any abnormalities that may have been the result of data entry errors. 5.4 Reports tables by the General Manager The general manager is responsible for financial planing within Custometal. The key roles of the GM in this position are to report financial position to the owner, formulate and manage budgets and plans, calculate labour rates and forecast the economic future of the company. 5.4. 1 Forecasting Forecasting cash flow within a company is the most important role of a financial manager. Due to the nature of a trades service company, our accounts receivable varies from month to month depending on the sum amount of invoicing we are able to do at the end of each month.

The information analysed in the forecasting process forms the basis of operating budgets and plans, as well as setting the criteria of KPC (Key Performance Criteria). The financial reports used to in forecasting are: the statement of financial position, a sales report, cash flow statement and a statement of the sum of estimates. These statements are used to answer a series of questions that together indicate the future position of the Custometal. How much work can we expect from our customers? To answer this question we analyse the sales report in conjunction with the estimates register mentioned in section 3.1 Communication from estimating to production. The estimates register gives an indication of who we quoted to and the sum amount of the quote, while the sales report lists our customers and the orders that they have placed with us.

In analyzing the two reports we are able to identify an average percentage of contracts we expect to win with each customer and the time delay between when we quote and when we receive the order. The analysis of the answer to this question first of all allows us to predict future cash flow over long periods of time, giving us an indication of the demands of our service in time to come. The other important outcome of the analysis of this question is to set the KPC of the estimating department. Analysis has indicated to us that we have a 10%-15% market share in our industry; hence the estimating department is required to quote a minimum of ten times our break-even point to meet company costs. Past this it is a KPC of the estimating department to complete every quote for our top customers before quoting to other companies.

What is our break-even point? Due to the nature of the Custometal's business, we have a high amount of variable costs. Through analyzing the cash flow report and statement of financial position over a long period of time we are able to graph our expected break-even point in relation to the sum of sales. The problem with having a high amount of sales is that the break-even point increases expediently. When sales increase past a certain point, extra costs are encountered such as a requirement for extra staff, machinery and workspace. At this point it becomes counterproductive to expand the business and especially dangerous if the company is found to be operating with an un sustainably high short-term market share.

The answer to the question is in the implementation of upper and lower extremes of sales targets that relate to the upper and lower boundaries of the break-even point. These sales targets as KPC's of the estimating department, who's responsibility it is to regulate their quoting with direct relation to supply and demand. In times where the building is going through a slow patch, estimators will produce lean estimates and during high activity they are to take advantage of a high demand. What is our predicted cash flow? Predicting the cash flow over a short-term period is vital for the company's survival. Cash flow over a short period of time is rather easy to predict with the use of a sales report and statement of financial position using computerized accounting software.

The accounting software is used to produce a statement of financial position, reporting monthly over the past four quarters. A sales report is then formulated to show current jobs in the system and the sum amount yet to be invoiced. Both these reports are then exported to a spreadsheet where the costs for the next quarter are estimated along with the expected amount to be invoiced, hence producing an estimated net income. In entering this information, account has to be taken for orders over that period of time that are not yet in the system, expected completion dates of projects and cost centre budget items that are yet to be purchased. Although the amount to be invoiced each month can vary considerably, generally over a financial quarter the total cash flow predicted will be pretty close to the mark. This prediction of cash flow is used to budget for 'big ticket' items such as the procurement of expensive pieces of machinery or the turnover of equipment. 5.4.

2 Calculating a labour rate The labour rate it the amount a company charges for its services. Being a trades services company, Custometal hires out the services of its tradespeople. When calculating a labour rate, you have to take into account the fixed costs of a company as well as wage and salary costs and downtime. The concept of a labour rate is generally misunderstood for a wage rate.

The difference is a labour rate not only has to take into account an employees wage, but has to take into account consumables they use, downtime from exercises such as driving out to the customer, the costs of running the companies office and factory, and the salaries of the company staff. The labour rate is calculated using a statement of financial position and a detailed wage report. The statement of financial position is used to calculate the fixed costs over a period of time; allowance is also made for variable costs such as consumables and wages. The wage report is then used to calculate the amount of productive hours in the same period of time.

A profit margin is then added to the equation, hence (costs / productive hours) x profit margin = Hourly rate. 5.4. 3 Communication to the owner Communication to the owner comes in the form of a report that states in plain language what the forecast ed cash flow is, the amount of profit the company is making, what our market share is and recommendations on the companies direction. This report is tabled quarterly and contains the appendices of cash flow, statement of financial position and a summary of the company forecasting and labour rate. 6.0 Conclusion Constant review of financial planing carried out by to ensure productivity is maintained... Budgets and financial plans are communicated to a level that is appropriate to the users and reviews of communication occur to refine the material that is being communicated and how it is communicated...

Budgets are monitored during the period of the contract, identifying variances and allowing for remedial action as per structured contingency plans. The outcomes of these budgets are reviewed both during and after the contract period to ensure constant improvement... Financial records are kept as per relevant accounting standards. External advice is sought, in the form of a consultant, to ensure that obligations with the Tax Department are met... Reports of finances are made available to the appropriate departments and staff are well educated in the understanding of the financial information... Non-financial objectives are set and are analysed...

Financial plans and strategies are reported and reviewed quarterly in an appropriate manner.