samenvatting intermediate managing accounting 1

8/11/2019 Samenvatting Intermediate Managing Accounting 1

1/26

chapter 1: introductionManagement accounting and financial accounting

Management accounting and financial accounting often use the same data Crucial difference is the purpose of use:

Financial accounting:

Provide insight to investors and other stakeholders Management accounting: Provide insight to managers

Understand the purposes of accounting systems. depends on the organization official records

bookkeeping general ledger

information systems sap, oracle spreadsheet

production and customer data?

customer relationship management systems (Management accounting data is mainly about: !he value of assets !he costs of products and processes !he results of activities

Production, sales etc" for e#ample:

product pricing and marketing strategy and long$range planning resource allocation decisions efficiency of operations performance measurement and management evaluation of managers and employees

Know the terms planning, control and budgets.Planning: Choosing goals" Predicting results under various %ays of achieving those goals and thendeciding ho% to attain the desired goals"Control: Covers both the action that implements the planning decision and the performance evaluation ofthe personnel and operationsBudgets: the &uantative e#pression of a plan of action and an aid to the coordination and implementationof a plan"

upply chain!he flo% of goods, services and information from cradle to grave, irrespective of %hether those activitiesoccur in the same organization or other organizations"

!alue chain!he se&uence of business functions in %hich utility is added to the products or services of anorganization"

Verspreiden niet toegestaan | Gedownload door: Roza Smit | E-mail adres: [email protected]
http://www.studeersnel.nl/


2/26


3/26

1" )hat indirect costs are associated %ith the ob? support activities common (shared resources

2" +elect a cost allocation base for the indirect costs labor hours units """

3" Calculate the allocation rate 4ndirect costs allocated to cost obect per unit of the allocation base

5" 'ssign the costs to the ob !race direct costs and allocate indirect costs using the allocation base and rate

'ample 6ent of 077 m0office building in 0778: 9/07,777 Floor space department ': 83 m0 Floor space department : /03 m0 'llocation base is m0 of floor space )hat is the allocation rate?

/07,777 . 077;

9577 per m0

'llocated to ': 9577 # 83 ; 923,777 'llocated to : 9577 # /03 ; 983,777

/ormal and actual costing. Calculating a cost allocation rate re&uires the period activity level

number of design hours total production volume


4/26

Method ": 0n proportion to closing balance

Method *: direct write=off

chapter >: process costing Production data February

%ork started in this period: 577 %ork finished: 277 ra% materials /77@ completion completion rate for conversion: 57@

A&uivalent units of %$i$p direct materials: 077 conversion cost: 57@ B 077 ; /07

+uppose: !otal cost to account for: 9 11,027

materials costs: 9 //,277 conversion costs: 9 0/,27

Duestion is: ho% much belongs to sold product and ho% much to )4P? A&uivalent unit costs

Materials cost: //,277 . 577 ; 9 /E per e&" unit Conversion costs: 0/,27 . (277/07 307 ; 9 20 per e&" unit

Cost of completed output 277 B (/E20 ; 9 02,277

Cost of %$i$p materials: 077 B /E ; 9 1,77 conversion: /07 B 20 ; 9 3,727 total costs: 1,77 3,727 ; 9 ,27 so be sure to calculate materials and conversion cost of %$i$p separately

!otal cost accounted for 02,277 ,27 ; 9 11,027

closingbalance before

proration

proration

0P 2 "44,444 5 146 2 14,444

&- 2 *44,444 5 1


5/26

Process costing in < steps/" summarize flo% of goods

opening %$i$p, units started, closing %$i$p0" calculate output in e&uivalent units1" compute e&uivalent unit costs2" calculate total costs to account for

3" assign total costs to units completed and units in closing %$i$p make sure that they add up to the total costs to account for

!%o %ays to deal %ith this %eighted average method: take all costs from opening %$i$p and %ork started during

period, and divide over e&uivalent units first$in$first$out (F4F method: treat current and previous production separately

eighted a$erage pening stock March: 9 ,27

materials: 9 1,77 (077 units, fully completed conversion: 9 3,727 (077 units, 57@ completed

Production data March %ork started: 377 %ork completed: 337 materials costs: 9 ,377 conversion costs: 9 /8,E77 %$i$p completion: /77@ for direct materials, 17@ for conversion

tep 1: physical flow of goods opening %$i$p: 077 started: 377 completed: 337 ending %$i$p: /37

tep ": e?ui$alent unit output direct materials: 337 /77@ B /37 ; 877 conversion: 337 17@ B /37 ; 3E3

tep *: ?. unit costs direct materials (877 e& units

%$i$p costs: 9 1,77 current period costs: 9 ,377 cost per e&uiv unit: (1,77 ,377 . 877 ; 9 /8"38

conversion costs (3E3 e& units %$i$p costs: 9 3,727 current period costs: 9 /8,E77 cost per e&uiv unit: (3,727 /8,E77 . 3E3 ; 9 1"33

tep >: otal cost to account for ,27 ,377 /8,E77 ; 9 13,027

tep


6/26

&0&7 Method pening stock March: 9 ,27

materials: 9 1,77 (077 units, fully completed conversion: 9 3,727 (077 units, 57@ completed

Production data March %ork started: 377 %ork completed: 337 materials costs: 9 ,377 conversion costs: 9 /8,E77 %$i$p completion: /77@ for direct materials, 17@ for conversion

tep 1: physical flow of goods !reat %$i$p and ne% production separately

opening %$i$p: 077 (57@ conversion started and completed: 137 closing %$i$p: /37 (17@ conversion

tep ": ?ui$alent units

materials: 137 /37 ; 377 conversion: (/77@ G 57@ B 077 137 17@ B /37 ; 283 units

tep *: ?. unit costs direct materials

current period costs: 9 ,377 cost per e&uivalent unit: ,377 . 377 ; 9 /8"77

conversion current period costs: 9 /8,E77 cost per e&uivalent unit: /8,E77 . 283 ; 9 18"5

teps > @ < !otal cost to account for: 9 13,027 cost of completed output: 9 17,EE2

%$i$p: 9 ,27 materials: 137 B /8"77 ; 9 3,E37 conversion: (7 137 B 18"5 ; 9 /5,072

cost of %$i$p: 9 2,025 materials: /37 B /8"77 ; 9 0,337 conversion: 23 B 18"5 ; 9 /,5E5

accounted for: 17,EE2 2,025 ; 9 13,027

)hy is there a difference? Here:

Fifo method has only =cheap> units in stock )' still has some of the more e#pensive inputs in stock

chapter


7/26

ingle rate method ' fashion chain has t%o shops

*trecht: 07 employees, 277 m0floor space, direct costs 9 0 mln 6otterdam: /3 empl, 577 m0, direct costs 9 0"3 mln

!hese divisions are supported by: purchasing: department costs 9 /"3 mln general mgt: department costs 9 / mln

For direct costs as the allocation base: Iirect cost ;

9 0 mln 9 0"3 mln ; 9 2"3 mln !hus, for each / 9 of direct cost, there %ill be

9 0"3. 9 2"3 ; 9 7"35 indirect cost 4ndirect costs *trecht is 0 mln B 7"35 ; 9 /"// mln 4ndirect costs 6>dam is 0"3 mln B 7"35 ; 9 /"1E mln

9 0"3 mln

%ual rate method Iual$rate: classify costs in subpools"

Aach subpool has a different allocation rate or a different allocation base" For instance:

For purchasing, the allocation base is direct cost For general, the allocation base is employees

Purchasing: cost pool ;/"3 mln 'llocation base; direct cost ; 2"3 mln Jeneral: cost pool ; 0"3 mln

*trecht: (0 . 2"3B /"3 mln ; 9 7"58 mln 6>dam: (0"3 . 2"3B /"3 mln ; 9 7"1 mln

9 /"37 mln Jeneral: cost pool ; / mln 'llocation base ; 13 employees

*trecht: (07 . 13B / mln ; 9 7"38 mln 6>dam: (/3 . 13B / mln ; 9 7"21 mln

9 /"77 mln

hree support department allocation methods/" Iirect allocation

allocate the costs of service departments to operating departments only no accounting for inter$service department activities

0" +tep$do%n allocation allocate the costs of the service departments in a specific order

1" 6eciprocal allocation account for inter$service department activities in both directions

%irect allocation !%o production departments:

/" +mall and medium sized firms (K+mallL0" Multinationals (KMultiL

!%o service departments/" Jeneral management

Costs: 90777

0" 4! Costs: 95777


8/26

JM 4! +mall Multi Total

Dept.Costs 92000 96000

JM /7@ 07@ 27@ 17@

4! 03@ /3@ 13@ 03@

JM 2.8 1.8

4! 8./0 3./0

JM 9//21 938 90777

4! 91377 90377 95777

Total 94643 93357 98000

tep down allocation

-M &irst

-M 0 mall Multi :otal to mall @ Multi

%ept.Costs 2"444 23444

-M 146 "46 >46 *46

0 "A *A

0 9A1" >>

:otal 2>3>* 2**


9/26

0 &irst

-M 0 mall Multi :otaltomall@

Multi

%ept.Costs 2"444 23444

-M 146 "46 >46 *46

0 "3"1 2**9B 28444

eciprocal allocation

-M 0 mall Multi

%ept.Costs 2"444 23444

-M 146 "46 >46 *46

0 "


10/26

-M 0 mall Multi :otal

Iept"Costs

92000 96000

JM 922 9E3 9/8E7 9/121 91/11

4! 9070 9/0/8 901E 9070 9258

Total 9250E 9118/ 9777

Common costs allocation methods' cost of operating a facility, operation, activity or other cost obect that is shared by t%o or more users"'ample:Paul >+hes lives in Jal%ay" 4nvited for intervie% in Mosco%, ticket;9/077,$ 'nother invite for intervie%in Prague, ticket Mosco%$Prague;977,$" He decides to combine the tickets to get Jal%ay$Mosco%$Prague; 9/377

tand=alone cost=allocation methodCost allocation divided fairly across the employersMosco% employer: 9/077.(9/077977 B 9/377; 7"5B9/377;9E77Prague employer: 977.(9779/077 B 9/377; 7"2B9/377;9577

0ncremental cost=allocation methodCost divided trough employers by taking total amount and allocate original costs to primary party(Mosco% and the rest to the secondary party (pragueMosco%(primary original costs 9/077Prague(secondary rest amount 9177

chapter 3: #oint costs -oint costs are the costs of a production process that yields multiple products simultaneously Main issue is ho% the allocate the oint costs over the different end products Common in for e#ample chemical and food industries -oint costs are incurred for producing t%o or more products (outputs

so %e have multiple cost obects Common costs are also incurred for multiple cost obects Main difference

common costs are a choice: you can use separate processes oint costs are a necessity (given the production process

'ample Production of one batch of /0 mln kg of peanuts -oint costs of 9 /7 mln +atay sause

yield: E mln kg price: 9 /"58 per kg specific costs: 9 2 mln

Peanut butter yield: / mln kg price: 9 /7 per kg specific costs: 9 3mln


11/26

Physical measures allocation base is kg, liter, unit Measure ; kg of product: E / ; /7 mln kg -oint cost ; 9 /7 mln +auce: E./7 B /7 mln ; 9 E mln utter: /./7 B /7 mln ; 9 / mln

ales $alue allocation base is euro sales Measure ; sales value of products: +auce: E mln kg # 9 /"58 per kg ; 9 /3 mln utter: / mln kg # 9 /7 per kg ; 9 /7 mln /3 /7 ; 9 03 mln -oint cost ; 9 /7 mln +auce: /3.03 B /7 mln ; 9 5 mln utter: /7.03 B /7 mln ; 9 2 mln

/et realiDable $alue allocation base is euro sales minus direct (separable costs Measure ; 6 of product: sales G separable costs +auce: /3 mln G 2 mln ; 9 // mln utter: /7 mln G 3 mln ; 9 3 mln !otal 6 ; 9 /5 mln

-oint costs ; 9 /7 mln +alt: //./5 B /7 mln ; 9 5"E mln Chlorine: 3./5 B /7 mln ; 9 1"/ mln

Constant gross margin Margin on individual products is margin on overall process Measure ; same gross margin for all products Jross margin ; +ales $ costs !otal sales value: /3 /7 ; 9 03 mln !otal costs: /7 2 3 ; 9 /E mln Jross margin ; 9 5 mln Jross margin @ ; 5.03 ; 02@

Margin should be 02@ for both products


12/26

+auceo Margin should be 7"02 # 9 /3 mln ; 9 1"5 mlno !hus allocation should be /3 G 2 G 1"5 ; 9 8"2 mln

uttero Margin should be 7"02 # 9 /7 mln ; 9 0"2 mlno !hus allocation should be /7 G 3 G 0"2 ; 9 0"5 mln

chapter 9: absorption costing and $ariable costing Assential difference: to %hat e#tent do %e incorporate fi#ed costs in value of stock? ne possibility: take fi#ed costs as aperiodcost

all fi#ed costs are e#pensed in the current period ariable costin! "also:direct costin!#

ther possibility: include fi#ed costs in inventory fi#ed costs are part of the unit cost they are absorbed in the unit cost: absorption costin!

Formula for adustment (& G b B (f.b (actual activity level G budgeted activity level B (fi#ed costs . budgeted activity level 4n %ords: the difference bet%een the actual and the budgeted volume times the budgeted

fi#ed costs per unit )hat if you produce less than budgeted?

too fe% units that carry the fi#ed costs: %e need to take an e#tra charge for the remainingfi#ed costs

+mall factory producing carrier bikes Fi#ed costs per month: 9 177 +elling price per unit: 9 /7

ariable costs per unit: 9 5 ormal (budgeted production: /37

6ate for allocating fi#ed costs to units:

9177 . /37 ; 90 per unit *nit costs:

9 5 90 ; 9 per unit February Production: /37 +ales: /07 And stock: 17

February: Cogs ; 9 # /07 ; 9E57 Fi#ed costs accounted for: /37 # 90 ; 9177 6eal fi#ed costs: 9177 'dustment needed: 97

-an Feb Mar 'pr

sales /37 /07 /57 /57

production /37 /37 /17 /57


13/26

March: egin stock: 17 units Production: /17 units +ales: /57 units And stock: 7 Cogs ; 9 # /57 ; 9/07

Fi#ed costs accounted for: /17 # 90 ; 9057 6eal fi#ed costs: 9177

'dustment needed: $927

'pril: egin stock: 7 units Production: /57 units +ales: /57 units And stock: 7 Cogs ; 9 # /57 ; 9/07

Fi#ed costs accounted for: /57 # 90 ; 9107

6eal fi#ed costs: 9177 'dustment needed: 907

Assential difference is treatment of fi#ed costs: C: Fi#ed costs are not allocated but taken as period costs

o adustment neededN 'C: Fi#ed costs are allocated to products and some end up in stock

'dustments needed if actual production differs from planned production 4f production;sales

no difference in period result 4f productionOsales

result ac O result vc

part of the fi#ed costs are not e#pensed this period, but taken into inventory (so out ofthe cost of goods sold

4f productionsalesresult ac result vc

(e#tra fi#ed costs are taken out of inventory and into the cost of goods sold

'dvantages variable costing etter for short term decisions: if %e make an e#tra batch, the e#tra profit e&uals

contribution margin B number of units no possibility for pumping up profits

'dvantages absorption costing etter for long term decisions: full cost price includes all costs:

chapter 8: brea)=e$en analysisCost$volume$profit (CP analysis

' simple techni&ue to make business decisions regarding the production and sales of products Calculating ho% profit depends on sales volume asic tenet: by selling products %ith a positive contribution margin (per unit you first earn back

your fi#ed costs and then start making profit )here is this Kbreak$even pointL?

