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11. planning process - budget


11. PLANNING PROCESS THE BUDGET

May 2015
Copyright by G. Randazzo 1

BUDGET (1 year)
? The process starts with a Budget Letter sent by a Shareholders representative to the Company’s CEO ? The Budget Letter defines general and detailed targets according to the Business Plan in force; they, in general, are: – Orders collection – ROS, ROI and Operating cash flow – Investments – Any other target in function of the current situation ? The CEO informs the Steering Committee of the targets; on the bases of these targets every Manager defines the targets for the Middle Management under his orders and develops the Budget of his own Department with the CEO supervision and the CFO coordination ? The Budget is submitted to the Shareholders approval ? The approved Budget: – Is the commitment of the Company’s Management towards the Shareholders – Is the reference for the management control all through the fiscal year – Is the bases for the calculation of the managers performed-related pay
Copyright by G. Randazzo 2

BUDGET – GENERAL FLOW CHART BUDGET LETTER
BUDGET DEVELOPMENT
STEERING COMMITTEE ? Undertakes the targets defined by the Budget Letter ? Defines the detailed targets for the Middle Management

BUDGET PROPOSAL
? PROFIT & LOSS ? BALANCE SHEET ? FINANCIAL REPORT ? HEADCOUNT ? INVESTMENTS ? SPECIFIC TARGETS

BUDGET APPROVAL

CFO Coordination

DEPARTMENT n DEPARTMENT Budget development i DEPARTMENT Budget development .... DEPARTMENT Budget development a Budget development

CFO ? Final documents STEERING COMMITTEE ? Approval

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BUDGET PROCESS PHASES AND RESPONSIBLE DEPARTMENTS

See the following page

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PHASE
Sales Products technical data (variations vs current std) ?On-going products – Bill Of Materials (BOM) variations – New Make / Buy decisions – Standard time reductions ?New products: – BOM – Standard times Purchasing Manufacturing and logistics efficiency (Extra material consumption, direct labour scrap and losses, extraordinary transports) Direct labour Machinery utilization Variable overheads Variable cost of sales Fixed expenses Indirect labour Investments Depreciation Stock

RESPONSIBLE DEPT.
Sales

OUTPUT
Volumes, selling prices, turnover, indexes

VA/VE Team Industrial Operations Production Plant Finance Finance Purchasing Production Plant

BOM BOM, standard times Standard times BOM Standard times Volumes, purchase prices, purchasing amount, indexes Percentages on standard costs

Production Plant Human Resources Production Plant Production Plant Purchasing, Production Plant, Finance, Sales All Departments All Departments All Departments Finance Production Plant

Manpower requirements per Cost Centre Headcount per Cost Centre, hourly rates Machinery requirements per Cost Centre, indexes Variable overheads budget Variable cost of sales budget Fixed expenses budget Indirect workers, white collars, managers headcount and cost per Cost Centre Investments budget Depreciation budget Stock budget

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BUDGET – ASSUMPTIONS AND COMMITMENTS
Every member of the Steering Committee proposes assumptions and commitments, related to his field of responsibility, according to the Budget Letter

ASSUMPTIONS
Labour cost inflation Purchase prices trend

COMMITMENTS
VA/VE actions Extra material consumption Labour scrap & losses Fixed expenses

Overtime Absenteeism Warranty claims Interest rates Public grants

Investments Stock ceiling

These assumptions, discussed and approved jointly, are the bases for the Budget development
See an example in the following pages
Copyright by G. Randazzo 6

BUDGET – ASSUMPTIONS AND COMMITMENTS (1/3)
Sales (products)
The discounts are based on the contract conditions (index Selling price reductions due to VA/VE actions 651 k 98,0 )

Variable cost of sales
Exceptional transports: Royalties to be paid: Warranty: 340 k 0,26% of Sales Turnover 0,64% of Sales Turnover

Direct material consumption
Purchase price index: VA/VE new actions: Consumption above BOM 98,5 2,3 M 0,3 points less than in the previous FY

Direct labour
Hours per person: Absenteeism: Overtime per person: Wages increase: Std time reduction: Scrap & losses 1.503 h/year [FRC: 1.553 ] 9,4% [FRC: 9,5% ] 32 h/year [FRC: 64 ] 3,3% 3,2% of the std labour 9,1% ( 13,7% in the previous FY)

Variable overheads
Set on the basis of Plant Managers indication:
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3,3% of the Sales Turnover

BUDGET – ASSUMPTIONS AND COMMITMENTS (2/3)
Indirect labour
Workers Hours per person: Absenteeism: Overtime per person: Wages increase: % (Ind. Labour+Transfers)/std time: Staff Overtime per person: Salary increase: Managers Salary increase: 1.717 h/year 4,0% 122 h/year 3,3% 49,8% 53 h/year 1,3% 1,1% (mix effect) [FRC: 1.806 ] [FRC: 4,0% ] [FRC: 172 ] [FRC: 52,8% ] [FRC: 53 ]

Depreciation
Based on the existing assets and the budgeted investments

Fixed expenses
Based on the requests made by each Department.

Financial charges / incomes
Interest rate: 4,5% Dividends by Subsidiaries
Copyright by G. Randazzo

13,7 M
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BUDGET – ASSUMPTIONS AND COMMITMENTS (3/3)

Stock
Same coverage as in the previous FY

Investments
According to the BP 50,7 M

Grants
Collection 0,4 M

Funds and reserves
Reduction by 3,6 M (TFR decrease)

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REFERENCE AND BUDGET CONDITIONS

REFERENCE CONDITIONS Bill of materials, standard times, selling price list, purchase price list, hourly rates as they are the last day of the reference month (usually the month before the budgeting process starts) BUDGET CONDITIONS Same data after modifications due to budget assumptions and commitments

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SALES BUDGET

The Budget development starts with the monthly volume of sales input by Sales Dept, together with the monthly trend of their selling prices IT calculates the Budget of the Sales

Monthly volumes per PN (OE)

Monthly and yearly volumes per PN / car model / product line / customer / market / geographic area

Monthly volumes per PN (AM)

Sales Budget processing

Selling prices monthly trend and yearly average per PN / car model / product line / customer / market / geographic area

Monthly and yearly turnover per PN / car model / product line / customer / market / geographic area

Monthly selling price trend per PN

Indexes (An/An-1, An/Dn-1, Dn/Dn-1) per PN / car model / product line / customer / market / geographic area

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OE SALES BUDGET The Car Makers define the monthly volume of production by model CAR MAKER: SIMCA – BUDGET VOLUMES (Thousand of units) 1000 Vedette 6CV Aronde 8 1100 1301 TOTAL
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Jan 22 1 2 4 2 5 4 40

F 25 2 2 7 3 5 6 50
12

Mr 25 3 2 5 4 4 7 50

…. …. …. …. …. …. …. …. ….

