The structure of organisations finance
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The Structure of Organisations & Finance. Costs and Prices. Costs and Prices. What’s the difference. Costs and Pricing. Costs What it costs YOU to deliver a product or service Price Is what your CUSTOMER pays. Costs. Purchase costs Raw materials Equipment Costs Costs of Finance

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The Structure of Organisations & Finance

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The structure of organisations finance

The Structure of Organisations &Finance

Costs and Prices


Costs and prices

Costs and Prices

  • What’s the difference

Professional Issues


Costs and pricing

Costs and Pricing

  • Costs

    • What it costs YOU to deliver a product or service

  • Price

    • Is what your CUSTOMER pays

  • Professional Issues


    Costs

    Costs

    • Purchase costs

      • Raw materials

      • Equipment Costs

    • Costs of Finance

      • Interest Payable or Lost

    • Direct Labour Costs

      • Salaries

      • Pensions

    • Overhead Costs

      • Premises, Admin, Sales & Marketing

      • Not attributable to projects

    Professional Issues


    Costs of running a car

    Costs of Running a Car

    • Cost £10,000

    • Run for 3 years

    • Sell for £4,200

    • 10,000 miles per year

    Professional Issues


    Cost of running a car

    Cost of Running a Car …..

    No Inflation

    Professional Issues


    Costs1

    Costs……

    • Fixed

      • Premises

      • Administration

      • Sales & Marketing

      • Costs of Finance

    • Variable

      • Raw Materials

      • Direct Labour Costs

    Professional Issues


    Fixed variable costs

    Fixed & Variable Costs

    • Production Units Can Have Fixed Costs

      • Independent of Sales

      • Magazine Publishing

      • Toy Manufactures

      • Software Development

    Professional Issues


    Depreciation

    Depreciation

    • Need to know value of Equipment and Stock

    • Too costly to revalue every Item

    • Simplified:

      • Straight Line

      • Reducing Balance

    • Must be Consistent and Used & Declared in Annual Accounts

    Professional Issues


    Straight line depreciation

    Straight Line Depreciation

    Professional Issues


    Reducing balance depreciation

    Reducing Balance Depreciation

    Professional Issues


    Reducing balance

    Reducing Balance……..

    • Need to Identify Classes of Equipment

    • Computers – High depreciation rate

    • Buildings - Low rate

    • Cars – Medium rate

    • Furniture – Low rate

    Professional Issues


    Labour costs

    Labour Costs

    • Salary plus on costs:

      • National Insurance

      • Pensions

    • Persons Day rate

      • Statutory & Ordinary Holidays

      • Sickness

      • Training

      • Idle time

      • Unchargeable Time

    Professional Issues


    Staff costs

    Staff Costs

    • Total Work Days 260

    • Junior Staff – 220 Chargeable days

    • Senior Staff- 160 Chargeable days

    • Junior on £20,000

      • Cost £24,000 (No overheads)

      • Overheads £24,400

      • Cost per day = £220 per day

    Professional Issues


    Overhead costs

    Overhead Costs

    • Not Attributable to Particular project

      • Building Costs

      • Administration

        • Personnel

        • Finance

        • Sales & Marketing

        • Support

    • Fixed Costs and are very Real!!

    • Computer Industry

      • 100% Small Company

      • 200 – 250% Large Company

    Professional Issues


    Pricing

    Pricing


    Pricing in the computer industry

    Pricing in the Computer Industry

    • Cost Plus Services

    • Fixed price

    • Products

    Professional Issues


    Cost plus project work

    Cost Plus - Project Work

    • Agree with Client your Costs per day

      • Usually on Direct Labour

      • Overhead

    • Agree Profit margin

    • “Body shopping”

    • Unsuitable today for projects but used to supply skills/experience to customer projects

    Professional Issues


    Fixed price project work

    Fixed price – Project Work

    • Total of:

      • Direct Labour

      • Bought in Items

      • Indirects

    • Profit added

    • Used in Competitive Tendering

    • Risks versus Profit

    Professional Issues


    Software product pricing

    Software Product Pricing

    • Marginal Costs Very Low

      • Manual, Box and CD Rom < £10.00

    • Large Development Costs

    • Amortised over time

    • Sales proportional to marketing

    • Sales fall with increasing price

    Professional Issues


    Customer expectations

    Customer Expectations

    Professional Issues


    Support and other issues

    Support and other Issues

    • Large percentage of income

      • 10% - 25% of turnover

      • Sage, Microsoft

    • Support & Updates

    • Must be Real and Valuable

    • Annual Licence fee charges

    • Per use Charges

    • Application Service Providers

    Professional Issues


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