!erminology reak even point: sales level at %hich profit is zero revenue driver: factor that affects revenues (products sold, services delivered, number of

hotel nights operating profit: result before ta#es net profit: operating profit G ta#es


14/26

contribution margin (per unit P G %hat you earn per unit to cover your fi#ed costs, and contribute to your profit

revenue D # P

total costs F D #

break$even sales: %hen is profit 7? D # P ; F D # D ; F . (P G

Firm data fi#ed costs: 577 variable cost per unit: 5 price: /7 reak even point: D ; F . (P G D ; 577 . (/7 G 5 ; /37

Ho% much must %e sell to achieve a certain target? Profit ; D # (P G G F D ; (F Profit . (P G

Firm data F ; 577, ; 5, P ; /7

+uppose profit target is 077 D ; (F Profit . (P G D ; (577 077 . (/7 G 5 ; 77 . 2 ; 077

%hat is the effect on the break even sales level of an increase in Price

decreases variable cost

increases fi#ed cost

increases

chapter : cost estimationCost estimation approaches

4ndustrial engineering method. %ork$measurement method 'nalyses the relationship bet%een input and output in terms of physical units

Conference method e#pert kno%ledge . opinions about cost(s(drivers

'ccount analysis method breaking up accounts in fi#ed and variable costs

Duantitative analysis re&uires a number of observations 6egression analysis

/" Choose the dependent variable0" 4dentify the independent variable or cost driver1" Collect data on the dependent variable and the cost driver2" Plot the data

3" Astimate the cost function5" Avaluate the estimated cost function


15/26

/ature of the cause and effect criterion./" 4t may be due to a physical relationship bet%een costs and the cost driver"0" Can arise from a contractual arrangement1" Can be implicitly established by logic and kno%ledge of operations" 'n e#ample is %hen the

number of component parts is used as a cost driver"

chapter 14: rele$ant costs Five step approach to (economic decision making in organizations

/" gathering information0" making predictions1" choosing an alternative2" implementing decision3" evaluating performance

)hat to remember about opportunity costs Chosen course of action does not only involve monetary costs, but also means that other things

cannot be done pportunity costs take into account the benefits foregone by not choosing the best

available alternativeQ pportunities do not al%ays make themselves kno%n

not easy to estimate the e#act opportunity costs

+unk costs past investments

materials machines soft%are anything

you cannot change the past

you can>t make money in the past sunk costs are never relevant

is it a shame to thro% something good a%ay? not if you can make more money by doingso

Many people find this counterintuitive !hey are strongly committed to their initial choice and find it hard to look at economic decisions

from a rational economic perspective A#ample: the ne% 'msterdam sub%ay line riginal estimate of costs: 9/"2 bln +uppose that right no% 9/ bln has been spent e% estimate is that total costs %ill be 9 1 bin

+hould %e continue? ote that the 9/ bln that has already been spent are sunk costs

!hey should not affect your decisionN 'lternatives are: o sub%ay, %hich re&uires 97 ' sub%ay %hich re&uires 9/"5 bln

Jood and bad cost accounting systems ' good cost accounting system provides insight in the relevant costs 'llo%s managers to see %hat drives costs and to make smart decisions 'll costs vary %ith something (in the long term Many accounting systems used in practice are of mediocre &uality +ome researchers have even &uestioned the relevance of cost accounting


16/26

'n import firm sells tropical food items to both restaurants and consumers !otal indirect costs a year are 9/77,777

6estaurants +ales: 9177"777 a year, personnel: 8 F!A, normal number of orders per year:

07,777, +&uare meters used: 007 Consumers (through store

+ales: 9037"777 a year, personnel: /7 F!A, number of orders: 17,777, s&uaremeters used: /77

)hich allocation base should %e use to allocate the 9/77,777 to the %holesale and the consumerdivision?

