Cost classification in accounting also involves the allocation of costs, revenues and responsibilities to various centres or departments. These centres include:
== Cost ==
== Revenue ==
== Profit ==
== Investment ==
Cost Centres (CC)
A CC is a unit, location or department where cost data is collected. The purpose of the centre is to collect, analyze and ascertain costs in its immediate context. These types of centres usually have cost units or objects-units or equipment for which costs are determinable or attributable. Overheads and direct costs constitute the cost structure of a CC.
According to the ACCA Study Text (Management accounting, c 1999), CCs can manifest themselves as a project, a machine, department or overhead costs. One should note that a specific CC might not necessarily have other functions. CCs are not limited to production and manufacturing, since they can also be attributed to service sectors, like commercial bank branches for example.
Revenue centres (RC)
These centres deal exclusively with revenue. Even though costs may arise from these areas, the revenue centre is not accountable for them. Its purpose is primarily to maximise sales and revenue.
Profit centre (PC)
The PC addresses both costs and revenue. Therefore, the manager responsible for it is accountable for the purchases and sales for that unit, department or branch. Since both revenue and costs fall under the purview of the PC, it is both a cost and revenue area.
Investment centres (IC)
Investment centres are a type of profit centre that is accountable for cost, revenues and net assets for capital investment. This unit is assessed by return on investment and is also a CC. Managers in an IC are responsible for purchasing capital or non-current assets and making investment decisions with capital.
Responsibility centres are the umbrella term for cost, profit, revenue and investment area, since their performance is under the direct control of a manager. A management accountant needs to know the different types of centres to understand the information needs and requirements of the managers of the various units.
By: D. Victor
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Filed under Business by on Nov 18th, 2010. 
Investment banking analyst jobs pay a heck of a lot of money and many people ask me about what a new analyst will be doing so I thought I’d whip this up.
For starters, I am directing this post at traditional investment banking (this is not sales and trading related). Before many people get deep into job searching for Wall Street jobs they often say they want to be an investment banker…..after they search around they figure out whether they want to be in sales and trading or investment banking. Sales and trading is pretty much what it sounds like while investment banking is a little more confusing. If you don’t know what investment banking entails check the aforementioned post.
As an investment banking analyst you are at the bottom of the totem pole and serve as a corporate clients banker. The job is tough (on the basis of hours) and you can expect to work 80-100 hour weeks for the most part. Anything under 60 hours would be considered a vacation. Although the hours are long, a lot of time is spent sitting around waiting for deals. As an analyst your main job is to do whatever the associate above you asks of you. Usually this means putting together pitch books (also mentioned in the link above), monitoring at the printer, getting coffee, running errands – and if you want to survive – never asking for more work. Building pitch books is very boring.
A good investment banking analyst has expert command of excel and can navigate it solely by using the keyboard. The majority of your time related to pitchbook making will be spent using excel for models and PowerPoint for the actual book pages. You will get very good at both if you aren’t already. Most of the material will be recycled from a previous pitch.
The hours are long and the work is repetitive but there is one bonus, you get paid a lot. If you get placed in New York you will get a salary of $70,000 and your bonus will be at least 40% of that (if you are bad), in a good year it could be one and a half times your salary. Other areas will have slightly smaller pay-outs. So you can decide if it is worth it to you.
On another note, if you aren’t coming from an Ivy League school, investment banking analyst jobs are very tough to get. Email me if you need help in your search, but remember I will ask you why you want to be on Wall Street.
By: James Money
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Read more on Investment Banking Analyst Jobs – Pay and Duties…
Filed under Business by on Nov 15th, 2010.
There are many people who feel that to make money in todays market and in the future, you must work off of advisory fees and not commissions.
An Investment or Financial Adviser is someone who manages a portfolio or advises a person what to do in their portfolio. For these services, an Adviser can retain a fee for doing so. They operate much like an Accountant or an Attorney would. Rather than directly sell a security for commission, they will receive a fixed percentage of the assets they manage. The license that most of them receive is the SERIES 65 (Registered Investment Advisor). What makes this arrangement attractive for the Adviser is that your income stream is much steadier. Your fees are set so if a customer is not particularly active, you still retain the normal advisory fee you charge.
The arrangement is equally beneficial to the customer. A customer does not feel the same pressure to buy as they would from a commission Stockbroker. A Stockbroker does not make money unless a customer buys or sells.
The SERIES 65 does not need to be sponsored and can be practiced independently. It also looks terrific on a resume and only takes 4-6 weeks to study for. If you are looking to add financial credentials prior to entering the securities business, the Series 65 is a great license to get. It is a multiple choice test and no educational pre-requisites are required.
A few states do not require an individual to hold a SERIES 65 to practice investment advice but it is a good idea to get it anyway. You want to be aware of certain rules and background of the industry. The licensing curriculum will explain all of the securities that apply. It is also a good “Title” to practice business under. Thousands and thousands of CPA’s, Lawyers, and other professionals have obtained their SERIES 65 license and became Financial Advisors. The ability to offer investment advice to their existing clientele has proved to be very beneficial to their business.
You are not allowed to work on commissions and advisory fees from the same client. The SEC views that as “double charging”, so you should decide what route is best for you. As said earlier, many feel the “fee route” is the best way to go now.
Good Luck!
By: Nick Hunter
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Filed under Business by on Sep 5th, 2010.
Investing in property has proven to be an excellent way of generating ongoing supplementary income and capital growth.
When looking for a long term investment with excellent capital growth potential a number of things need to be considered. Many financial planners and advisors will taut the benefits of shares and stocks. However many people who invested early in property and held onto that for a long term have onto only enjoyed significant rentals returns over the years but also huge capital growth. This was been shown in most developed nations of the world.
The real estate market in Australia is certainly no exception. In fact, property prices and returns and sky rocketed particularly in recent years. The Australian government also provides incentives to investors of property that encourages property purchase for rental purposes. This also means that financial institutions provide serviceable loans of up to 95% of the purchase price.
Maximizing the property investment:
Generating large gains from property purchase is not an overnight thing. The process happens gradually and has been proven to pay off handsomely in the long run. The proven process involves purchasing affordable property using a financial loan that is serviceable. The other main factor in deciding on real estate purchases is trying to extract the maximum rental yield. That is the rental return as a percentage of purchase price. The level of yields will vary from area to area.
A wide range of people rent and buy property in Sydney. Australians are well known to make investments in the property and property is a passion for many Australians. However there are some challenges for first home buyers and novice property investors. The continual increased price rises can make the market hard to enter, and the first purchase if often the hardest.
For the process of rental property, a knowledgeable investor knows where the profit will come from. Australian real estate always revolves around a strong positive capital growth and investing in inner city areas that have low supply of rental properties with high demand. Rental property investment is the most viable option, as the owner is able to benefit from the rental returns to repay loans. Often the rents increase considerably from year to year. For example, a single bedroom unit in Brisbane is rented for more than $500 per week. There is a there is a continuous rise in rent pricing. So, you can clearly make out that there is real boon for property investors who aim to gather immense wealth from property investment.
Making a great future in preparing investing requires considerable time, energy and money at the time of initiation. Owners also have to make sure that property is kept in a good form so that there is a right track and source of income is rewarding.
By: Frank Leigh
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Read more on Flaunt Your Financial Status With A Property Investment!…
Filed under Business by on Sep 2nd, 2010.
How can I find a franchise with a good return on investment? First lets define the term “return on investment” or what people call “ROI.”
Return on Investment Defined
Return on Investment (ROI) is defined as the percentage of earnings gained on an investment, net of cost. Investors typically decide on which opportunities to partake in by estimating the return that they expect to earn. Since franchising is an active investment rather than a passive one, it is necessary to include the time invested in addition to the financial investment into the calculation. Therefore a franchising ROI should be higher than that of an ordinary monetary investment.
About how much ROI should you expect from a franchise?
Typically a good ROI on a passive investment ranges between 10 and 15 percent. Consequently, the ROI on a franchise should be a bit higher than that to be worth your while. The expected ROI will be directly affected at least in part by the skills and expertise that you offer to the franchise. The type of business, the business model, and the market will also be contributing factors.
In general, research demonstrates that greater returns typically transpire with financial investments of less than $200,000. Many times decent returns have been discovered even by beginning with cash of less than $50,000.
Factors to consider in determining the expected ROI from a Franchise
There is some important information that can be gathered by examining the Franchise Disclosure Document (FDD) of a franchise. This document should include the initial investment necessary to purchase a unit. Additionally, you may be able to discover what the average earnings have been by other locations within the organization. It would also be helpful to find the earnings of a typical unit over its first three years of operation.
Depending on how much of this information is disclosed, you should be able to project an ROI for that franchise investment for three to five years. Further, contacting other franchise owners could provide you with essential data on anticipated earnings.
Achieve the best ROI possible with your Franchise
In order to have the best chance of achieving successful results, one of the most important ingredients is to be sure that you are investing in a top quality franchise. The other is to be certain that your own offerings to the franchise with regards to skills, experience, and talents are a good match for the franchise.
By: A. Pens
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Read more on Franchises With a Good Return on Investment (ROI)…
Filed under Business by on Sep 2nd, 2010.
Just how much do investment bankers actually earn? Most of the people who want to break into investment banking have no idea how much money is really involved.
Sure, the Managing Directors and other senior people make several million a year on average; group heads can make $10 million or more. And the CEO of an investment bank can make upwards of $20 million, with Goldman Sachs CEO Lloyd Blankfein making over $70 million in 2007.
But what does an entry-level investment banker – an investment banking analyst – actually make?
Making six figures as a 23-year old just out of college is nice, but if you have to work 120 hours per week, you can’t possibly be making that much per hour, right?
I honestly didn’t know, so I had to investigate this and do some math myself.
Could you actually make more working at McDonald’s than you could at Goldman Sachs, at least on an hourly basis?
Best Case Scenario
For investment banking analysts, the best case scenario ever happened in 2007. Base salaries were $60,000 and bonuses were $90,000, for a total of $150,000 in compensation. Again, not bad for a 23-year old’s first “real-world job.”
But what about the hours? Typically, entry-level bankers work around 90-100 hours per week in their first year. This could be off by a bit, but we’ll go with it for now.
With 52 weeks of work per year (nope, no vacation) and 90 hours per week, you would have earned $32.05 per hour in the 2006-2007 year. If you had worked 100 hours, that would have dropped to $28.85.
Even if you had worked 140 hours a week, every week, you would still be at $20.60 per hour. And realistically it’s impossible to work that much consistently, so you could have only done better than that.
But times have not always been that good. After the dot com crash and at the start of the last major recession, investment banking took a turn for the worst and bonuses disappeared.
The Dark Ages: 2001-2002
In 2001-2002, Analysts were lucky to get $10,000 for their bonuses. They still worked a lot, but mostly on marketing and pitching clients rather than doing deals and bringing in revenue.
A $10,000 bonus and $60,000 salary means $14.96 per hour at 90 hours a week. Believe it or not, that’s still above McDonald’s wages and is actually not even that bad relative to a lot of jobs in the US.
But if you had worked 140 hours per week, consistently, back then?
You would have made 9.62 per hour.
McDonald’s Wages
According to a Wiki Answers page on McDonald’s, the wage is $9.30/hour for those under 17 and $9.57/hour after “4 months of training.”
This is a very low wage, and it looks like even in the worst possible years of investment banking, hourly analyst wages never dropped this low.
The Absolute Minimum
Actually, the above is not strictly true. What if you earned $0 for the bonus and only made the base salary of $60,000 while working 140 hours each week?
That would be $8.24 per hour. Finally: below McDonald’s wages.
So theoretically it is possible to earn less than a McDonald’s worker as an investment banking analyst, though not terribly likely.
It could only happen if you worked a ridiculous amount in the very worst years of investment banking and got absolutely nothing for your bonus.
Even with a looming US recession, this scenario seems unlikely to return anytime soon. So your hourly wages as an investment banking analyst should be safe.
By: Ian Spellfield
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Filed under Business by on Aug 13th, 2010.
Asking a basic question about what it is your job would entail at your interview could potentially destroy your application. It simply means that you came unprepared and all the good grades you have on your transcript will go unnoticed. There are a dozen more applications with equally good if not better grades so to really stand out, you’ll need to present yourself with short, crisp, answers that reflect your understanding of the industry.
For example, when an interviewer from Merrill Lynch asks, “Do you have any questions?” And you pose a query, “What is the job scope for analyst in corporate finance/sales/ trading/research/operations/technology?”
How do you think that reflects in the mind of the interviewer?
Now, you could pose that question to a friend who is in the industry, but it is not safe to pose this question to the interviewer because it potentially demonstrates your ignorance of the industry. Your friend is there to help you; the interviewer is there to chop candidates from the list.