N 15 1 1 3 1 5 4 30

D Tot. 10 250 1 30 1 20 2 100 1 50 3 50 2 100 20 600

OE SALES BUDGET The Sales Department defines the market share by car model

CAR MAKER: SIMCA – MARKET SHARE (%) Jan F Mr …. N D 50 50 50 …. 50 50 1000 0 0 0 …. 10 10 Vedette 6 CV …. 60 60 30 30 40 …. 60 60 Aronde 70 70 70 …. 70 70 8 0 0 0 …. 0 0 Others

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OE SALES BUDGET The Sales Department defines a kind of BOM by car model CAR MAKER: SIMCA – PN / CAR MODEL CHART 1000 Vedette 6 CV Aronde PN ht1 PN ht2 Heaters Qty 1 Qty 1 PN hm1 Manual HVAC Qty 1 PN hf1 Full auto HVAC Qty 1 Cooling module Compressors
Copyright by G. Randazzo

8 PN hf1 Qty 1

PN cm1 PN cm2 PN cm3 PN cm4 PN cm5 Qty 1 Qty 1 Qty 1 Qty 1 Qty 1 PN cp1 PN cp2 PN cp2 Qty 1 Qty 1 Qty 1
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OE SALES BUDGET
The Sales Department calculates the volumes by PN, multiplying car volumes by market shares by quantity per PN CAR MAKER: SIMCA – BUDGET VOLUMES (Thousand of units) Jan PN ht1 PN ht2 PN hm1 PN hf1 PN cm1 PN cm2 PN cm3 PN cm4 PN cm5 PN cp1 PN cp2
Copyright by G. Randazzo

F 2.1 2.1 2.1 2.1 2,1
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Mr 2.0 2.8 2.0 2.8 2.8

…. …. …. …. …. …. …. …. …. …. …. ….

N 7.5 1.8 0.1 1.3 7.5 0.1 0,6 1.8 0.7 0.1 1.3

D 5.0 1.2 0.1 1.3 5.0 0.1 0,6 1.2 0.7 0.1 1.3

TOT …. …. …. …. …. …. …. …. …. …. ….

11.0 12.5 12.5 1.2 1.4 1.2 1.4 1.4

11.0 12.5 12.5

OE SALES BUDGET

The Turnover at reference price is calculated as a sum of the volumes of every PN multiplied for the relevant reference price The Turnover at Budget price is calculated as a sum of the volumes of every PN multiplied for the relevant budgeted price of every month

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OE SALES BUDGET
Car volumes Reference price per PN (Pri) Market share Car “BOM”

Nr of cars to provide Budget Turnover at Reference price Σ(Pri x Qi)

Quantity by PN (Qi)

Price variation per PN Budget price per PN (PBi)
Copyright by G. Randazzo

Budget Turnover at Budget price Σ(PBi x Qi)
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Monthly data

AM SALES BUDGET
Assuming that the mix of the sales of the last 12 months remains unchanged, Sales Department refers to monthly turnover and quantities sold by PN for every Customer and Business line (Radiators, Compressors, …)
Customer Business line AAA BBB Reference period Jan y Feb y Mar y Apr y May y Jun y Jul y Aug y Sep y Obt y Nov y-1 Dec y-1 TOTAL 400 1.600 800 2.000 1.200 800 1.600 400 2.400 2.000 1.200 800 15.200

Turnover (k) PN (n) A B C D … n TOTAL

100 400 200 500 300 200 400 100 600 500 300 200 3.800 50 300 100 400 200 100 300 50 500 400 200 100 2.700 250 500 300 600 400 300 500 250 700 600 400 300 5.100 20 100 50 200 100 50 100 20 300 200 100 50 1.290 … … … … … … … … … … … … … 10 50 20 100 50 20 50 10 200 100 50 20 680 10.000 40.000 20.000 50.000 30.000 20.000 40.000 10.000 60.000 50.000 30.000 20.000 380.000

FY y+1 Budget defined in November y
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AM SALES BUDGET
So, the Budget monthly Turnover at reference price is equal to the ratio Budget Turnover at reference price Reference Turnover Multiplied by the monthly reference Turnover And the monthly volumes by PN are calculating multiplying the same ratio by the monthly volumes of the reference period
Customer Business line AAA BBB

BUDGET FY y+1 Jan y+1 Feb y+1 Mar y+1 Apr y+1 May y+1 Lun y+1 Jul y+1 Aug y+1 Sep y+1 Oct y+1 Nov y+1 Dec y+1 TOTAL Turnover (k) 480 1.920 960 2.400 1.440 960 1.920 480 2.880 2.400 1.440 960 18.240 PN (n) A B C D … n TOTAL

120 480 240 600 360 240 480 120 720 600 360 240 4.560 60 360 120 480 240 120 360 60 600 480 240 120 3.240 300 600 360 720 480 360 600 300 840 720 480 360 6.120 24 120 60 240 120 60 120 24 360 240 120 60 1.548 … … … … … … … … … … … … … 12 60 24 120 60 24 60 12 240 120 60 24 816 12.000 48.000 24.000 60.000 36.000 24.000 48.000 12.000 72.000 60.000 36.000 24.000 456.000

In this example, the Budget Turnover at reference price is 20% above the reference Turnover
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AM SALES BUDGET
MIX definition: Reference sales by Customer and Business line: Monthly Turnover Trm Total Turnover Trt = ΣTrm Monthly volumes by PN Qrmi Budget total Turnover by Customer and Business line at reference prices TBt Budget monthly volumes by PN TBt QBmi = Qrmi x Trt

Budget monthly Turnover at reference prices TBt TBm = Trm x Trt Price variation per PN
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Budget Turnover at Budget price Σ(PBi x QBi)

STANDARD VARIABLE COSTS AT REFERENCE CONDITIONS
After the completion of the Sales Budget, IT runs a routine that creates the purchasing and production plans This routine refers: ? For the on-going products, to products technical data, purchase price list, hourly rates and variable cost of sales that lie in the information system at the reference date (usually the last day of the month before the budget development) ? For the new products to products technical data, purchase prices and variable cost of sales input by Finance The result is the monthly budget of the standard variable costs (i.e. without extra material consumption, manpower scrap and losses and extraordinary transports) at reference conditions

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STANDARD VARIABLE COSTS AT BUDGET CONDITIONS

The process continues: ? Leading the technical data to the Budget conditions ? Replacing purchase prices and hourly rates at reference conditions by the ones at Budget conditions ? Adding the budgeted efficiency conditions to change from standard cost to real cost These three phases of the process are described in the following pages

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PRODUCTS TECHNICAL DATA AT BUDGET CONDITIONS
The variations are input month by month starting from the month that follows the reference one; they refer to: Direct Material ?BOM variations due to Value Engineering actions (resp: team VA/VE) ?New make / buy choices (resp: Industrial Operations)
we input, by finished good PN, the changes from “Make” to “Buy”, adding at the same time its PN to the purchasing prices list, or from “Buy” to “Make” adding the related technical data; the dates of validity allow different changes from Make to Buy and vice versa

Monthly BOM by PN Reference BOM variation by month (VA/VE team)

New Make/Buy choices by month (Industrial Oper.)

Budget of Products technical data

Labour std times per PN and Cost Centre

Std times reductions by month (Plant Manager)

Machinery std time by PN and Cost Centre

Direct Labour and machinery time ?Standard times reductions (resp: Plant Manager)
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VALUE ENGINEERING ACTIONS
We take into account both: ? The actions planned for the current fiscal year, effective after the reference month ? The actions planned and the commitments taken for the 12 months of the Budget fiscal year As, by definition, the efficiency actions cover a 12 months period, the impact of the budgeted VE actions will be as represented in the following chart
Current FY Nov y-1 Dec y-1
Actions effective within Oct y-1 Carry over actions planned from Nov y-1

Jan y

Feb y

Mr y

Apr y

May y

BUDGET FY Jun y Jul y

Aug y

Sep y

Oct y

Nov y

Dec y

Already included in the reference BOM

New actions from Jan y

We will not take into account the actions effective within the reference month, because their impact is included in the BOM of the relevant products
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VALUE ENGINEERING ACTIONS - THE REPORTING
Cost reduction Car Product Quantity produced in the FY Saving 12 m onths (LC) Saving FY (LC) (k LC) Investments APR a MAY a JUN a JUL a AUG a SEP a OCT a NOV a DEC a JAN a+1 FEB a+1 # PN Description

ACTION COMPONENT

MAR a+1

Action

per piece (LC)

Carry over
BDG ACT BDG ACT BDG ….. ….. ….. ….. ….. ACT BDG ACT BDG TOTAL CARRY OVER ACT 0 0 0,0 0 0 0 0 0 0,0 0 0 0 0 0

New proposals
BDG ACT BDG ACT BDG ACT BDG TOTAL NEW PROPOSALS ACT BDG GRAND TOTAL ACT 0 0 0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0 0 0 0 0,0 0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0 0 0 0 0 0 0 0 0,0

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MANUFACTURING PROCESS EFFICIENCY
Additional costs due to the efficiency of the production process are:
? Extra material consumption:
? ? ? ? ? ? ? ? ? ? ? ? Scrap Inventory adjustments Stock obsolescence provision Cost Centres withdrawals Shortage of materials Shortage of energy Machines or assembly lines failure Additional, extra standard time operations Extra standard time Materials screening Scrap of finished and semi-finished goods Reworking of scraped finished and semi-finished goods

Responsible: Plant Manager

? Direct labour scrap and losses:

? Extraordinary transports
? On purchasing (Variable overhead) ? On sales (Variable cost of sales)
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PURCHASE BUDGET

? It is made by Purchasing Department ? IT calculates the standard purchase volumes per PN ? Based on the reference prices, Purchasing Department can make monthly variations ? Per PN ? Per products class ? Per supplier

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PURCHASE BUDGET
Budget of products technical data

Responsible: Purchasing Department

Monthly BOM by PN Monthly volumes by row material and purchased component PN

Monthly purchase prices by row material and purchased component PN

Budget of sales

Monthly volumes per finished good PN

Purchase Budget

Monthly purchasing Budget by PN / supplier / products class / total

Monthly trend of purchase prices per supplier/products class/PN Indexes (An/An-1, An/Dn-1, Dn/Dn-1) by PN / supplier / products class / total Monthly variations of the purchase prices due to special actions

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DIRECT MATERIALS BUDGET
From Purchasing Dept.

Budget purchase prices

Monthly sales volumes Standard material BDG at reference conditions Standard material BDG at BDG conditions

Reference BOM

Material BDG at BDG conditions

Reference purchase prices

From VE team Copyright by G. Randazzo

VE actions
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Extra consumption

From Plant Manager

DIRECT MATERIALS BUDGET
It is based on the standard material consumption, plus the extra consumption Example, year based, for a production plant:

(%) (k) Standard material cost (according to BOMs) 373.377 100,0% 1,9% Extra material consumption: 7.195 Scrap 6.795 1,8% Inventory adjustments 0,0% Obsolescence provision 200 0,1% Cost Centre withdrawals 200 0,1% Others 0,0% Total Direct Material 380.572

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DIRECT LABOUR BUDGET
Direct Labour cost is made on the responsibility of the Plant Manager (+TIE) who estimates the working hours: 1. The Information System provides with volumes and labour standard times at Reference conditions 2. The Plant Manager (Labour Analysis, TIE) changes the standard times according to the budgeted efficiency actions and the different choices Make / Buy 3. The Plant Manager (Labour Analysis, TIE) adds the budgeted hours for other productions (prototypes, durable goods, …) 4. The sum of the standard times at Budget conditions multiplied by the relevant volumes and the budgeted hours for other productions are the good hours 5. The Plant Manager (Labour Analysis, TIE) evaluates scrap, losses and transfers (*) (indirect tasks performed by direct workers) 6. The total requirement for the direct manpower hours is the sum of the items 4. and 5.
(*) Scrap & Losses: all non-productive hours of presence at work paid by the Company, devoted to produce scrapped parts, reworks; it also includes waiting time due to lack of energy, materials, machine and tools failures, … Transfers: all productive hours spent by direct workers on indirect duties and task such as driving FLT for indirect activities, Maintenance not included in cycle time, Training (except training on the job), short assignments for others departments, Stock taking activities, …
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INFORMATION SYSTEM Monthly sales volumes Reference std times

DIRECT LABOUR BUDGET
LABOUR ANALYSIS

x

Std times reduction Make/Buy decisions

Good hours at reference conditions (products)

+

-

Good hours at BDG conditions (products)

Other productions

+ +

BDG of Good hours at BDG conditions

+ +
Scrap & losses

BDG of Direct Labour hours at BDG conditions

+ +

Workers paid on monthly basis
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Transfers

BDG of Direct Workers hours at BDG conditions

DIRECT LABOUR BUDGET
and HR who calculates the individual presence hours
Calendar days = x = + = x = Sundays and Saturdays (non worked) Midweek holidays Annual holidays Leave with pay Theoretical working days Daily presence hours (Average) Theoretical hours Paid hours for workers’ meetings Absenteeism hours Strike hours Paid lunch break hours Overtime Total hours per person Direct workers headcount Total Direct Workers’ hours

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DIRECT LABOUR BUDGET
and the related manpower headcount

BDG of Direct Labour hours (Good hours + S&L)

BDG of Direct Workers total hours

TIE TOOL
+
BDG of Direct Workers headcount

Σ
Transfers BDG of hours per person

÷.

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DIRECT LABOUR BUDGET

? The total cost of Direct Workers is calculated by HR as a sum of the budgeted annual cost of every person ? The hourly rate is calculated by HR dividing the total Direct Workers cost by the budgeted working hours ? The Direct Labour cost is calculated by HR multiplying the hourly rate by the budgeted Direct Labour hours ? The average cost per person is calculated by HR dividing the total Direct Workers cost by the Direct Workers headcount (average)

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INFORMATION SYSTEM Monthly sales volumes Reference std times

DIRECT LABOUR BUDGET
LABOUR ANALYSIS

HR BDG hourly rates BDG cost per person (average)

x

Std times reduction Make/Buy decisions

BDG of Direct Labour cost
x

Good hours at reference conditions (products)

+

-

÷.
Total direct workers cost

÷.

Good hours at BDG conditions (products)

Cost of every Employee

Σ

Other productions

+ + +

BDG of Direct Labour hours at BDG conditions

BDG of Direct Workers headcount

Scrap & losses Workers paid on monthly basis
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+ +

Transfers
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BDG of Direct Workers hours at BDG conditions

÷.

