Kế toán, kiểm toán - Chapter 15: Cost analysis for control

CHAPTER 15COST ANALYSIS FOR CONTROLMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning ObjectivesWhy are all costs controllable by someone at some time, but in the short run some costs may be classified as noncontrollable?How does performance reporting facilitate the management-by-exception process?How can the operating results of segments of an organization be reported most meaningfully?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning ObjectivesWhat is a flexible budget, and how is it used?How and why are the two components of a standard cost variance calculated?What are the specific names assigned to variances for different product inputs?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning ObjectivesHow do the control and analysis of fixed overhead variances and variable cost variances differ?What are the alternative methods of accounting for variances?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 1Why are all costs controllable by someone at some time, but in the short run some costs may be classified as noncontrollable?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Performance ReportingInvolves the comparison of actual results with planned resultsThe objective is highlighting those activities where planned and actual results differAppropriate actions may be taken to address the causes of the favorable or unfavorable variancesMcGraw-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., 2002Relationship of Total Costs to Volume of ActivityAny differences between achieved and planned performances should be evaluatedAs the level of activity changes from the planned activity, total variable costs should changeThe total amount of fixed costs should not change with changes in levels of activityMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002+/-Cost Classification According to a Time-Frame PerspectiveA noncontrollable cost is one which the manager can do nothing to influence the amount of the costNoncontrollable costs occur in the short runIn the long run every cost is controllable by someone in the organizationMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 2How does performance reporting facilitate the management-by-exception process?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Characteristics of the Performance ReportA performance report compares actual results to budgeted amountsIt is an integral part of the control processThe general format is as follows: Budget Actual Activity Amount Amount Variance ExplanationMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002VariancesVariances are usually described as either favorable or unfavorableA favorable variance occurs when results exceed planned activities in a positive manner – revenues are larger than expectedAn unfavorable variance occurs when results exceed planned activities in a negative manner – expenses are larger than expectedMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002+/-Responsibility ReportingThe explanation column in the performance report is to communicate to upper-level management the causes of variancesIn responsibility reporting, higher levels of management receive less details regarding lower levels in the chain of commandManagers want to eliminate unfavorable variances and retain favorable variancesMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Management by ExceptionManagers concentrate their efforts only on those activities that are not performing according to the planTo aid in this effort, variances are often expressed in percentagesOnly those variances that exceed a predetermined percentage are investigatedMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Frequency of Performance ReportsPerformance reports should be issued soon after the period in which the activity takes placeIf later, actions are forgotten or confusedA question regarding performance reports is whether noncontrollable expenses should be reportedMay want managers to be aware of all costs, or may want managers to deal only with controllable costsMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 3How can the operating results of segments of an organization be reported most meaningfully?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Reporting for Segments of an OrganizationA segment is a division, product line, or other organizational unitUsing the contribution margin format, sales, variable expenses, contribution margin, fixed expenses, and operating income are calculated for each segmentFixed expenses should be divided into direct fixed expenses and common fixed expensesMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Segment Fixed ExpensesDirect fixed expenses would be eliminated if the segment were eliminatedCommon fixed expenses are an allocated portion of the organization’s fixed expensesCommon fixed expenses would not be eliminated if the segment were eliminatedMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Types of SegmentsA responsibility center is an element of the organization over which a manager has responsibility and authorityCost center – does not generate revenue for the organizationProfit center – generates revenue for the organizationInvestment center – generates revenue and controls assets of the organizationMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Evaluating SegmentsCost centers are evaluated by comparing actual costs incurred to budgeted costsProfit centers are evaluated by comparing actual segment margin to budgeted segment marginInvestment centers are evaluated by comparing actual and budgeted return on investment based on segment margin and assets controlled by the segmentMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 4What is a flexible budget, and how is it used?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Flexible BudgetA flexible budget is one that reflects budgeted amounts for actual activityFlexible budgeting does not affect the predetermined overhead application rateTherefore, fixed overhead will be overapplied or underappliedMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 5How and why are the two components of a standard cost variance calculated?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Analysis of Variable Cost VariancesThe total variance for a cost component is called the budget varianceThe budget variance is caused by two factors:The difference between the standard and actual quantityThe difference between the standard and actual unit costMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Variance TerminologyDifferent variances are the responsibility of different managersMust separate total variances so that each manager can take appropriate actionQuantity variances often called usage or efficiency variancesCost per unit of input variances often called price, rate, or spending variancesMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Direct Labor VariancesDirect labor efficiency variance is the quantity variance for direct laborThe direct labor efficiency variance is the difference between standard hours allowed and actual hours workedDirect labor rate variance is the cost per unit of input varianceThe direct labor rate variance is the difference between actual and standard hourly pay ratesMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 6What are the specific names assigned to variances for different product inputs?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Variance Names Cost per unitInput Quantity of InputRaw materials Usage PriceDirect labor Efficiency RateVariable overhead Efficiency SpendingMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002General Variance ModelQuantity variance =Standard Actual Standardquantity - quantity X cost perallowed used unitCost per unit of input variance =Standard Actual Standardquantity - quantity X cost perallowed used unit McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Graphical RepresentationActual quantity used Actual quantity used Standard quantity allowed X X XActual cost per unit Standard cost per unit Standard cost per unitCost per unit ofInput varianceQuantityvarianceMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Variance Analysis ObjectivesObjective is to highlight deviations from planned resultsWant to eliminate unfavorable variances and capture favorable variancesNeed to analyze variances for each standardUsually raw materials usage variances and direct labor efficiency variances are reported frequentlyMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Raw Materials Purchase VarianceMany firms calculate and report raw materials price variances at the time the materials are purchased rather than when they are usedModified purchase price variance:Standard Actual Actualcost per - cost per X quantityunit unit purchasedMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 7How do the control and analysis of fixed overhead variances and variable cost variances differ?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Analysis of Fixed OverheadAnalyzed differently from variable cost variancesThe focus is on the difference budgeted fixed overhead and actual fixed overhead expendituresThis difference is divided into a budget variance and a volume variance McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Fixed Overhead Volume VarianceVolume variance is the difference between the amount of fixed overhead applied to production and that planned to be appliedIt is not appropriate to make per unit fixed overhead variance calculations because fixed costs do not behave on a per unit basisMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Fixed Overhead Budget VarianceThe budget variance is the difference between budgeted fixed overhead for the period and the actual fixed overhead for the periodFixed overhead is difficult to control on a short-term basisBut is a significant cost, so it receives management’s attentionMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Learning Objective 8What are the alternative methods of accounting for variances?McGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002Accounting for VariancesIf the total of all of the variance is not significant, it is included with cost of goods sold in the income statementStandard costs also are released to cost of goods soldTherefore, cost of goods sold reports the actual cost of the itemsIf variances are large, the variances are allocated between inventory and cost of goods soldMcGraw-Hill/Irwin©The McGraw-Hill Companies, Inc., 2002