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

CHAPTER 14Cost Analysis for Planning and Control1Learning ObjectivesUse cost terminology that relates to the budgeting process.All costs are controllable at some time but in the short-run some costs are uncontrollable.Understand the budgeting process.Develop a sales, purchases and production budget.Discuss the importance of cost behaviour patterns.Explain how a budgeted income statement and balance sheet are prepared.Develop a cash budget.Interpret the reporting for segments of an organisation.Use return on assets and residual profit to evaluate performance.Explain the usefulness of a balanced scorecard.2Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynOverviewPlanning is an essential part of the management process and it represents the initial activity in the planning and control cycle.A budget quantifies future financial plans.Budgeting involves the use of financial accounting concepts and also management accounting techniques.Performance reporting involves the comparison of actual results with planned results.Corrective action can be taken to deal with variances from planned results.The budget process requires communication and coordination of activities between the different functional areas of the firm.3Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Control Steps taken by management to ensure that objectives are attained. Planning Developing objectives for acquisitionand use of resources.A budget is a comprehensive financialplan for achieving the financial andoperational goals of an organisation.Budgeting4Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBudgetingManagement philosophy is reflected in how the budget is prepared and used:Top downHighly structured (carved in stone)ParticipativeFlexibleThe budget should be seen as a guide that reflects management’s best thinking at the time of preparation. It may have to change if circumstances change.5Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBudgetingFinancial accounting concepts, as the results of an organisation’s activities are reported via financial statements.Management accounting techniques, especially knowledge about cost behaviour patterns.A budget involves the use of:6Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCost classificationsVariable costs change with the volume of activity unit costs constant.Fixed costs do not change within a relevant rangeRecap of cost behaviour patterns:Mixed costs a certain amount of cost can be expected regardless of activity7Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCost ClassificationsAccording to time frame perspectiveCommittedIncurred to carry out long range policy decisions to which the firm is committed.DiscretionaryCosts that can be adjusted in the short run after evaluation of resources. In the long run, every cost is controllable.Fixed costs8Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Budget Time FrameSingle period budget – prepared in the months preceding the beginning of the year, but estimates must be made more than a year in advance.Rolling budget – planning for segments of a year on a repeat basis.Continuous budget – the final budget for any quarter should be much more accurate as it has been prepared more recently, but time, effort and money are required.9Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Budgeting Process1. Develop and communicate a set of broad assumptions about the economy, industry and organisational strategy.2. Prepare operating (master) budget (the operating plan) which is made up of a number of detailed budgets: • Prepare sales budget -- estimated unit prices and unit sales. All other budgets are a function of sales activity.10Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Budgeting ProcessDirectMaterialsBudgetProduction BudgetOperating ExpenseBudgetDirectLaborBudgetManufacturingOverheadBudgetSales BudgetCost of GoodsSold BudgetBudgeted Balance SheetBudgeted Income StatementBudgeted Statement of Cash Flows11Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Production or Purchases BudgetThe basic inventory flow model is usedfor production and purchases budgets.Goods available for saleBeginninginventory+Purchases or productionCost (or quantity) of goods sold=Endinginventory-12Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Production or Purchases Budget Production or purchases must be adequate to meet budgeted sales and to provide sufficient ending inventory. Budgeted sales in units+ Desired units in ending inventory= Total product units needed– Beginning inventory= Units to produce or purchase13Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Production or Purchases BudgetOnce quantities have been determined, they can be converted to dollars. When the number of units to be produced is known, the quantity of each raw material input to be purchased can be forecast using the same model. Raw materials Direct labour Manufacturing overheadDetermining these budgeted amounts often involves the use of a standard cost system.14Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Cost of Goods Sold BudgetSummarises changes in inventory accounts, as indicated by:• Sales budget• Purchases and production budget• Required ending inventory levels as determined by management.15Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynOperating Expense BudgetThe cost behaviour patterns of selling, general, administrative and other operating expenses are determined.May be a function of sales or influenced by management strategy.Budget slack or ‘padding the budget’Tendency of managers to submit budget estimates that are slightly higher than expected costs.16Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBudgeted Income StatementProduction BudgetOperating ExpenseBudgetSales BudgetCost of GoodsSold BudgetBudgeted Income StatementMay be prepared after completion of other budgets.17Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Cash BudgetSimilar to a budgeted statement of cash flows, but with shorter time frame.Cash collections from customers? How long does it take the firm to collect its receivables?Short-term borrowing requirements?Cash payments to suppliers?What credit terms is the firm subject to?How often does the firm pay its employees?18Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBudgeted Balance SheetMay be prepared after completion of other budgetsOperating ExpenseBudgetDepreciation and amortisationBudgeted Balance SheetBudgeted Income StatementProduction BudgetSales BudgetCost of GoodsSold BudgetBudgeted Statement of Cash FlowsInventory balancesRetained earning balanceAccounts receivable, accounts payable, equipment, dividends19Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStandard costs are: Based on carefullypredetermined amounts. Used in planning and control phases of the management process, particularly budgeting. Used in financial