Budget hours per person

DIRECT LABOUR BUDGET HOURLY RATE CALCULATION

The hourly rate is calculated as an average on yearly basis It is the same for all the Cost Centres employing Direct Workers It can be revised quarterly (on yearly basis); possible changes will not affect the closed periods

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DIRECT LABOUR BUDGET
Example, year based
Hours per Total time Headcount person (h) (h/year) 1.503 1.503 1.503 1.503 1.503 (FTE) 1.241 112 1.353 281 1.634 Direct Workers cost (k) 42.829 3.881 46.710 9.690 56.399 Cost per person (k/year) 34,52 34,52 34,52 34,52 34,52 Hourly rate (/h) 22,97 22,97 22,97 22,97 22,97 Direct Indirect labour cost labour cost (k) 42.829 3.881 46.710 9.690 (k)

DIRECT LABOUR
Good production Scrap and losses Total Direct Labour Transfers Total Direct Workers 1.864.557 168.947 2.033.504 421.843 2.455.347

Workers paid on monthly basis
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DIRECT LABOUR BUDGET
Budget headcount = Budget-base Forecast headcount HR No corrections (overtime, temporary lay-off, recruitments) are needed
Transition from temporary work to fixed-term or open-ended contract can be budgeted

Budget headcount > Budget-base Forecast headcount HR Increases the overtime hours (to offset peaks) Increases the headcount of Agency or fixed-term workers (according to law, in case of non-structural increase) Recruits permanent workers (in case of structural increase)
Transition from temporary work to fixed-term or open-ended contract can be budgeted

Budget headcount < Budget-base Forecast headcount HR Reduces the overtime hours Reduces the Agency (if any) Reduces the fixed-term contracts (if any) Budgets the use of temporary lay-off and flexitime

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BUDGET OF DIRECT LABOUR COST

Budget headcount = Budget-base Forecast headcount HR Calculates the cost as a sum of the current individual cost plus an estimated variation (due to collective contracts, individual raise, variable compensation variation, transition from temporary work to fixed-term or open-ended contract , …) Budget headcount > Budget-base Forecast headcount HR Calculates the cost as described above, plus the cost of more overtime (to offset peaks) and new workers (Agency, or fixed term, or permanent workers) Budget headcount < Budget-base Forecast headcount HR Calculates the cost as described above, deducting the less cost due to the overtime and headcount reduction and the impact of the temporary lay-off

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BUDGET - MACHINERY

? It is made on the responsibility of the Plant Manager ? IT provides with volumes and technical data (standard machinery time per PN and Cost Centre) ? The Plant Manager adds information on scrap and machines and installations availability per month and Cost Centre ? The results of the process are the requirements for machinery per month and Cost Centre, the Utilization rate and the RGI

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BUDGET - MACHINERY
Budget of products technical data

Machinery standard time per month, PN and Cost Centre

Machinery requirements per month as an yearly average and per Cost Centre

Budget of sales

Monthly volumes per PN

Budget of machinery

Scrap per month and Cost Centre (Plant Manager)

Utilization rate and RGI

Machinery availability per month and Cost Centre (Plant Manager)

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BUDGET – VARIABLE OVERHEADS
This budget is defined by the Plant Manager The list of the main items and an example of budget are the following

Stock collecting auxiliary material 2.641 Auxiliary materials not in stock 611 Consumable material not in stock 285 Consumable tooling 111 Exceptional transports on purchasing 500 Transports on purchasing 2.037 Custom duties and expenses 2.102 Electricity 6.323 Gas and other fluids 3.015 Water 173 Industrial waste disposal 827 TOTAL 18.625
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BUDGET – VARIABLE COST OF SALES
? EXTRAORDINARY TRANSPORTS ON SALES (by air, or ship or van, due to quality problems or delays in delivery) are defined by the Plant Manager, supported by the Controller, on the basis of historical data and the planning of specific events (SOPs, introduction of new technologies, …) and improvements ? CONTRACTUAL TRANSPORTS ON SALES are calculated by Finance, supported by Purchasing Dept., on the basis of the contractual conditions of delivery (transports, proximity warehouses, ...) and the related costs ? COMMISSIONS are calculated by Sales Dept on the basis of the budgeted AM sales of each Sales Agent and the contractual percent of commission ? ROYALTIES TO BE PAID are calculated by the Controller on the basis of the contractual percentages applied to the sales of the relevant products ? WARRANTY PROVISION are calculated by the Controller, supported by Sales and Quality Depts, as a percentages of the sales by customer, on the basis of the historical data, with adjustments due to specific events, if any
See an example in the following page
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BUDGET – VARIABLE COST OF SALES

Exceptional transports on sales Transports on sales Commissions Royalties to be paid Warranty accruals TOTAL

340 3.647 0 1.462 3.616 9.065

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BUDGET – FIXED COSTS The three classes of fixed costs are, by nature: Labour ? Indirect Workers (+ transfers) ? Staff ? Managers Depreciation Expenses

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BUDGET – INDIRECT WORKERS
It is made on the responsibility of the Plant Manager (for the auxiliary cost centres of the manufacturing plant, maintenance included), R&D Manager (for prototypes production and testing) and HR (for general services and total labour cost) ? Plant Manager, R&D Manager and HR Manager define the budget of the indirect manpower as number of employees and timing ? The related manpower hours are calculated by HR according to the same rules applied to the total direct labour cost calculation ? The related labour cost is calculated by HR according to the same rules applied to the total Direct Labour cost calculation ? The average cost per person is calculated by HR dividing the total Indirect Labour cost by the total Indirect Workers headcount ? The cost per Department (per Cost Centre inside every Department) is calculated multiplying the relevant headcount by the average cost per person ? An hourly rate is calculated by HR according to the same rules applied to the direct labour The cost of the transfers must be added to the cost of the Indirect Workers operating in the Manufacturing area (direct workers’ hourly rate basis)

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Workers paid on monthly basis

INDIRECT WORKERS’ BUDGET
HR

Headcount for maintenance, logistics, … (Plant Manager)

x
BDG of Plant Indirect Workers cost

+ +

BDG of Plant Indirect Labour cost

Headcount for prototypes production and testing (R&D Manager)

Transfers cost

x
BDG of R&D Indirect Labour cost

BDG cost per person (average)

Headcount for general services (HR Manager)

x
BDG of HR Indirect Labour cost

÷.
Total indirect workers cost

HEADS OF DEPARTMENTS
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+

Total Indirect Workers headcount
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Cost of every Employee

Σ

BUDGET – STAFF

It is made on the responsibility of heads of the different Departments and HR ? The heads of the Departments (HOD) define the budget of their Department as number of employees and timing ? The total requirement for the Staff is the sum of all these requests ? The related labour cost is calculated by HR according to the same rules applied to the total Direct Labour cost calculation ? The average cost per person is calculated by HR dividing the total Staff cost by the total Staff headcount ? The cost per Department (per Cost Centre inside every Department) is calculated multiplying the relevant headcount by the average cost per person

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HEADS OF DEPARTMENTS

STAFF BUDGET
HR

BDG of Dept. A Staff headcount (Dept. A HOD)

x
BDG of Department A Staff cost

…..

x
….. BDG cost per person (average)

BDG of Dept. N Staff headcount (Dept. N HOD)

x
BDG of Department N Staff cost Total Staff headcount Cost of every Employee

÷.
Total Staff cost

+

Σ

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BUDGET – MANAGERS
It is made on the responsibility of heads of the different Departments and HR ? The heads of the Departments define the budget of their Department as number of employees and timing ? The total requirement for the Managers is the sum of all these requests ? The related labour cost is calculated by HR according to the same rules applied to the total Direct Labour cost calculation ? The average cost per person is calculated by HR dividing the total Managers cost by the total Managers headcount ? The cost per Department (per Cost Centre inside every Department) is calculated multiplying the relevant headcount by the average cost per person

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HEADS OF DEPARTMENTS BDG of Dept. A Managers headcount (Dept. A HOD)

MANAGERS’ BUDGET
HR

x
BDG of Department A Managers cost

…..

x
…..

