A Report on Balanced Scorecard system of Premier Cement Ltd.docx

8/10/2019 A Report on Balanced Scorecard system of Premier Cement Ltd.docx

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Origin of the report

This assignment has been undertaken as a part of our course F-302 (Managerial Accounting)

under the BBA program. The report under the headline "Balanced Scorecard and Master Budget

Analysis of Premier Cement Ltd." has been prepared towards this purpose. Here we have

selected Premier Cement Ltd. To show the process of Master Budget and Balanced Scorecard

approach.

Objectives of the report

The objectives of the report includes the following

Show the master budget of Premier Cement Ltd.

To learn about BSC.

To gain the knowledge of Strategic Management approaches and systems.

How balanced scorecard transforms strategy into action and desired behavior.

To know the application of BSC in real life.

Improve decisions and better solutions.


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Methodology

For preparing the report we have collected data from Premier Cement Ltd. We have visited their

business places for collecting data. Since the master budget and balanced scorecard is a modern

accounting tool so it is not fully visible in all the business strategies. For preparing the report we

have collected data what were available to them through annual reports and periodicals and

assumed the rest necessaries to make the report a successful one.

L imitations of the report

The major limitations we have encountered so far are:

Lack of experience on our part has acted as constraints in the way of meticulous

exploration on the topic.

Lack of data.


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About Premier Cement L td.

Premier Cement Mills Limited is one of the leading innovative cement manufacturers in

Bangladesh. Manufacturing EUROPEAN standard product using the best raw materials and

technical excellence for ensuring dependability and superiority of its outputs. The products

provide strength and durability to buildings of high dimensions, roads, bridges, and infrastructure

that speeds up the line of commerce, and to houses providing comfort and security to families

across Bangladesh, India, Myanmar, etc. Premier Cement is known as one of the top cement

brands in Bangladesh. Associated companies adhere to the same demanding standards as they

provide construction materials such as Ready Mix Concrete, Block, Pipe, and other pre-stressed

concrete units to the Government, Builders, and Manufacturers. They enjoy a good history aswell as a sustaining reputation in Bangladesh.

Premier Cement Mills started commercial production on March 12, 2004 with its 1st unit having

a production capacity of 0.6 million tons per annum. In January 2011, Production Unit-2 was

installed with a capacity of another 0.6 million ton per annum.

From November 2012 Premier Cement started production with its 3rd and 4th Units, having a

combined annual capacity of 1.2 million tons, in order to meet the additional market demand.

Now the company runs with an annual production capacity of 2.4 million tons (8,000 tons per

day) with 700 employees involved in its operation at both home and abroad.

The company uses the most sophisticated cement plant namely FLS SMIDTH of Denmark,

Packer from HAVER & BOECKER GmbH Germany and machineries maintaining European

standards and qualities. The factory is located at West Muktarpur, Munshiganj. On the front side

of the factory land is the Dhaka-Munshiganj road and on the rear side is the river Shitalakhya

which meets with the river Dhaleshwari and further downstream, both the rivers falls into the

mighty Meghna. Thus the factory site has marvelous accessibility both by land and river.


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Vision and Mission

Work towards the development of the society through sustainable growth and high

quality performance.

Provide satisfaction to customers, an enjoyable working environment for the employees

& to create value for the stakeholders

They have very basic, well specified goals and objectives. These include:

To improve comprehensively on the current success areas.

To improve the brand image

To satisfy the customers.

To be among the top 5 cement manufacturers in Bangladesh,

To earn reasonable profits.

To capture the target market share.


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Balanced Scorecard

A balanced scorecard can be thought of as a strategic chart of accounts for a company. Balance

scorecard captures both the financial and non-financial elements of a business's strategy and it

discusses the cause and effects of the relationships that drive business results. It is a combination

of quantitative and qualitative measures; it acknowledges the expectations of the differentstakeholders of a business and relates an assessment of performance to choice of strategy.