4t depends on type of indirect costs 4s the cost level more closely associated %ith the sales level, the number of orders, the

number of employees, or s&uare meters used? Iifferent types of indirect costs may re&uire different allocation bases

4n general an allocation base is better, if it better reflects the actual use of an indirect cost by acost obect

!he closer it gets to Kcost tracingL

4f you look at real %orld organizations, a very large proportion ust allocates all indirectcosts based on some measure of volume or in proportion to direct costs

chapter 11: acti$ity based costing !echni&ue developed in the /E87>s 'ckno%ledges that costs arise from the fact that organizations do something: they perform

activities insert parts set up the production line for a ne% batch process an invoice perform maintenance on it$hard%are take calls at a helpdesk

!he basic tenet of 'C is that %e should look for activities in organizations that cause costs Cost drivers

+ince these activities are performed for specific departments of products relations bet%een costpools and cost obects can be identified"

A#ample: order processing you do this to take orders and perform administrative activities (booking, preparing

invoices the more orders, the bigger your administration cost pool: order administration department cost driver: number of orders

'C recognizes that cost drivers e#ist at different levels" utput$unit level atch level Product sustaining level Facility sustaining level Cost at higher levels are indirect from a lo%er level perspective

utput level costs costs that are made for each unit individually ra% materials depreciation


17/26

atch level costs costs that are made for a group of units set$up costs distribution note that you can lo%er the costs per unit by increasing batch size

Product sustaining costs also for services design costs marketing activities?

Facility sustaining costs support the organization as a %hole general management building %ith multiple product lines

!he activity rate is the cost Kper unit of activityL 'ctivity rate ; activity cost pool . total units of activity For e#ample: costs of maintenance department may depend on hours %orked on maintaining

machines !otal costs are 9277,777 !otal hours %orked are /0,777 'ctivity rate ; 11"11 per hour 4f some departments have machines that re&uire more maintenance, they get allocated more costs

+teps to take in 'C/" %hat are the cost obects?0" %hat are the direct costs of the cost obects?1" %hat activities are performed?2" %hat cost pools are associated %ith activities?3" calculate the activity rates

5" allocate the activity costs to the cost obects8" add direct costs

chapter 1": pricing and profitability0nfluences on pricing.

$ Customers$ Competitors$ Costs

hort=run pricing is based on rele$ant costs, full costs are important in long=run pricing.

arget costing

!he estimated long$run cost per unite of a product that, %hen sold at the target price, enables thecompany to achieve the target operating profit per unit"

;oc)ed=in costs!he costs that have not yet been incurred but that %ill be incurred in the future on the basis of decisionsthat have already been made"

;ife=cycle costing.!racks and accumulates the actual costs attributable to each product from start to finish"

Customer profitability analysis, and notice the similarity to activity based costing"


18/26

chapter 1>: moti$ation, budgets and responsibility accounting force planning

%hat is that you %ant to achieve? coordination and communication

%hat is re&uired for this in terms of activities and resources?

evaluation of performance so ho% %ell did you do?

motivation by setting goals and tying re%ards to evaluation

allocation of decision rights budget holder can make choices %ithin his . her budget he . she is responsible for the budget result this is the concept of responsibility accounting

master budget: overall plan for the organization it consists of various components that are linked

revenue budget production budget marketing budget etc

note that the starting point is revenue budget this gives the e#pected activity level

budgets are the plans for the coming period cost budget

costs you make for your activities =allo%ed costs> target is met if costs are belo% allo%ed costs

revenue budget

sales that you must make target is met if sales are higher than planned sales

static budget: no correction for activity level fle#ible budget: allo%ed costs are corrected for actualactivity level in evaluating budgetary performance, %e correct for the actual activity level

since variable part of the budget %ill change if the volume (; activity level changes this can be done at various levels of detail

olling budgetsudget or plan that is al%ays available for a specified future period by adding a month, &uarter or year inthe future as the month, &uarter or year ust ended is dropped

KaiDenudgetary approach that e#plicitly incorporates continuous improvement during the budget period intothe resultant budget numbers

+cti$ity=based budgeting.'pproach to budgeting that focuses on the costs of activities necessary to produce and sell products andservices

he four types of responsibility centers/" cost centre G manager accountable for costs only0" revenue centre G manager accountable for revenue only

1" profit centre G manager accountable for revenues and costs2" investment centre G manager accountable for investments, revenues and costs