BDG of Dept. N Managers headcount (Dept. N HOD)

BDG cost per person (average)

x
BDG of Department N Managers cost Total Managers headcount Cost of every Employee

÷.
Total Managers cost

+

Σ

Copyright by G. Randazzo

52

BUDGET – DEPRECIATION The depreciation is calculated by Finance applying the relevant rates to both, the already existing and the budgeted assets

Copyright by G. Randazzo

53

BUDGET – FIXED EXPENSES The expenses are defined on the basis of the requests made by the Managers, according to the guidelines defined by the Steering Committee in compliance with the Budget Letter

See an example of fixed cost of Production and Structure cost in the following page
Copyright by G. Randazzo 54

BUDGET – FIXED COSTS OF PRODUCTION
PRODUCTION INDIRECT LABOUR
Transfer from direct labour (FTE) - Maintenance - Industrial Operations - Logistics - Purchasing - Methods / Labour analysis - Production - Quality 0 1 0 2 0 8 2 13 5 50 30 20 5 105 39 254

Headcount (average)
M Staff W 281 125 5 71 0 0 22 72 575 TOT

Cost per person (k)
M Staff W 34,5 188,7 188,7 188,7 188,7 188,7 188,7 188,7 58,4 58,4 58,4 58,4 58,4 58,4 58,4 39,4 39,4 39,4 39,4 39,4 39,4 39,4 0

M

Labour cost (k) Staff W TOT
9690 292 4917 197 0 0 868

281 130 56 101 22 5 135 112 842

9.690 5.209 3.307 4.568 1.546 292 8.527 5.426 38.564

189 2921 377 1169 0 292 1510 6149

0 1767 2800

330 2249 2846 2406 14840 21317

Total FIXED PRODUCTION EXPENSES (k) Stock collecting maintenance material, stationery, … 1.846 Consumable material not in stock 298 Consumable tooling 44 Health materials 39 Maintenance materials not in stock 1.164 Heating 200 Cleaning 963 Employees training 400 Canteen 1.300 Technical advice 255 Others 758 Internal transports 1.135 Employees transport 200 Travel expenses 935 Maintenance expenses 2.107 Industrial insurance 40 Employees insurance 80 Other insurances 395 Industrial buildings renting 282 Equipment renting 1.225 Entertainment expenses 12 TOTAL 13.678
Copyright by G. Randazzo 55

DEPRECIATION (k)

29.677

BUDGET – STRUCTURE COSTS
Headcount (average)
M - Direction - R&D - Sales dpt - Finance - ITS - HR and General services 4 11 4 3 1 3 26 Staff 4 116 23 21 12 19 195 W 0 25 0 0 3 22 50 TOT

Cost per person (k)
M 188,7 188,7 188,7 188,7 188,7 188,7 Staff 58,4 58,4 58,4 58,4 58,4 58,4 W 39,4 39,4 39,4 39,4 39,4 39,4

M
755 2.029 755 566 189 566

Labour cost (k) Staff W TOT
234 6.792 1.344 1.227 701 1.110 0 986 0 0 118 868 1972

Total structure
STRUCTURE EXPENSES (k) Stationery Equipments rent Cars rent, maintenance, insurance Buildings rent Communications (phones, post, ...) Travelling expenses IT - SW (maintenance and others) IT - HW (maintenance and others) Advertising cost Auditing Consultancy External drawings Prototypes and tests Training Social activities Recruitment expenses Others TOTAL
Copyright by G. Randazzo

8 152 27 24 16 44 271

4859 11408

989 9.807 2.099 1.793 1.008 2.544 18.239

Sales

R&D 1.392

355

738 230 245

326 1.923 3.050 700

681

8.278

G&A TOTAL 200 200 410 1.802 527 527 235 235 410 410 658 1.751 255 485 544 789 203 529 254 254 2.147 4.070 3.050 700 700 700 473 473 150 150 182 182 7.348 16.307
56

DEPRECIATION (k)

Sales 0

R&D 1.012

G&A 1.129

TOTAL 2.141

BUDGET – FIXED COSTS (SUMMARY in k)
TOTAL FIXED COSTS OF PRODUCTION of which: - Labour - Depreciation - Expenses SALES Dpt of which: - Labour - Depreciation - Expenses R&D of which: - Labour - Depreciation - Expenses G&A of which: - Labour - Depreciation - Expenses TOTAL FIXED COSTS of which: - Labour - Depreciation - Expenses
Copyright by G. Randazzo 57

81.919 38.564 29.677 13.678 2.780 2.099 0 681 19.097 9.807 1.012 8.278 14.811 6.334 1.129 7.348 118.606 56.803 31.818 29.985

0

BUDGET – OTHER OPERATING EXPENSES AND INCOMES (k) This budget is defined by the CFO The list of the main items and an example of budget are the following
Other operating expenses Indirect taxes Fines and penalties Capital losses Out of period expenses Membership fees Other expenses Factoring fees Debt losses Provision for doubtfull debts Devaluation of participations Provisions for other specific risk reserves Total Other operating incomes Expenses recovery Scrap sales Capital grants release Royalties to be received Compensation for damages Capital gains Out of period incomes Application of funds Total Expenses - incomes
Copyright by G. Randazzo 58

291 580 81 188 520

1.660 22.689 3.462 6.046 177

32.373 -30.713

BUDGET – FINANCIAL AND EXTRAORDINARY EXPENSES, TAXES

Financial expenses Are calculated by the CFO on a monthly basis, applying the budgeted interest rate on the average of the Net Financial Position of two months in succession Extraordinary expenses They are mainly redundancy costs Taxes Are calculated by the CFO, applying the current percentage to the PBT and taking into account the impact of the deferred taxes, if any

Copyright by G. Randazzo

59

BUDGET PROFIT & LOSS

P&L (k)
Sales turnover (products) Variable cost of sales Extraordinary transports Total variable cost of sales Standard material cost Scrap, inventory adj., obsol. provision, others
% extra consumption on standard material cost

BDG y 564.635 8.725 340 9.065 373.377 7.195
1,9% 100% 1,5% 0,1% 1,6% 66,1% 1,3% 67,4% 7,6% 0,7% 8,3% 3,3% 79,0%

Total direct material

380.572 42.829 3.881
9,1%

See an example near hear

Standard direct labour cost Scrap and losses
% scrap and losses on standard labour cost

Total direct labour Variable overheads Variable costs of production (products) Contribution margin (products) Indirect labour + staff Depreciation Fixed expenses Total fixed cost of production Gross profit Sales dpt R&D G&A Total structure Other operating expenses / (incomes) Operating result Financial charges / (incomes) Ordinary income Extraordinary charges / (incomes) Profit before taxes Taxes Net profit

46.710 18.625 445.906 38.564 29.677 13.678 81.919 27.744 2.780 19.097 14.811 36.687 -30.713 21.771 -9.965 31.736 31.736 4.043 27.692