Balanced Scorecard recognizes the need to identify and track a number of financial and non-financial measures to provide a broader view of the business. For this purpose, an organization is

not limited to accounting data. A company may select indicators of Process, efficiency, safety

and customer satisfaction or employee morale. This can capture information about current

performance and emphasize leading indicators of future success. The objective is to produce aset of measures matched to the business so that performance can be monitored and evaluated.

Balanced Scorecard was created by Robert Kaplan and David Norton to translate vision and

Strategy into objectives. The balanced scorecard is meant to help managers keep their finger onthe pulse of the business. Each organization will emphasize different measures depending on

their strategy. Management is, in effect, translating their strategy into objectives that can be

measured.

Features of Balanced Scorecard:

It translates company strategy into performance measures

It emphasizes on continual improvement It integrates financial measures with non-financial measures

It provides with personal scorecard besides an overall balanced scorecard


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Balanced scorecard of Premier Cement

Talking to the executives of Premier Cement we found that the company does not follow the

balanced scorecard approach. But we asked them some qualitative questions regarding their

product and production process and managed to gather some ideas on ways in which the balance

scorecard of Premier Cement can be drawn.

Premier Cement is known as one of the top cement brands in Bangladesh. The associated

companies adhere to the same demanding standards as provided construction materials such as

Ready Mix Concrete, Block, Pipe, and other pre-stressed concrete units to the Government,Builders, and Manufacturers. The company enjoys a good history as well as a sustaining

reputation in Bangladesh.

They import quality raw materials from different countries and carry on production maintaining

the standards and technical excellence. They produce European standard product ensuring

dependability and superiority of its outputs. During production process they give utmost

importance to the safety issues of the employees and carry out rigorous maintenance of their

machines. They look to ensure door to door delivery in time. They use latest IT equipment and

constant surveillance.

Premier Cement looks to train employees, improve interdepartmental communication and

motivate the employees which will assist them to produce quality products. They also look for

ways to reduce their delivery time. Following those processes they like to retain previouscustomers and looks to attract new customers. All these help Premier Cement to increase revenue

and profit margin of the company.

For all those process to be carried out properly Premier Cement can use the Balanced Scorecard.

Necessity of Balanced Scorecard to Premier Cement:

Balance scorecard has been being used by many mangers, because it helps employees to focus

their actions on executing organizational strategies. Under the balance scorecard approach, top

management translates its strategy into performance measures that employees can understandand influence. Balanced Scorecards are seen as a strategic performance management tool andthis can help identify, control and monitor any problems that arise within the organization

therefore it would be wise for an organization to adopt the Balance Scorecard. Balanced

scorecard can help Premier Cement in the following ways-

Improve processes

Motivate and educate employees


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Monitors your organization progress

Enhances your business information system

It creates greater customer satisfaction Increases financial usage

Builds on other management ideas

Views the actual performances of the organization

Performances are viewed and managed in an ongoing manner Enhances career development programs

Improves productivity and innovation

Ways in which Premier Cement can prepare Effective Balanced Scorecard:

Managers should carefully select performance measures for their own companys balanced

scorecard, keeping the following points in mind-

First and foremost, the performance measures should be consistent with, and follow from, thecompanys strategy. If the performance measures are not consistent with the companysstrategies, people will find themselves working at cross-purposes.

Second, the performance measures should be understandable and controllable to a significantextent by those being evaluated.

Third, the scorecard should not have too many performance measures. This can lead to a lack offocus and confusion.

Barriers to Effective Balanced Scorecard:

The implementation of the strategies undertaken by any corporation is the root of ultimate

success. But a study shows that nine out of ten organizations fail to execute their business

strategies properly. The underlying reasons are Misunderstanding of organizations strategies by the workforce

Fewer discussions in the strategy among the workforces Budget confliction to the strategies Less incentives linked to strategies


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How Premier Cement can link Balanced Scorecard to Strategy

The Balanced Scorecard was created by Robert Kaplan and David Norton to translate vision andstrategy into objectives. The balanced scorecard is meant to help managers keep their finger on

the pulse of the business. Each organization will emphasize different measures depending on

their strategy. Management is, in effect, translating their strategy into objectives that can bemeasured.

