The aim of and sole control of finance is upon the group of directors. This group determines the financial policy and laws. The actual carrying out of the policies and laws will be upon the care of the Managing Director, (M.D) and the secretary as the boss of the commercial side of business. In business, of any other form, the capital is distributed over two types of assets, called the fixed and the circulating. Between the warehouse enterprises, the capital is fixed and limited to a building with its equipment and transport vehicles, no expensive plant being required. In this case, the major portion of the capital is laid out in stock. A warehouse business can therefore be up graded with comparatively small capital expenditure, owning to the fluid nature of its capital, surely there be a time when the building must be provided. There is a great difference between warehouse concerns and many types of productive enterprises in the accordance of the fixed to circulating capital involved strictly. The directors expect that each department of the warehouse will show a profit and each departmental head is given a figure for gross profit which he must, if possible attain. To attain the expected gross profit, the head of department will mark up the goods so that the average rate of profit will give him the aggregate gross profit as laid down by the directors. Some of the goods must be of necessity bear a higher rate of gross profit than others, if the average gross profit is to be secured. The selling prices of goods are fixed by the manufacturer and the wholesaler must stick to them. The wholesaler’s problem is to consider whether there will be any net profit after allowing for all expenses of distribution. Although the net profit on certain well-advertised propriety lines may be little, the wholesaler is forced to stock them in order to satisfy his/her customers. The actual fixing of prices is influenced by many factors some of which are beyond the control of the price fixer. Again, it is known that certain goods are seasonal and if not sold during the season, must be cleared off at any price they will fetch; in such cases the selling price may be placed at a very higher figure than when the goods had a steady sale all through the year round.
ALLOCATION OF EXPENSES
A firm is not completed with the knowledge that it is making a reasonable net profit on the whole of its business but desires also to know that the net profit made by each selling department. A breakdown of account books, bound or loose-leaf are used for this purpose and trading, profit and loss accounts are also drawn up in analyzed form. Each and every expense contracted by the company must be in apportioned among the various selling departments in accordance with certain established rules which ensure that the allocation shall always be made on the scientific and consistent basis.
Direct wages of the department are easily allocated, since the department knows to a penny it’s direct expense under the head but this can be also due to a percentage of indirect expense for salaries and wages incurred outside the department and common to all departments alike to be charged to each department. Each department must be charged not only with its own direct expenses but with the proportion of every other type of expenses incurred in running the business and these proportional expenses must be allocated to each department on a reasonable and consistent basis, reasonable to ensure fairness as between the departments and consistent in order to permit comparison between on trading period and another. This fact broken down of expenses may be carried too far and not be worth the labour. Small items of general expense may therefore wisely be combined in one general term.
On a more serious note , these allocations are based on reasonable rules but are by no means totally accurate or invariably followed. Allocations of such items as in debenture interest and discounts paved way and received is debatable and may in most cases be left to the discretion of the auditors.In practice numerous variations will be found. No methods or organization will however be efficient unless it enables the management of the firm to control the business properly-which after all is the object of all business organizations.
Direct wages of the department are easily allocated, since the department knows to a penny it’s direct expense under the head but this can be also due to a percentage of indirect expense for salaries and wages incurred outside the department and common to all departments alike to be charged to each department. Each department must be charged not only with its own direct expenses but with the proportion of every other type of expenses incurred in running the business and these proportional expenses must be allocated to each department on a reasonable and consistent basis, reasonable to ensure fairness as between the departments and consistent in order to permit comparison between on trading period and another. This fact broken down of expenses may be carried too far and not be worth the labour. Small items of general expense may therefore wisely be combined in one general term.
On a more serious note , these allocations are based on reasonable rules but are by no means totally accurate or invariably followed. Allocations of such items as in debenture interest and discounts paved way and received is debatable and may in most cases be left to the discretion of the auditors.In practice numerous variations will be found. No methods or organization will however be efficient unless it enables the management of the firm to control the business properly-which after all is the object of all business organizations.
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