109.663 19,4%
6,8% 5,3% 2,4% 14,5% 4,9% 0,5% 3,4% 2,6% 6,5% -5,4% 3,9% -1,8% 5,6% 0,0% 5,6% 0,7% 4,9%

Copyright by G. Randazzo

60

BUDGET – BALANCE SHEET
The different items are defined according to these criteria: – Trade receivable: weighted average on the basis of the contractual payment conditions of the different customers, plus the overdue estimated by the CFO and the Sales Manager – Stock: based on the Logistics commitment on the coverage, validated by the Plant Manager – Trade payables: weighted average on the basis of the contractual payment conditions of the different suppliers (materials, components, industrial goods and services) – Fixed assets: consistently with the Investments Plan and the Depreciation as calculated in the P&L – Funds and reserves: consistently with provisions and applications budgeted in the P&L – Share capital: steady, except of increases announced by the shareholders or abatements because of losses – Reserve: based on the previous year closing, the previous year Net Profit and the dividends policy decided by the shareholders – Net Profit: according to the P&L – Net Financial Position: as a difference between the Net Invested Capital and the Equity
See in the following sheet the Balance sheet corresponding to the P&L already shown
Copyright by G. Randazzo 61

TRADE RECEIVABLES BUDGET
Payment conditions by Customer (days)

di
VAT by Customer (Yes / No) I BUDGET P&L Accumulate Sales by Customer at the month m Fi Doubtful debt reserve variations (provisions and applications)

Turnover at the month m CCm Rm = × 30m Σi[ Fim× (1+I)] Contractual trade receivables at the month m Fim CCm = Σi × di × (1+I) 30m Overdue at the month m Write-off at the month m

+ Σ Σ

+

Gross trade receivables at the month m Doubtful debt reserve at the month m

±

+

- Σ

+

BUDGET BASE FRC Final value of Doubtful debt reserve
62

?S

Turnover at the month m CNm Rm = × 30m Σi[ Fim× (1+I)]

Net trade receivables at the month m

Copyright by G. Randazzo

FROM BUDGET P&L Monthly Sales Monthly Industrial Costs

STOCK BUDGET
FROM LOGISTICS Materials and WIP coverage on accumulated Sales (or Industrial Cost) (days)

Materials and WIP stock at month m Fm CIm Gm = × d1 (or Gm = × d1) 30m 30m

Obsolescence Provisions

?S

d1
Finished Goods coverage on accumulated Sales (days)

Finished Goods stock at month m Fm FGm = × d2 30m
LOGISTICS AND MAINTENANCE Stock monthly value of auxiliary materials, maintenance materials, … M

d2
FROM COST ENGINEER Monthly value of Tooling stock

Σ Gross Stock at month m

A
Monthly value of Tooling stock reserve for price < cost

±

±
Σ

SA
FROM BUDGET BASE FORECAST Final value of doubtful stock reserve
Copyright by G. Randazzo 63

+

Doubtful stock reserve at month m

- Σ

+

Net Stock at month m

BUDGET BALANCE SHEET

Balance Sheet
Gross trade receivables (Doubtfull debt reserve) NET TRADE RECEIVABLE Raw materials Viaggiante Finished goods Tooling (Stock obsolescence reserve) NET STOCK TRADE PAYABLES OTHER RECEIVABLES OTHER PAYABLES WORKING CAPITAL Opening gross tangible fixed assets Investments (Disinvestments) Gross tangible fixed assets final (Opening depreciation reserve) (Depreciation) Depreciation reserve utilization (Final depreciation reserve) NET TANGIBLE FIXED ASSETS Opening gross intangible and financial fixed assets Investments (Disinvestments) Gross intangible and financial fixed assets final (Opening depreciation reserve) (Depreciation) Depreciation reserve utilization (Final depreciation reserve) NET INTANG. AND FIN. FIXED ASSETS Opening investments in subsidiary companies Investments (Divestments) Final investments in subsidiary companies TOTAL NET FIXED ASSETS FUNDS AND PROVISIONS NET INVESTED CAPITAL NET FINANCIAL POSITION Share capital Reserves Net Profit NET EQUITY

BDG y k days 246.302 -1.609 244.693 26.799 9.966 11.796 3.495 -4.630 47.426 192.556 40.500 50.000 90.063 397.151 49.222 -1.541 444.832 -263.094 -31.518 380 -294.232 150.600 136.304 1.500 137.804 -132.743 -300 -133.043 4.762 67.021
57,4 157,0 156,0 17,1 7,5

30,2 122,8

67.021 222.384 24.530 287.917 80.219 170.900 9.105 27.692 207.698

Copyright by G. Randazzo

64

They are, except explained variations, the investments planned in the Business Plan
INVESTMENTS PLAN AUTHOR. ACT PY FRC y-1 BDG y BP y+1 BP y+2 TOT

BUDGET – INVESTMENTS
R&D

INVESTMENTS PLAN AUTHOR. ACT PY FRC y-1 BDG y BP y+1 BP y+2 TOT

Product
On-going projects 06PO04 HVAC AA 06PO34 Heater and pipes for AB 06PO39 Radiator and Condenser AC Total on-going Projects to be approved HVAC New AD HVAC AE FL (Fase Lifting) HVAC AF HVAC AG HVAC AH HVAC AI Cooling Module New AD Cooling Module New AJ Cooling Module New AK Cooling Module AG VA/VE Total to be approved TOTAL PRODUCT 3.468 263 1.600 2.257 985 337 140 143 450 733 86 120 813 1.019 606 650 1.885 1.700 1.800 1.899 830 1.101 444 122 1.200 7.301 8.034 255 1.230 1.200 4.991 6.010 4.000

On-going projects 226 Total on-going 263 Projects to be approved 1.263 New CAD and simulation systems 1.752 Total to be approved
4.606 650 1.885 1.700 1.800 1.899 830 1.101 699 1.352 3.600 20.122 21.874

5.500

1.500 1.500 1.500

2.000 2.000 2.000

2.000 2.000 2.000

5.500 5.500 5.500

4.606 650 1.885 1.700 1.800 1.899 830 1.101 699 1.352 3.600

TOTAL R&D

Quality
On-going projects Total on-going Projects to be approved Laboratories development Total to be approved TOTAL QUALITY 1.390 390 390 390 500 500 500 500 500 500 1.390 1.390 1.390

1.200 7.830 7.830

ITS
On-going projects Total on-going 1.300 500 500 500 400 400 400 400 400 400 1.300 1.300 1.300

Process
On-going projects 06AV18 Production capacity increase - Radiators 06AV19 Production capacity increase - Heaters 06AV20 Production capacity increase - Condensers 07AV06 Industrial Plan - Phase 2 07AV12 Old injection machines replacement 07PO04 Pipes and connectors installation Total on-going Projects to be approved Old injection machines replacement Verticalizzazione - Pressa + Isola ventola assiale Injection capacity increase Heat exchanger production capacity increase Water pipes installation Industrial Plan- Phase 3 Total to be approved TOTAL PROCESS 10.463 5.848 17.957 4.955 5.382 1.926 6.292 12.997 2.474 2.700 4.171 4.032 4.960 1.665 2.682 1.926 19.436 780 480 1.730 150 14.510 17.650 37.086 4.000 2.740 1.655 150 6.250 14.795 14.795 4.000