The Measures help managers balance their focus between current and future performance.

Premier Cement can follow simple but efficient protocol to gather information & feedbacks fromrespective fields. They can run their inter-functional assessments over the gathered information

and take decisions to provide superior values to the customer. The link can be shown by the

diagram below:


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How Balanced Scorecard can convert Premier Cement strategy into Action

The balanced scorecard usually has four broad categories, such as financial performance,customers, internal processes and learning and growth. Typically, each category will have two to

five measures. A sample is shown below:

Premier Cement can improve their business performance by maintaining proper balanced

scorecard. The performance indicators can include improvement in the quality of product in

factory, relationship with retailers and builders, economic development, development in safety

standards. The scorecard provides flexibility in performance measures and the scorecard

measures can be determined properly only if the overall strategy is understood.


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Breaking down the process in which the

Premier Cement Balanced Scorecard can be prepared

The strategy for Premier Cement is to retain and attract new customers with quality products. So

they focus on the quality of the product. They do not compromise quality for cost. They wanttheir product to be efficient and sustain natural calamity like earthquake. In the following

diagram we tried to shoe the process in which Premier Cement can prepare their balanced

scorecard and can improve financial performance through providing quality products. Different

measures on balanced scorecard are selected based on the qualitative information we gathered:

Train

employee

with new

Improve inter

department

coordination

Increase

employee

satisfaction by

Produce

cement with

quality raw

Attract new

customer and

increase

Retain previous

customers (+)

Quantity of

cement sold

Increase in total Profit margin of

Delivery cycle

-

Financial

perspecti

Customer

Internal

business

Learning

and


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(+) & (-) shows the desired changes

Demonstration of the possible balance scorecard of Premier Cement:

Premier cement needs to train its employees with modern technology and aware them of

the safety issues that are needed to be followed during production. Improving the coordination between all the department is important because it reduces

delivery time and helps to stay in one common objective.

Increasing employee satisfaction will also encourage them to work efficiently and

maintain timely delivery.

Premier cement supplies cement to both consumer and industrial market. In both the

markets the buyers will want to buy standard quality of cement with imported raw

material and cement made with proper proportion of each materials using modern

technology.

Ensuing standard quality always add up to the quantity sold.

Reduction in delivery time and on time delivery will always attract new customers andassist in retaining previous customers. Also proper packaging is necessary.

Attaining the internal business process properly will increase the market share which will

be beneficial in the long run.

Finally increasing the quantity sold will increase the revenue and profit margin. So, profit

will be attained which will increase the company value.

A balanced scorecard will assist in growth and help Premier cement to sustain their

reputation in the market.


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Master Budget Analysis

A master budget is the central planning tool that a management team uses to direct the activities

of a corporation, as well as to judge the performance of its various responsibility centers. It is

customary for the senior management team to review a number of iterations of the master budget

and incorporate modifications until it arrives at a budget that allocates funds to achieve the

desired results. Hopefully, a company uses participative budgeting to arrive at this final budget,

but it may also be imposed on the organization by senior management, with little input from

other employees.

The budgets that roll up into the master budget include:

A sales budget, including a schedule of expected cash collections

A production budget

A direct materials budget, including a schedule of expected cash disbursements

A direct labor budget

A manufacturing overhead budget

An ending finished goods inventory budget

A selling and administrative expense budget

A cash budget

A budgeted income statement

A budgeted balance sheet

Premier Cement Ltd follows the master budget process but they mainly emphasis on the cash

budget, budgeted income statement and budgeted balance sheet. With the help of our text book

and the information provided by the Premier Cement personnel we have prepared the other

budgets. Most of the information used in these budgets is hypothetical because Premier Cement

has a variety of materials used in production and complexity as well as vagueness is found

everywhere in the annual report provided by the company.


