Test 3 Ch 9-11 Flashcards
(41 cards)
Budgeting
Budgets- Financial plans for the future and are key component of planning
Budgets help business owners and managers plan ahead, and later, exercise control by comparing what actually happened to what was expected in the budget.
Budgets formalize managers expectations regarding sales, prices, and costs
Planning
Looking ahead to see what actions should be taken to realize particular goals.
Control
looking backward, determining what actually happened and comparing it with the previously planned outcomes.
Strategic Plan
Plots direction for an organizations future activities and operations; generally covers 5 years.
Production Budget
Units to be Produced
Production Budget- Tells how many units must be produced to meet sales needs and to satisfy ending inventory requirements.
Expected Sales in Units
+Desired Ending Inventory in Units
= Total Units needed
-BI
=Units to be Produced
Direct Materials Purchases Budget
quantity of DM to be purchased
DM purchases budget- tells the amount and cost of raw materials to be purchased in each time period.
Quantity of DM needed for production
+Desired EI of DM
=Tot. Quantity of DM needed
-BI of DM
=Quantity of Dm to be purchased
* (DL BUDGET IS SAME FORMULA JUST WITH DL)**
COGS Budget
Budgeted COGS
COGS Budget- calculated the expected costs of the goods to be sold.
DM used
+DL used
+OH
=Budgeted Manufacturing costs
+BI Finished Good
=Goods available for sale
- EI finished goods
=Budgeted COGS
Selling and Admin Expense Budget
Selling and Admin Expense Budget:
- Outlines Planned Expenditures for non manufacturing activities.
- Variable and Expense component
- To get variable you might have to multiply some numbers
- Fixed should be given
TItle
Variable Selling Expense:
Commission (could be different) $
Fixed Selling Expense: Salaries $ Utilities $ Office Space $ Advertising $
Tot Fixed expense $
= Total S&A expense
Budgeted Income Statement
TITLE
Sales $
-COGS ($)
=GM $
- Var S&A ($)
- Fix S&A ($)
=OI $
-Inc Tax ($)
=Net Inc
Cash Budget
Beg Bal
+Cash receipts
=Cash available $
Less: Cash Outflows -Payments for food -wages -insurance -rent (above could be different) =Tot. Cash $
Ending Cash Bal= Tot Cash- Cash Available
Ending Inventory for month
Rate(%) x units x # of Drums (Could be something else, Drums was used in the example)
Overhead Budget
Shows expected cost of all production cost other then DM & DL
Tot. DL Hours
x VOH Rate
= Tot VOH
+FOH
=Tot. OH
Unit Standard Cost per Unit
Quantity Standard (QS): -quantity of input allowed per unit of output
Price Standard (PS): -The price that should be paid per unit of input
Standard Cost per unit= QS x PS
Types of Standards
Ideal Standards:
- Demand maximum efficiency and can be achieved only if everything operated perfectly.
- No machine breakdowns, slack, or lack of skill (even momentarily) are allowed.
Currently Attainable Standards:
- Can be achieved under efficient operating conditions
- Allowance is made for normal breakdowns, interruptions, less than perfect skill, and so on.
- These standards are demanding but achievable
Why are Standard Cost Systems adopted?
- To improve planning and control
- To facilitate product costing
Advantages of Standard Product Costing
- Greater capacity for control.
- Provides readily available unit cost information.
- No unit cost calculation for each equivalent unit category process costing.
- No need to distinguish between FIFO and weighted average methods of accounting for beginning inventory costs
Standard Cost Sheet
Calculates the total standard cost for one unit of product
SQ X SP(SR)
– could be the materials, labor, VOH, FOH
Variance Actual Cost (formula) Planned Cost (formula)
Variance- occurs when actual input differs from planned input.
Actual Cost= AQ X AP
Planned Cost= SQ X SP
Variance Analysis
Difference between actual cost of the input and its planned cost.
ACTUAL BUDGETED STANDARD
AQ(AH) AQ(AH) SQ(SH)
x x x
AP(AR) SP(SR) SP(SR)
Tot. Variance- difference between actual and standard.
– (AQ x AP) - (SQ x SP)
Price (Rate) Variance- Left side, difference between Actual and Budgeted.
- (AP-SP)AQ
- (F) if Budgeted is bigger then Actual
Usage (Efficiency) Variance- Right side, difference between Budgeted and Standard.
- (AQ-SQ)SP
- (F) if Standard is bigger then Budgeted
Unfavorable (U) Variance
occurs when Actual is greater then Standard
Favorable (F) Variance
occurs when Standard is greater then Actual
Target Costing (definition and formula)
Target costing- Focuses on the reduction of the design costs of existing and future products and processes.
– A target cost is the difference between the sales price need to capture a predetermined market share and the desired per-unit profit.
Target Cost per Unit= Expected Sales Price per unit - Desired Profit per unit.
Actual Variable Overhead Rate (AVOR)
AVOR= Actual VOH / Actual DLH
Standard Variable Overhead Rate (SVOR)
SVOR= Standard VOH / Standard DLH