Projects to be approved HW and SW updating 4.171 Total to be approved 4.032 TOTAL ITS 4.960 1.665 2.682 ENVIRONMENT PROTECTION On-going projects 1.926 19.436 Total on-going Projects to be approved Environment and safety 8.780 480 Total to be approved 4.470 TOTAL ENVIRONMENT PROTECTION 1.655 1.594 Petty investments 25.010 On-going projects 41.989 07AV01 Plant petty investments 61.425 Total on-going Projects to be approved Total to be approved

8.780 480 4.470 1.655 1.594 25.010

1.316 1.316 1.316

1.400 1.400 1.400

1.400 1.400 1.400

4.116 4.116 4.116

1.294 4.250 9.544 9.544

750

650

100 100

100 100

Buildings
On-going projects 06PO33 Plant extention Total on-going Projects to be approved Canteen and laboratories refurbishment Total to be approved TOTAL BUILDINGS 296 4.353 9.233 296 296 1.500 1.500 1.796

296 TOTAL PETTY INVESTMENTS 296

100

100

TOTAL ON-GOING PROJECTS
1.500 1.500 1.500 1.796

20.565

1.019

21.584

TOTAL PROJECTS TO BE APPROVED GRAND TOTAL

30.157 24.086 21.674 75.917 50.722 25.105 21.674 97.501

Copyright by G. Randazzo

65

BUDGET – HEADCOUNT
It is the summary of the Direct and Indirect Workers, White Collars and Managers, per period and department, consistent with the P&L:
Jan-Apr (average) M Staff W TOT Direct labour
of which transfer 1.462 227

May-Aug (average) M Staff W TOT
1.881 360

Sep-Dec (average) M Staff W TOT
1.558 257

Jan-Dec (average) M Staff W TOT
1.634 281

1.462
227

1.881
360

1.558
257

1.634
281

PRODUCTION INDIRECT LABOUR - Maintenance - Industrial Operations - Logistics - Purchasing - Methods / Labour analysis - Production - Quality Total STRUCTURE - Direction - R&D - Sales dpt - Finance - ITS - HR and General services Total structure TOTAL OPERATING

5 1 2 8 2 13 50 30 20 5 105 39 254

125 5 71

22 72 295

130 56 101 22 5 135 113 562 8 152 27 24 16 44 271 2.295

5 1 2 8 2 13 50 30 20 5 105 39 254

125 5 70

22 72 294

130 56 100 22 5 135 113 561 8 152 27 24 16 44 271 2.713

5 1 2 8 2 13 50 30 20 5 105 39 254

125 5 70

22 72 294

130 56 100 22 5 135 113 561 8 152 27 24 16 44 271 2.390

5 1 2 8 2 13 50 30 20 5 105 39 254

125 5 70

22 72 294

130 56 100 22 5 135 113 561 8 152 27 24 16 44 271 2.466

4 11 4 3 1 3 26 39

4 116 23 21 12 19 195 449 3 22 50 1.807 25

4 11 4 3 1 3 26 39

4 116 23 21 12 19 195 449 3 22 50 2.225 25

4 11 4 3 1 3 26 39

4 116 23 21 12 19 195 449 3 22 50 1.902 25

4 11 4 3 1 3 26 39

4 116 23 21 12 19 195 449 3 22 50 1.978 25

Copyright by G. Randazzo

66

BUDGET FINANCIAL REPORT
It is the summary of the cash flows

April Operating Result Depreciation Operating self financing Working Capital variations
Trade receivables Net stock Trade payables Other receivables Other payables

August 14.059 20.454 34.514 -16.478
-18.973 -4.726 18.221 -7.000 -4.000

December 21.771 31.818 53.589 -19.231
-19.892 -5.726 22.075 -9.689 -6.000

5.687 11.364 17.051 -13.223
-18.733 -4.206 16.216 -4.500 -2.000

Investments Divestments (book value) Funds and Provisions variation Operating cash flow Extraordinary incomes / (charges) Financial incomes / (charges) Taxes Free Cash Flow Capital increase Dividends paid ( - ) Net Cash Flow Financial Position - initial (I)
Financial assets - Cash/Banks/Others (-) Financial assets - Intercompany loans (-) Financial liabilities -Banks/Others Financial liabilities - Intercompany loans

-16.900 0 -1.500 -14.572 0 -1.245 -1.333 -17.150 0 0 -17.150 53.666

-33.800 0 -2.700 -18.464 0 11.210 -2.695 -9.949 0 -13.672 -23.622 53.666
0 0 37.866 15.800

-50.722 1.161 -3.600 -18.802 0 9.965 -4.043 -12.881 0 -13.672 -26.553 53.666
0 0 37.866 15.800

37.866 15.800

Financial Position - Final (F)
Financial assets - Cash/Banks/Others (-) Financial assets - Intercompany loans (-) Financial liabilities -Banks/Others Financial liabilities - Intercompany loans

70.815

77.287
0 0 61.487 15.800

80.218
0 0 64.418 15.800

55.015 15.800

Net cash flow (I-F)

-17.150

-23.622

-26.553

Copyright by G. Randazzo

67

BUDGET HIGHLIGHTS
This is the summary of the Budget, including the main items of P&L and Balance sheet, investments, headcount, operating cash flow and indicators(ROS, Capital Turnover, ROI)

FRC y-1

M

BUDGET y YTD Jan-Apr May-Aug Sep-Dec 182,2 37,7 20,7% 28,6 6,3 6,8 -9,6 5,7 1,2 4,4 0,0 4,4 1,3 3,1 84,1 55,4 267,6 70,8 2.295 1.462 16,9 0,2 11,4 3,1% 2,1% -14,6 368,5 72,6 19,7% 53,0 11,3 12,3 -18,0 14,1 -11,2 25,3 0,0 25,3 2,7 22,6 87,3 56,9 279,9 77,3 2.508 1.675 33,8 0,2 20,5 3,8% 5,0% -18,5 564,6 109,7 19,4% 81,9 17,6 19,1 -30,7 21,8 -10,0 31,7 0,0 31,7 4,0 27,7 90,1 57,4 287,9 80,2 2,0 2.466 1.633 50,7 0,4 31,8 3,9% 7,6% -18,8

497,0 SALES TURNOVER 91,3 Contribution margin 18,4% cm% 74,9 17,0 18,5 -35,0 15,9 Fixed cost of production SG&A R&D Other operating expenses / (incomes) OPERATING RESULT

-5,5 Financial charges / (incomes) 21,3 ORDINARY INCOMES 0,0 Extraordinary costs / (incomes) 21,3 PBT 3,6 Taxes 17,7 NET PROFIT 70,8 WORKING CAPITAL 51,3 coverage (days) 247,3 NET INVESTED CAPITAL 53,7 NET FINANCIAL POSITION 2,0 Capital turnover 365 HEADCOUNT (Average of Operating) 177 of which Direct Workers 54,9 INVESTMENTS 1,0 GRANTS 28,7 DEPRECIATION 3,2% ROS 6,4% ROI -0,2 Operating Cash Flow

Copyright by G. Randazzo

68

11.1 BUDGET INDEXES

Copyright by G. Randazzo

69

BUDGET – SELLING PRICE INDEXES
? ? They are calculated at the end of every month We calculate 3 indexes:
1. Average YTD compared to the final value of the reference month 2. Final at the end of the month compared to the final value of the reference month 3. Average YTD compared to the average of the same period of the previous FY

?