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Sales Budget

The sales budget is the starting point in preparing the master budget. It is an Operating plan for

a period expressed in terms of sales volume and selling prices for each class of product or

service. Preparation of a sales budget is the starting point in budgeting since sales volume

influences nearly all other items. According to their master budget Premier Cement Mills

Limited plans to sell Bags worth 6141 million taka and the average selling price of all their bags

will be around 690 taka

Premier Cement Mills Limited Ltd.

Sales Budget

For the Year Ended June 30, 2013

Quarter

1 2 3 4 Year

Budgeted Sales 2150000 2556,000 2596,000 1598,000 89,00,000

Selling Price 690 690 690 690 690

Total Sales (in

millions)1483.50 1763.64 1791.24 1102.62 6141.00

A schedule of expected cash collections is prepared after the sales budget. Cash collections

consist of collections on credit sales made to customers in prior periods plus collections on

sales made in the current budget period. At Premier Cement Mills Limited, 90% of sales are

collected in the quarter in which the sale is made and the remaining 10% are collected in the

following quarter. The accounts receivable at the end of the year is estimated to be 109.65

million taka.


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Schedule of Expected Cash Collections (in millions)

Quarter

1 2 3 4 Year

Accounts Receivable,

Beginning Balance46.22 46.22

First-Quarter Sales 1335.15 148.35 1483.50

Second-Quarter Sales 1587.27 176.36 1763.64

Third-Quarter Sales 1612.11 179.12 1791.24

Fourth-Quarter Sales 992.35 992.35

Total Cash Collection 1,026.28 723.24 688.8 998.76 6076.95

Production Budget

The production budget is prepared after the sales budget. It sets forth the units expected to be

manufactured to satisfy budgeted sales and inventory requirements. Expected production volume

is determined by adding desired ending inventory to planned sales and then subtracting

beginning inventory. Premier Cement Mills Limited management believes that an ending

inventory equal to 10% of the next quarters sales strikes the appropriate balance.


Production Budget


Quarter

1 2 3 4 Year

Production 2150000 2556,000 2596,000 1598,000 89,00,000

Add desired ending

inventory of finished

Goods

255600 259600 159800 170000 170000

Total Needs 2405600 2815600 2755800 1768000 9070000

Less beginning

inventory of finished

goods

(257000) (255600) (259600) (159800) (257000)

Total production 2148600 2560000 2496200 1608200 8813000


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Direct Mater ial Budget

How much material will be required for production and how much material must be bought to

meet this production requirement depends on both expected usage of materials and inventory

levels. Premier Cement Mills Limited has estimated that their budgeted direct material sale

2494.07million taka. That means the production of each Bag will need raw materials worth 283

taka.


Direct Material Budget


Quarter

1 2 3 4 Year

Required Production 2148600 2560000 2496200 1608200 8813000

Cost of Raw

Materials per Bag of

Cement

283 283 283 283 283

Cost of Raw

materials (in

millions)

608.05 724.48 706.42 455.12 2494.07

The direct materials budget is usually accompanied by a schedule of expected cash

disbursements for raw materials. This schedule is needed to prepare the overall cash budget.

Disbursements for raw materials consist of payments for purchases on account in prior periods

plus any payments for purchases in the current budget period. At Premier Cement Mills

Limited, the policy is to pay for 60% of purchases in the quarter in which the purchase is made


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and 40% in the following quarter. The accounts payable at the end of the year is estimated to

be around 182.04 million taka.