Understanding the mindsets of people is the key to asking the right questions and success to life in general. Knowing why different questions attract different responses from different people is crucial. Don’t leave it to chance or the mood of the interviewer on that day to decide what to think of you. Take control of your own interview and be prepared.
You need to know what your role’s description is, what hours you will be working, what type of clients you would be working with (if applicable) and what the day-to-day activities and responsibilities will be as an analyst in your division.
This boils down to research, and here are some ways to do it.
Information Research #1: Go to the firm’s website. Make sure you read the profiles of people in your division at the firm. Learn about the division you are applying for IN DETAIL and what your job would involve.
Information Research #2: Go to similar firms’ websites and read their descriptions of the role. Some firms’ definitions or names of divisions can be different, but it will give you an understanding and jargon the industry uses.
For example, if you have a sales & trading interview at Merrill Lynch, go to Goldman Sachs website and learn how that division is described on their website.
By using some of the insider words use to describe a similar position, you’ll find yourself more natural and eloquent at your interview, leaving the impression that you UNDERSTAND the job. Also, you’ll have additional investment banking vocabulary that other interviewees would not have.
Information Research #3: Speak to friends, seniors who you know ALREADY work in your desired division and offer to buy them tea. Offer value before taking and in this case during the meetup, you’ll have a chance to ask about their day-to-day role. With this knowledge, you will be able to give your interviewer an impression that you know what you’re in for and importantly, ready to contribute.
And at your interview, mention that you spoke to this particular person and you were interested in what he/she told you.
Have an attitude that you’re there to contribute to the team. And you’ll jumpstart your investment banking career. Another good resource is this Investment Banking career guide
By: Sherman Choo
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Filed under Business by on Jul 28th, 2010.
Firms may have to choose among profitable investment opportunities because of the limited financial resources. In this article we shall discuss the methods of solving the capital budgeting problems under capital rationing. We shall show that the net present value is the most valid section rule even under the capital rationing situations.
A firm should accept all investment projects with positive net present value in order to maximize the wealth of shareholders. The net present value rule tells us to spend funds in the projects until the net present value of the last project is zero.
Capital rationing refers to a situation where the firm is constrained for external, or self imposed, reasons to obtain necessary funds to invest in all investment projects with positive net present value. Under capital rationing, the management has not simply to determine the profitable investment opportunities, but it has also to decide to obtain that combination of the profitable projects which yields highest net present value within the available funds.
Why capital rationing?
Capital rationing may rise due to external factors or internal constraints imposed by the management. Thus there are two types.
• External rationing
• Internal rationing
External capital rationing
This mainly occurs on account of the imperfections in capital markets. Imperfections may be caused by deficiencies in market information, or by rigidities of attitude that hamper the free flow of capital. The net present value rule will not work if shareholders do not have access to the capital markets. Imperfections in capital markets alone do not invalidate use of the net present value rule. In reality, we will have very few situations where capital markets do not exist for shareholders.
Internal capital rationing
This is caused by self imposed restrictions by the management. Various types of constraints may be imposed. For example, it may be decide not to obtain additional funds by incurring debt. This may be a part of the firms conservative financial policy. Management may fix an arbitrary limit to the amount of funds to be invested by the divisional managers. Sometimes management may resort to capital rationing by requiring a minimum rate of return higher than the cost of capital. Whatever, may be the type of restrictions, the implication is that some of the profitable projects will have to be forgone because of the lack of funds. However, the net present value rule will work since shareholders can borrow or lend in the capital markets.
It is quite difficult sometimes justify the internal rationing. But generally it is used as a means of financial controls. In a divisional set up, the divisional managers may overstate their investment requirements. One way of forcing them to carefully assess their investment opportunities and set priorities is to put upper limits to their capital expenditures. Similarly, a company may put investment limits if it finds itself incapable of coping with the strains and organizational problems of a fast growth.
By: Randika Lalith Abeysinghe
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Filed under Business by on Jul 23rd, 2010.
Besides being lucrative, Investment Banking is one of the most competitive areas for aspiring candidates to enter the banking industry. Mostly, investment banks seek to recruit candidates who come from top universities and business schools. In order to start a career in investment banking, you need to have excellent analytical abilities, communication skills and aptitude for numbers.
Career Options
Investment banking is one of best options for candidates who possess drive, confidence and stamina. It is not meant for the feint of heart, as investment banking requires very a strong personality. Stamina and drive are both important, as financial services industry employee work long hours, particularly when they have to deal with deadlines. Generally, the working hours of an employee in investment banking ranges between 60 to 70 hours. However, during busy times, working hours may extend through the weekend.
Investment banking is composed of different sectors within which you can choose a suitable career. Investment banks also have various divisions within different sectors. When applying to a bank, candidates should make up their mind about which area they would like to join. The choice of area depends on their abilities and interests. Some of the sectors in investment banking are as follows:
Corporate Finance: Corporate finance includes a range of areas such as debt and equity capital, appropriate capital structures and mergers and acquisitions. Advisory services include sector specialists, who are supported by several general service teams.
Sales And Trading: Sales and trading is considered to be one of the most popular areas of work in the field of investment banking. A number of employees are required to work within the sales and trading departments. The work calls for hard working people with the ability to think fast and make key decisions in just seconds. The basic role of a sales and trading employee is to inform clients about the opinion of the bank on certain assets and markets.
As sales and trading staff spend most of their working hours in talking to clients, it is important for employees to have strong communication skills. Additionally, employees working in the sales and trading department in investment bank need to have a complete understanding of the research produced by their company. They should also be able to present sophisticated arguments in a convincing manner to a very sophisticated client base.
Research: Employees working with the research department provide clients with up-to-date reports on certain areas of interest. Analysts in the research department specialize in a specific business sector or area, thereby developing reports that can be safely distributed to clients. Besides having effective analytical abilities, good analysts working with the research department in investment banking need to have effective communicative skills, ability to think clearly and present clear ideas with confidence to the clients.
If you have a great amount of drive, determination and stamina, a career in investment banking could prove to be very lucrative, exciting and rewarding.
By: Tony Jacowski
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Filed under Business by on Jul 18th, 2010.
In this tough business environment, many small businesses are cutting back on their marketing investment. This is not an easy decision because the goal of marketing is to increase sales. To be able to make the best decision on how much to spend on your marketing strategy, you must be able to measure the value generated for each dollar spent on marketing, or in other words, measure the Return on Marketing Investment (R.O.M.I.).
There are two ways to measure R.O.M.I. The first is the straight forward, short-term and direct method. Divide the profits generated by the marketing plan by the dollars spent on the marketing plan. This assumes that you are able to identify and link the sales to the marketing plan. For example, if a coupon is circulated, the redemption of each coupon can be credited to that marketing tactic. Then, you can calculate the profit from those transactions and divide it by the cost of running the coupon. But what if you can’t identify the source of a sale? Or, what if the goal of the marketing investment was to build brand recognition? This leads us to the second, less straight forward, long-term method of calculating R.O.M.I.
The long-term way to calculate R.O.M.I. requires you evaluate the sales situation more holistically. By looking at the overall value to the business that the marketing effort contributed, you can calculate a measurable ratio that includes non-monetary values. Following are a few examples;
· Increased Brand Awareness and Purchase Intent – In order to estimate the value of building your brand, you need to track measures such as recall, likeability, and awareness. These measures are indicators of purchase intent. Improving these measures will increase purchase intent. A simple survey, or customer response tool, can track these measures. By calculating a correlation with purchase intent, you can assign a dollar value to improving each measure and weigh it against the investment.
· Lead Generation or Shortened Sales Cycle – If you consider the time and effort to make a sale in your business model, a marketing program can be valued by the amount of time saved in making that sale. The value of time can be estimated in a number of ways. One way might be the hourly rate of a salesperson. If an effective marketing program cuts the time it takes to make a sale, the profit margin is increased and the R.O.M.I. increases.
· Cost per Lead or Profit per Sale – What does it cost your business to make a sale? How much time and effort does it take to create a lead? One way to measure this it to divide the number of sales by the total cost of sales and marketing. Once this is calculated, you can decide if the investment effort improved or worsened your current efforts.
Be careful when calculating R.O.M.I. to include the entire value realized from the investment. It is difficult to put a value on the word of mouth benefit you get when your advertising generates discussion. Or it may be difficult to put a value on brand recognition or purchase intent. But if these key performance indicators to sales are ignored, you may be under-valuing your marketing investment.
By: Todd Dittman
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Filed under Business by on Jul 7th, 2010.