Reference:
– We use as a reference the price list expected to be in force the last day of the current FY, according to the Forecast Budget – base – For new products, whose price will not be defined the last day of the current FY, the reference is the contractual price at the SOP

Copyright by G. Randazzo

70

BUDGET – SELLING PRICE INDEX
PN A B … i … N Total Refer. Price SAr SBr … Sir … SNr Budget month m Selling Qty Turnover price QAm QBm … Qim … QNm TAm TBm … Tim … TNm Tm = Σ iTim SAm SBm … Sim … SNm

Sr = reference price; Qm = budgeted sold quantity YTD à at the month m; Tm = budgeted Turnover YTD at the month m; Sm = average selling price YTD at the month m (Sim = Tim / Qim )
Copyright by G. Randazzo 71

BUDGET- SELLING PRICE INDEXES 1. Average YTD at the month m referred to the final value S of the reference month:
r

Σ [(S – S ) / S ] x T
i im ir ir

im

A / S = 100 x
m r

1+ ΣT
i im

2 Final at the end of the month m referred to the final value of the reference month: Σ [(S – S ) / S ] x T
i ifm ir ir im

S / S = 100 x
m r

1+ ΣT
i im

3. Average YTD compared to the average of the same period of the previous year: A /A =A /S x S /S x S /A
my m(y-1) my r(y-1) r(y-1) r(y-2) r(y-2) m(y-1)

The selling price variations due to VE actions are not included in the indexes calculation
Copyright by G. Randazzo 72

BUDGET- INDEX (Budget Average / Final PY) - EXAMPLE

PN A B C Total

Refer. Price () 100 120 90

Budget month m Turnover Selling Qty (k) price 200.000 300.000 610.000 19.400 35.250 54.290 108.940 97,0 117,5 89,0

Σ [(S – S ) / S ] x T
i im ir ir

im

A / S = 100 x 1 +
m r

ΣT
i

im

A B C Total =

Sim-Sir (Sim-Sir)/Sir (Sim-Sir)/SirxTim -3,00 -0,03 -582.000 -2,50 -0,02 -734.375 -1,00 -0,01 -603.222 -1.919.597 Σ (Sim-Sir)/SirxTim

(Σ (Sim-Sir)/SirxTim)/Tm 1+(Σ (Sim-Sir)/SirxTim)/Tm 100x(1+(Σ (Sim -Sir )/Sir xTim )/Tm )

-0,018 0,982 98,2

Copyright by G. Randazzo

73

BUDGET- INDEX (Budget Final / Final PY) - EXAMPLE

PN

Refer. Price () 100 120 90

Budget month m Final Turnover Selling Qty (k) price 200.000 300.000 610.000 19.400 34.920 53.253 107.573 97,0 116,4 87,3

Σ [(S – S ) / S ] x T
i ifm ir ir

im

S / S = 100 x 1 +
m r

ΣT
i

im

A B C Total

A B C Total =

Sifm-Sir (Sifm-Sir)/Sir (Sifm-Sir)/SirxTim -3,00 -0,03 -582.000 -3,60 -0,03 -1.047.600 -2,70 -0,03 -1.597.590 -3.227.190 Σ (Sifm-Sir)/SirxTim

(Σ (Sifm-Sir)/SirxTim)/Tm 1+(Σ (Sifm-Sir)/SirxTim)/Tm 100x(1+(Σ (Sifm -Sir )/Sir xTim )/Tm )

-0,030 0,970 97,0

Copyright by G. Randazzo

74

BUDGET- INDEX (Budget Average / PY Average) - EXAMPLE A /A =A /S x S /S x S /A
my m(y-1) my r(y-1) r(y-1) r(y-2) r(y-2) m(y-1)

AB AF
100

=

AB Mr-1

x

Mr-2 AF

x

Mr-1 Mr-2

= 95,9

FRC

BDG

AB Mr-1 Mr-2

= 98,2

97,3

95 98,2

100

AF
97

=

1 97,3
95

Mr-1 Mr-2

=

Mr -2

Mr -1

Mr 0

Copyright by G. Randazzo

75

SELLING PRICE INDICATORS

IN GENERAL SELLING PRICES CAN BE NAMED IN A CURRENCY OTHER THAN THE ACCOUNTING ONE In this case we must separate the impact of the price list variation and the exchange rates variations

We do not consider in this course the case of the selling prices named in a currency different from the accounting one
Copyright by G. Randazzo 76

PURCHASE PRICES INDICATORS
The method is the same adopted for Selling Price indicators:

?

3 types of indicators are monthly calculated: – Average of the period vs final value of reference month – Final value of the period vs final value of reference month – Average of the period vs the average of the same period of the previous year ? Reference definition: – We assume as a reference the price list expected to be in force the last day of the current FY, according to the Forecast Budget – base – For new materials and components, whose price will not be defined the last day of the current FY, the reference is the expected contractual price at the SOP

Copyright by G. Randazzo

77

BUDGET – PURCHASE PRICE INDEX
Budget month m PN Refer. Price Par Pbr … Pir … Pnr Qty Qam Qbm … Qim … Qnm Material Purchase purchase price Xam Xbm … Xim … Xnm Xm = Σ iXim Pam Pbm … Pim … Pnm

a b … i … n Total

Pr = reference price; Qm = budgeted purchased quantity YTD at the month m; Xm = budgeted material purchasing YTD at the month m; Pm = average purchase price YTD at the month m (Pim = Xim / Qim )
Copyright by G. Randazzo 78

BUDGET- PURCHASE PRICE INDEX ? Average of the period at month m vs final value of the reference month: Σ [(P – P ) / P ] x X
i im ir ir im

A / P = 100 x
m r

1+ ΣX
i im

? Final value of the period vs final value of the reference month: Σ [(P – P ) / P ] x X
i ifm ir ir im

P / P = 100 x
m r

1+ ΣX
i im

?

Average of the period vs average of the same period of the previous year: A /A =M /P x P /P x P /M
mn m(n-1) mn rn-1 r(n-1) r(n-2) r(n-2) m(n-1)

Copyright by G. Randazzo

79

PURCHASE PRICE INDICATORS

IN GENERAL PURCHASE PRICES CAN BE NAMED IN A CURRENCY OTHER THAN THE ACCOUNTING ONE In this case we must separate the impact of the price list variation and the exchange rates variations

We do not consider in this course the case of the purchase prices named in a currency different from the accounting one
Copyright by G. Randazzo 80


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PRINT11-期间处理 PRINT12-项目实施工具 PRINT14-业务...planning process produced consistent and realistic ...budget, or used as more of a general guideline...
Chapter 22 Practice Materials
Budgeting supports the planning process by encouraging all of the following ...DIF: Easy OBJ: 22-02 NAT: AACSB Analytic | IMA-Budget Preparation 11. ...
简历模板25
Software development lifecycle and process management. Project planning, budget ...Canada Principal Engineer 1999.11 - 2001.02: Famous Technologies China Softwar...
英文简历模板3《找工作必备...
Software development lifecycle and process management. Project planning, budget ...Canada Principal Engineer 1999.11 - 2001.02: Famous Technologies China Softwar...
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