Schedule of Expected Cash Disbursements (in millions)

Quarter

1 2 3 4 Year

Accounts Payable,

Beginning Balance153.50 153.50

First-Quarter

Purchases364.83 243.22 608.05

Second-Quarter

Purchases434.68 289.79 724.48

Third-Quarter

Purchases423.85 282.56 706.42

Fourth-Quarter

Purchases273.07 273.07

Total Cash

Disbursements518.33 677.90 713.64 555.63 2465.52

Manufactur ing Overhead Budget

The manufacturing overhead budget contains all manufacturing costs other than the costs of

direct materials and direct labor (which are itemized separately in the direct materials budget and

the direct labor budget). The information in the manufacturing overhead budget becomes part of

the cost of goods sold line item in the master budget. At Premier Cement Ltd. the estimated

amount of manufacturing budget is 445.61 million taka which implies that the manufacturing

budget for per bag of cement is around 164 taka. The depreciation amount in manufacturing

overhead is 157 million which is depreciated over a straight line basis over the quarters.


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Premier Cement Ltd.

Manufacturing Overhead Budget


Quarter

1 2 3 4 Year

Required Production 6,79,372 5,00,000 5,85,000 9,53,116 27,17,488

Manufacturing Overhead

per Bag of Cement164 164 164 164 164

Total Manufacturing

Overhead (in millions)111.4 82 95.9 156.31 445.61

Less Depreciation (in

millions)(39) (39) (39) (39) (157)

Cash Disbursements (in

million)72.4 43 56.9 117.31 288.61


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Direct Labor Budget

The direct labor budget is used to calculate the number of labor hours that will be needed to

produce the units itemized in the production budget. The direct labor budget is useful for

anticipating the number of employees who will be needed to staff the manufacturing area

throughout the budget period. This allows management to anticipate hiring needs, as well as

when to schedule overtime, and when layoffs are likely. The budget provides information at an

aggregate level, and so is not typically used for specific hiring and lay off requirements. Premier

Cement has estimated their direct labor to be 65.09 million taka for 27, 17,488 bags of cement

which means their labor cost per bag is 23.95 taka.

Premier Cement Ltd.

Direct Labor Budget


Quarter

1 2 3 4 Year

Required Production 6,79,372 5,00,000 5,85,000 9,53,116 27,17,488

Labor Cost per Bag of

Cement23.95 23.95 23.95 23.95 23.95

Total Direct Labor

cost (in millions)16.27 11.975 14.01 22.83 65.09


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Ending F inished Goods I nventory Budget


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Sell ing and Administrative Budget


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Cash Budget


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Budgeted Income Statement

Primer cement Ltd.

Budgeted Income Statement


Amount in Taka

(in millions)

Turnover 6141.00

Cost of Goods Sold (3510.494)

Gross Profit 2630.506

Administrative Expenses 50.51

Profit from Operation 2579.996

Finance Cost 120.79

Profit before tax 2459.21

Provision for income tax --

Total Comprehensive Income for the year 2459.21


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Budgeted Balance Sheet

Premier Cement ltd.

Budget Balance Sheet

June 30, 2013

ASSETS

Amount in Taka(million)

Non-Current Assets

Property, Plant & Equipment 1289.313

Capital work in progress 82.91

Current Assets

Inventories 61.37

Trade and other receivables 46.23

Advances, Deposits & Prepayments 71.87

Cash and Cash Equivalents 5.18

TOTAL ASSETS 1556.876

EQUITY AND LIABILITIES

Shareholder's Equity 327.488

Issued Share Capital 175.00Retained Earnings(loss) (59.786)

Tax holiday reserve 2.274

Share money deposit 210.000

Non-Current Liabilities 536.297

Long Term Loan 536.297

Current Liabilities and Provisions 693.090

Short Term Loan 400.342

Trade and other payable 36.069

Premier cement mills ltd. 252.491

Provision for Income Tax 252.491

Total Equity and Liabilities 1556.876


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References

1. Annual Report of Premier Cement

2.

Website of Premier Cement

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A Report on Balanced Scorecard system of Premier Cement Ltd.docx

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