19/26

he concept of controllability.Controllability is the degree of influence that a specific manager has over costs, revenues or other items in&uestion"

chapter 1


20/26

units 237 237 377

rev 3,377 2,377 u E7,777 /7,777u /77,777

var 27,377 2,377 u 15,777 2,777 f 27,777

fi#ed 0E,777 /,777 f 17,777 7 17,777

profit /5,777 ,777 u 02,777 5,777 u 17,777

volume variances are mainly important for evaluating the sales and marketing activitiesthese can influence the total volumeso the volume variance of /7,777 u for revenue is important information: the sales target has not been

met fle#ible budget revenue varianceresult of difference in selling price fle#ible budget cost variancescan result from prices, but also from usage of inputs fle#ible budget cost variance: difference bet%een actual costs and allo$edcosts %hat determines the allo%ed costs?'llo%ed input for actual output B budgeted price %hat causes the fle#ible budget variance?differences in price: materials bought for a different price, %age rate per labor hour differentdifferences in usage (efficiency: more or less materials . labor hours per unit of output

e#ample: producing one table re&uires 1 labor hours at a price of 07 per hour during a certain period, 07 tables %ere produced, re&uiring 3 hours for a total labor cost of /,085 %hat is the budget result? 85 * %hat is the price effect (if any? //5 * %hat is the efficiency effect (if any? 27 F

generating one unit re&uires & units of a resource at price p allo%ed costs: &b B pb

fle#ible budgetN actual costs: &aB pa budget result ; budgeted costs G actual costs price variance ; actual usage B (actual price G budgeted price efficiency variance ; budgeted price B (budgeted usage G actual usage

for one table, %e need /7 kg %ood at a price of /0 per kg budgeted production for -anuary: 183 tables actual production: 180 tables, for %hich 2,7E0 kg of %ood %ere used, at a total cost of 28,73 budgeted (allo%ed costs: 180 B /7 B /0 ; 22,527

so variance is 22,527 G 28,73 ; 0,2/ u actuals

price per kg: 28,73 . 2,7E0 ; //"37 usage per unit (table: 2,7E0 . 180 ; //

variances price: 2,7E0 B (/0 G //"37 ; 0,725 f efficiency: /0 B (1,807 G 2,7E0 ; 2,252 u

this adds up to 0,2/ u

possible reasons for lo%er materials pricesgood bargainlo%er &uality materialsbulk buying (leading to higher stocks possible reasons for higher material uselo%er &uality materials


21/26

scheduling problems (rush orderslo%er skilled labor possible reasons for lo%er labor rateslo%er skilled %orkers possible reasons for higher labor uselo%er skilled %orkerslo%er &uality materials al%ays note the interdependenciescheap material may mean inferior &uality, leading to more re%ork, more labor timecheap labor may mean un&ualified staff, resulting in more hours needed, or in too much material used

chapter 13: fle'ible budgets and management control 00 overhead costsin general: indirect costs of production or servicessupervision, supplies, storage, it support, administrative support, marketingin manufacturing settings also the fi#ed costs of machinery and e&uipmentthe level of overhead costs has no direct link %ith the activity level of the main product or service

but if for e#ample more consultants are hired, the administrative support %ill increase variable overhead cost: energycost driver: manufacturing hoursone unit of output re&uires 0 manufacturing hoursbudgeted production is 3,777 unitsbudgeted energy costs are /3,777so variable overhead rate of /3,777 . /7,777 ; /"37 actuals3,077 units produced in /7,E07 machine hoursenergy: total costs /3,0 ; /7,777 MH '; /7,E07 MH

+; /7,277 MH (3,077 B 0 MH udgeted H 6ate /"37 per MH 'ctual H : /3,0 Fle#ible budget R ': /7,E07 B /"37 +pending$variance : /,7E0 F Fle#ible budget R ': /7,E07 B /"37 Fle#ible budget R +: /7,277 B /"37 Afficiency variance: 87 * this adds up to 1/0 f

spending variancethis e&uals the price variance

note that the overhead rate of /"37 energy costs per machine hour can change because of savings inenergy use, or price changes per unit of energy

efficiency varianceresults from changes in machine hour use (not because of efficient energy use variable overhead: there is no direct link bet%een machine hours and energy use fi#ed costs are assumed fi#edso no activity level re&uirednever an efficiency variance, only spending ho%ever, volume variances are importantin case of absorption costing, costs per unit include a part overhead coststhis is similar to the manufacturing volume variance discussed %ith absorption costing verabsorbed verhead:;the amount of overhead applied O actual overhead incurred *nderabsorbed verhead:; the amount of overhead applied actual overhead incurred Iisaggregation into:


22/26

verhead spending varianceverhead efficiency varianceverhead volume variance

chapter 19: yield, mi' and ?uantity effects budget: sales 077 units at /7, market size 377

market share 27@ actual: sales 007 units, market size 577

market share 15"8@ market size variance

27@ B (577 G 377 B /7 ; 277 f market share variance

577 B (15"8@ G 27@ B /7 ; 077 u

%here do variances come from measurement error

no kno%ledge of operations

incorrect standards price changes, change in activities standard set too high . too lo%

out$of$control operations bad performance

uncontrollable factors economy, competitors?

%ith substitutable inputs, differences in input combinations result in variances oranges or apples for uice standard chemicals from different suppliers

mi# variances if the inputs are used in different proportions

yield variances efficiency of using inputs

Assume that:

A Company produces a product T.

Standard cost of producing a 500 liter batch of T is 135

See below for the standard materials and related standard cost of each component used in a 500-

liter batch. Standard Standard


23/26

Input Quantity Costs

in liters per liter Total cost

P 200 0.2 40

Q 100 0.425 42.5

R 250 0.15 37.5

S 50 0.3 15

600 135 0.225

Quantity Total Purchase Quantity

Purchased price used

P 25000 5365 26600

Q 13000 6240 12880

R 40000 5840 37800

S 7500 2220 7140

85500 19665 84420

A total of 140 batches of T were produced during the current period.

We want to know: price variances, efficiency variances, mix variances and total yield variances

Price Variances

Purchased Standard Variance

Protex 5365 5000 -365

Q 6240 5525 -715R 5840 6000 160

S 2220 2250 30

19665 18775 -890

Actual number of batches 140

Efficiency variances

Used Standard Ps Variance

P 26600 28000 0.2 280

Q 12880 14000 0.425 476R 37800 35000 0.15 -420

S 7140 7000 0.3 -42

84420 84000 294

Actual Q Budget Q Ps Yield

Standardmix Standaardmix

P 28140 28000 0.2 28

Q 14070 14000 0.425 29.75

R 35175 35000 0.15 26.25


24/26

S 7035 7000 0.3 10.5

84420 84000 94.5 U

Used Actual Mix Standardmix Ps Mix variance

P 26600 281401540

0.2 308Q 12880 14070 1190 0.425 505.75

R 37800 35175 -2625 0.15 -393.75

S 7140 7035 -105 0.3 -31.5

84420 84420 388.5

chapter "4: cost management/" Prevention costs $ costs incurred in precluding the production of products that do not conform

to specifications

0" 'ppraisal costs G costs incurred in detecting %hich of the individual units of products do notconform to specifications

1" 4nternal failure costs G costs incurred %hen a non$conforming product is detected before it isshipped to customers"

2" A#ternal failure costs G costs incurred %hen a non$conforming product is detected after it isshipped to customers"

short term approach to operations problems identify bottleneck in operations

%hich activities limit the total output? ma#imize throughput

sales revenues G direct variable costs all other operating costs are assumed fi#ed short term focus

in the long term, the bottleneck should be removed by investments orrestructuring of processes

optimize the bottleneck activities reschedule to non$bottleneck activities improve &uality of input into bottleneck activities

adapt performance measures adherence to schedule: %orkers at non$bottleneck operations shouldn>t produce more

than is re&uired according to bottleneck schedule also in services

hospitals courts universities

'ample T%C Co&pan'produces < en S 2 departments '$I involved: Product < 1 types of material: 6M/ , 6M0 and 6M2 Product S 0 types: 6M0 and 6M1"


25/26

6esources eeded per unit

samenvatting intermediate managing accounting 1

Documents