Unit 14-Managing Financial Resources in HS-Level 3
Unit 14-Managing Financial Resources in HS-Level 3
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Finance is very crucial part of business and therefore managing is the important function. Functioning of a care home has several activities involved and costs associated with them. This report closely deals with costs to be undertaken and its broad classification. Further budgeting is applied and its importance are explained in decision making. It demonstrates the budgeting in planning expenditures and managing and controlling them to provide effective services and maintaining existing customers. Planning is praised in management accounting and decision making. This report further creates the understanding the efforts of financial planning in management accounting and reflects its contribution towards success of the residential care unit.
1.1 Principles of Costing and Business Control Systems
Principles of accounting
Costing is based on fundamental principles and guidelines which leads to extract meaningful information. Major principles are explained below:
Costing follows cost effect relationship: Cost is recorded on the basis of cause and effect relationship. Cause relationship drives the allocation of cost on the basis of its nature. For example:
Cost is charged after the occurrence: Costing follows the principle that cost is charged only if the product is produced . For example: normal loss is included in cost of only those products concerned and not on all the products to be manufactured.
Abnormal cost are charged in costing:The cost which are abnormal or non routine in nature are not charged to the production. Since these are not directly related with the production process of the entity. For example: In case of care unit is fire occurs then damage cost will not be charged to cost centres rather it will be debited to Income Statement.
Past cost not taken into future: It depicts that cost of particular period are treated as cost of the that period itself and cannot be deferred. As it will unnecessary burden the future cost and display blurred picture. However advertisement is an exception as it involves huge cost and benefits will be derived in future as well therefore deferred in future period as well.
Business Control System
Some of major Business control systems which assists organisation are depicted below:
Defining the Business Need: Objectives of the requirement of the system should be clearly communicated to the supplier. It deals with the need which laid the comapmny to think about control system. Care unit would like to go online for greater access therefore it defined the need(Ndolo and Njagi, 2014).
Development of procurement strategy: Procurement strategy is to wisely decided for application of system. There are various options available for Care unit to apply controls such as waterfall method, pilot method etc. which offers wide range of options to the client.
Supplier Selection and Evaluation : Selection of supplier is a tedious task and requires lots of tests and decisions. Vendor can be selected on basis of its past records or performing benchmarking or checklist test on the services offered. Point scoring method can be applied to give point to various vendors and selecting the best among the rest.
Negotiating and Awarding the contact :Once the vendor is selected negotiations should be entered in terms of quality of services or in cost measures to improve the efficiency of money invested(Miller and Rice, 2013). Further order and scheduled delivery of modules to be pre determined for care unit for effective and timely set up of systems.
Induction and Integration : Terms of delivery should be clearly mentioned and reviewed to avoid any default on supplier side. Care unit should also controls and check on timely basis that agreed quality is offered and no compromises are entered with contacted terms.
Management Control System
Under management control system various resources of organisation such as human, physical or financial are analysed under financial microscope of organisation strategies. This includes six elements which are listed below:
Strategic Planning : As per this element of management control system strategic planning is preformed to create a roadmap and setting objectives to achieve organisational goals(Kerzner, 2013).
Budgeting : Budgeting involves setting standards on basis of past records for the revenues, expenses and other items on basis of future forecasting.
Allocation of resources : This involves allocation of human, physical and financial resources as per the budgeted plans and achieving desired objectives. Example: Allocating the appropriate budget to each sector such as housekeeping, pantry etc.
Measuring Performance : Once the resources are allocated and control system in unit starts operating performance is measured as per the standard.
Rewards and Evaluations : Rewarding of ranks to resource allocation and performance is evaluated and loopholes are overcome and rewards to be given in case of exceptional situation.
Responsibility centre Allocation : Responsibilityfor application of system is to be allocated to personnel for effective development and timely adoption of system into organisation. For example: head of acre unit is to be assigned this task.
Calculation of cost per unit for one resident in a month
Table 1: Calculation of per unit cost for resident in a month
Amount in £
No of beds
Per unit cost of resident in a month
1.2 Classification of costs residential home has to bear
Costs can be classified into different sectors by residential home and apportioned accordingly.
Direct cost : Direct cost refers to those cost which are directly attributable to the prime activity and fluctuate with level of production(Drury, 2013). For example: house keeping services are directly related with residential home.
Indirect Cost :Indirect costs are which are not directly relatable to the functions of residential home. For residential unit indirect unit consists of amusement facilities and gardening.
Variable Costs : Variable cost are costs which vary with the change in level of activity. Food and supplies for kitchen will vary according to the persons residing.
Fixed costs : Fixed costs are costs which are irrelevant with the activities of the residential unit. In case of residential unit fixed electricity expenses and rent is fixed expense.
3.1 Preparation of Cash Budget
Budgeting is an effective tool of financial planning(Hope and Fraser, 2013).
Table 2: Cash budget for 3 months ending December, 2016
Amount in £
Amount in £
Amount in £
Monthly allocation from government
Self generated income
Total cash inflows
Rent in advance
Bank loan repayment
Furniture and kitchen upgrade
Semi annual insurance cost
Total Cash Outflows
Net Cash Flow
Opening cash balance
Closing cash balance
Hope, J. and Fraser, R., 2013. Beyond budgeting: how managers can break free from the annual performance trap. Harvard Business Press.
Drury, C.M., 2013. Management and cost accounting. Springer.
Ndolo, J. and Njagi, E.G., 2014. Role of Ethics in Procurement Process Effectiveness in the Water Sector in Kenya:(A Case Study of EWASCO, Embu County). International Journal of Supply Chain Management.3(3).
Kerzner, H.R., 2013. Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.
Miller, E.J. and Rice, A.K. eds., 2013. Systems of organization: The control of task and sentient boundaries. Routledge.
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