Kế toán, kiểm toán - Chapter 14: Cost analysis for planning

CHAPTER 14COST ANALYSIS FOR PLANNINGMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning ObjectivesWhat is the cost terminology that relates to the budgeting process?Why are budgets useful, and how does management philosophy influence the budget process?How are alternative budget time frames used?What is the significance of the sales forecast (or revenue budget) to the overall operating budget?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning ObjectivesHow is the purchases/production budget developed?What is the importance of cost behavior patterns in developing the operating expense budget?Why are a budgeted income statement and balance sheet prepared?How is the cash budget developed?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning ObjectivesWhy and how are standards useful in the planning and control process?How is the standard cost of a product developed?How are standard costs used in the cost accounting system?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 1What is the cost terminology that relates to the budgeting process?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Planning and BudgetingPlanning is the initial part of the planning and control cycleA budget is a plan in financial termsThe results of an organization’s activities will be reported in terms of income, cash flow, and financial position – the financial statementsMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Strategic, Operational, and Financial PlanningPlanning and Control CyclePerformance Analysis: Plans vs. Actual Results (Controlling)Executing Operational Activities (Managing)Revisit PlansImplement PlansData Collection and Performance FeedbackMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Usefulness of BudgetsThe preparation of a budget forces management to planThe budget provides a benchmark against which to compare actual performanceThe budgeting process requires communication and coordination among functional areas of a firmMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Standard CostsA standard cost is a budget for each component – materials, labor, and overhead – of a productStandard costs are used in the planning and control processes of manufacturing and other types of companiesMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cost ClassificationsClassifying costs based on the relationship of total cost to volume of activity results in categories of variable, fixed, and mixed costsClassifying costs according to a time-frame perspective results in committed and discretionary costsA committed cost is incurred to execute a long-range policy decisionA discretionary cost is one that can be adjusted in the short term at management’s discretionMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 2Why are budgets useful, and how does management philosophy influence the budget process?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002The Budgeting Process in GeneralIn a highly structured organization, the budget is seen as carved in stoneManagement philosophy is reflected in whether the budget is prepared using a top-down, dictated, approach or a participative, managers involved, approachMost budgets are based on current budgets with revisions– the incremental approachMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 3How are alternative budget time frames used?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002The Budget Time FrameBudgets can be prepared for a single period or for several periodsA single-period budget is prepared in the months preceding the beginning of the year and is used the entire yearA multi-period or rolling budget involves planning for segments of a year on a repetitive basisThe advantage of a continuous budget is that it will be more accurate, but it takes more effortMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002The Budgeting ProcessFirst, develop and communicate assumptions about the economy, the industry, and the organization’s strategyThe operating budget is made up of a number of detailed budgets:Sales/revenue budgetPurchases/production budgetOperating expense budgetIncome statement budgetCash budgetBalance sheet budgetMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 4What is the significance of the sales forecast (or revenue budget) to the overall operating budget?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Sales ForecastThe sales forecast is the key to developing a reasonable budgetThe most challenging component since there is so little control over the variables that influence salesNeed to consider the past experience of managers, production capacity, pricing policy, and advertising effectivenessThe other budgeted items are a function of the sales budgetMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 5How is the purchases/production budget developed?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Purchases/Production BudgetBy using the cost of goods sold model with units, the quantity of merchandise to be manufactured or purchased can be determined – after the sales budgetThe firm’s inventory policy determines the amounts to be used in the computationThe inventory policy should take into consideration such factors as lead time and forecast errorsThe ending inventory for one period is the beginning inventory for the next periodMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Budget Calculations as a GuideIf a production budget calls for vastly different quantities to be manufactured each period, the production may be planned at a constant levelIf materials can be purchased in certain quantities, the purchase quantities nearest to the calculated value will be usedBudget calculations provide a guide to action – not absolute amountsMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cost of Goods Sold BudgetOnce the sales budget and the purchases/production budgets have been prepared, the cost of goods sold budget can be preparedCost of goods sold consists of:Raw materials budgetDirect labor budgetOverhead budgetMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 6What is the importance of cost behavior patterns in developing the operating expense budget?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Operating Expense BudgetSome operating expenses are variable expenses:Sales commissionsSome operating expenses are fixed:DepreciationTherefore, operating expenses are budgeted according to their cost behavior patternsBudget slack occurs when managers larger budgets than necessaryMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 7Why are a budgeted income statement and balance sheet prepared?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Budgeted Income StatementUse the sales forecast, the cost of goods sold budget, and the operating expense budget to prepare budgeted income statementAn important step in determining profitability and overall satisfactory resultsMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Budgeted Balance SheetA budgeted balance sheet is prepared after the impact of all the other budgets has been determinedDepreciation, amortization, inventory, cash, liabilities, and owners’ equity are all affected by the other budgetsMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 8How is the cash budget developed?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Cash BudgetLike a budgeted cash flow statement – but with a short time frameMust anticipate short-term borrowing needsMust know when excess cash can be invested for interest revenueMust make assumptions about collection of accounts receivable and sales through a cash receipts budgetMust make assumptions about cash paymentsMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 9Why and how are standards useful in the planning and control process?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Standard CostsUsed in:Planning and control process of managementValue inventory for financial reportingHas two inputs:Quantity of inputCost per unit of inputIs a unit budgetMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Using Standard CostsStandard costs are used to compare to actual costsDifferences are called variancesThe variances may be due to either differences in input quantity or differences in cost per input unitAppropriately developed, standard costs can be used in the cost accounting systemMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 10How is the standard cost of a product developed?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Developing StandardsIdeal standards – assumes operating conditions will be ideal; maximum efficiency at all times; usually will have unfavorable variancesAttainable standards – recognizes there will be some operating inefficiencies; will have both favorable and unfavorable variancesPast experience standards – includes all inefficiencies from past operations; does not contain a challengeMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 11How are standard costs used in the cost accounting system?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Costing Products with Standard CostsMust aggregate the individual standard costs for each of the inputs:Raw materialsDirect laborOverheadPurchasing agent provides information about materials costsHuman resources will provide information about labor costsMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Overhead Standard CostsOverhead costs are classified as fixed or variableVariable overhead will be expressed in terms that reflect the causes of overhead expendituresFixed overhead will be expressed as a total cost per accounting period and allocated to individual productsMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Other Uses of StandardsCan be used for planning and control of period costsCan be used with quantitative goals of the organizationThe development of goals can be expressed as standardsDo not have to be expressed in dollarsMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Budgeting for Other Analytical PurposesService firms can use budgeting techniques for financial and nonfinancial resources such as time budgetsCan also be used in manufacturing firms in areas not related to production such as customer serviceMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002