accounting to value inventory. Benchmarks formeasuring performance.Standard Costs20Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStandard CostsA standard cost has two elements:Quantity of input (weight, volume, hours)Cost per unit of input.StandardUnit budgetUsed extensively in the budget preparation process.Used to plan for input that will be needed to make the product.21Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynPerformance ReportingThe performance report compares actual results to budgeted amounts.Those activities that are performing differently from expectations are highlighted and variances investigated.22Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynPerformance Report Characteristics ActivityFavourableActual revenues > Budget revenuesActual costs Budget costsBudgetedAmountActualAmount–=VarianceExplanation ?23Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynResponsibility ReportingAmount of detail varies according to level in organisation.Performance Report Characteristics Involves successive degrees of summarisation.Each layer of management receives detailed reports for their layer, but summarised reports for lower layers.24Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynManagement by exception: Management concentrate their attention on only those activities that are not performing according to plan. Usually only those variances in excess of a certain percentage (say 10%) are investigated.Performance Report Characteristics 25Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynPerformance ReportingThe performance report compares actual results to budgeted amounts.Those activities that are performing differently from expectations are highlighted and variances investigated.26Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynPerformance Report Characteristics ActivityFavourableActual revenues > Budget revenuesActual costs Budget costsBudgetedAmountActualAmount–=VarianceExplanation ?27Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynResponsibility ReportingAmount of detail varies according to level in organisation.Performance Report Characteristics Involves successive degrees of summarisation.Each layer of management receives detailed reports for their layer, but summarised reports for lower layers.28Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynManagement by exception: Management concentrate their attention on only those activities that are not performing according to plan. Usually only those variances in excess of a certain percentage (say 10%) are investigated.Performance Report Characteristics 29Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Flexible BudgetImprove performance evaluation.May be prepared for any activity level in the relevant range.Adjusts the original budget to reflect budgeted amounts for actual activity.Reveal variances due to good cost control or lack of cost control.30Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn To flex a budget for different activity levels, we must know how costs behave with changes in activity levels (variable costs and fixed costs).The Flexible BudgetVariable costs / unitActual level of activityActual costsxFlexible budgetCompared with31Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynReporting for Segmentsof an OrganisationA segment of an organisation is a division, product line, sales territory or other organisational unit. For management reports, total company results may be reported by segment.Segment income statements should reflect the contribution to the common fixed expenses and company profit.32Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynReporting for Segmentsof an OrganisationProfit Centre A part of the business that has control over both costs and revenues, but no control over investment funds.Investment Centre A profit centre where management also has autonomy for investing in assets to conduct operations.Cost CentreA business section that has control over the incurrence of costs, but does not generate revenue.33Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynMethods of Evaluating SegmentsCostCentreActual costs compared to budgeted costs.ProfitCentreInvestmentCentreActual return on assetscompared to budgetedreturn on assets.Evaluation MeasuresActual segment margincompared to budgetedsegment margin.Segment34Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAnalysis of Investment CentresReturn on investment (ROA) is the ratio ofsegment EBIT to the investment used to generate the segment EBIT.ROA =Segment Segment EBIT Divisional operating assetsAs investment centre managers have a much higher level of responsibility, appropriate measures of performance are important. 35Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAnalysis of Investment CentresSalesOperating assetsROA = Segment EBITOperating assetsROA = Segment EBITSales×MarginTurnover36Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynROA and Dysfunctional BehaviorA performance evaluation system needs to be carefully designed so that it doesn’t lead to dysfunctional behaviour where managers act in their own best interests and not in the company’s best interests.37Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynResidual Profit ROA should not be the sole measure of investment centre performance. Managers should be evaluated on their ability to generate a minimum ROA and to maximise theamount of earnings above that minimum ROA. Residual profit encourages managers to make profitable investments that would be rejected by managers using ROA.38Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStandard costs are: Based on carefullypredetermined amounts. Used in planning and control phases of the management process, particularly budgeting. Used in financial accounting to value inventory. Benchmarks formeasuring performance.Standard Costs39Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStandard CostsA standard cost has two elements:Quantity of input (weight, volume, hours)Cost per unit of input.StandardUnit budgetUsed extensively in the budget preparation process.Used to plan for input that will be needed to make the product.40Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynA set of integrated performance measures that highlight and communicate an organization’s strategic goals and priorities.EmployeestakeholdergroupInvestorstakeholdergroupThe Balanced ScorecardThis approach shows an organisation’s performance in meeting its responsibilities to various stakeholders.41Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynFinancial PerspectiveHow do we lookto the firm’s owners?Learning and Growth PerspectiveHow can we continuallyimprove and create value?Internal BusinessProcess PerspectiveIn which activities must we excel?Customer PerspectiveHow do our customers see us?IntegratedmeasuresThe Balanced Scorecard42Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn