29. Wrapping Up Operational Budgeting Flashcards
How is the operating statement different from the income statement?
The operating statement is focused on the profit generated by the organization’s primary business. It reports on the product cost (i.e., cost of goods sold) and period costs (i.e., selling and administrative expense), but it does not include the non-operating expenses such as interest and taxes that are included on the formal income statement
What are the different ways to compute the budget for cost of goods sold?
- Based on the traditional income statement formula, use the production budget and the standard cost sheet to calculate total production costs, then use beginning and ending finished goods inventory to find cost of goods sold.
- Alternatively, simply multiply the budgeted sales volume by the standard cost per unit.
How do selling and administrative (S&A) expenses affect the operating statement?
Selling and administrative (S&A) expenses are another form of overhead for the organization. And like manufacturing overhead, these expenses typically have variable and fixed cost components. Selling and administrative expenses must be budgeted before the operating statement is complete.
What is the difference between the operating statement and the contribution margin statement?
The main difference between the two statements is the repositioning of costs. All product costs (material, labor, overhead) are positioned above the gross margin line in the operating statement, and non-production costs (selling and administrative) are below. In contrast, all variable costs (whether related to production or to sales and administration) are above the contribution margin line in the contribution margin statement and all fixed costs are below.
Describe the process of reconciling the operating statement and the contribution margin statement.
The difference between the operating statement and the contribution margin statement can be explained by multiplying the fixed manufacturing cost per unit by the change in inventory. If the standard cost per unit for fixed manufacturing overhead is different between the two years, the beginning and ending inventories must be multiplied by the appropriate rate.
