...Individual Assignment HRMT 317 Introduction Costs are linked with all types of organizations- business, nonbusiness, manufacturing, retail and service. Cost behavior, Cost accounting & allocation, and Budget- these are the three key requirements to run any business nowadays. Measuring cost behavior (cost measurement) is associated with understanding and calculating how activities of an organization affect different levels of cost. On the other hand, cost accounting is a kind of accounting method that targets to capture an organization’s costs of production by evaluating the input costs of each step of production as well as fixed costs. Then, cost allocation is the allocating of a common cost to several cost substances. Additionally, budget is an estimate of earnings and expenses for a set period of time. These are commonly used terms in financial accounting information as well as in any business. My company is called The EBag Co. Ltd, which is in business for more than 5 years in the production sector of the market. This profitable business is earning its profits by manufacturing affordable bags for consumers of all ages. My company will use these three requirements of this assignment to make business more profitable in coming days. I will use the five methods (will talk about only 3) of measuring cost function for my company to identify which costs will change and which will remain the same with changes in sales volume. Then, I will use cost allocation...
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...Michaels must report the information to the corporate headquarters of Marco Corporation. Waltham Motors is a subsidiary of Marco Corporation and was acquired in late 2003. This analysis is for the month of May 2004. Accounting Practices: As part of my analysis I started with a review of the company’s account policies. I found that there were no changes in the accounting procedures since Waltham had been acquired. Performance reports were created monthly by the plant accountant. Sharon Michaels would then write a narrative report which was sent to the corporate headquarters for review. These performance reports showed information on what was budgeted, actual, and the variance for a particular month. The article “Diversity In Accounting Principles: A Problem, Strategic Imperative or Strategic Opportunity” discusses the ambiguity in accounting rules, and essentially practices are left up to managers discretion. In this case the internal accounting principles seem to be set in how often they will report financial information, but other rules are missing and not very clear. One example is the fact that this report was created in a single day which was not typical. The performance analysis usually took several days after the end of each month. The plant accountant rushed through analysis and then took a day off. This wouldn’t be considered proper procedures for reporting a company’s financial information. Diversity will always be a challenge in accounting practices...
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...16 Chapter Sixteen Fundamentals of Variance Analysis LEARNING OBJECTIVES After reading this chapter, you should be able to: L.O.1 Use budgets for performance evaluation. L.O.2 Develop and use flexible budgets. L.O.3 Compute and interpret the sales activity variance. L.O.4 Prepare and use a profit variance analysis. L.O.5 Compute and use variable cost variances. L.O.6 Compute and use fixed cost variances. L.O.7 (Appendix) Understand how to record costs in a standard costing system. For the second month in a row, profits at our Bayou Division are down and I don’t know why. We budgeted $190,000 in profit for August, but the actual result was only $114,500. We thought we had developed realistic monthly budgets. I know sales were down some, but I’m not sure that is the only problem there is. I am not one who believes that favorable variances are always “good” and unfavorable variances are always “bad.” [See the In Action item, “When a Favorable Variance Might Not Mean ‘Good’ News.”] I need more information from the analysis if I am going to turn things around. What I need to know is whether we should focus on improving the marketing of the division or if we need to take a look at our manufacturing operations. We don’t have a lot of extra resources here at Corporate, so I have asked Philippe [Broussard, the president of Bayou] to identify the primary cause of the shortfall—revenues or costs—and report back to me next week. If Bayou can’t improve, we may have to dispose of...
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...DANSHUI PLANT NO. 2 CONTENTS | PAGE | 1.0 Introduction | | 2.0 Main issue | | 3.0 Problem statement | | 4.0 Data Analysis 4.1 Breakeven analysis 4.2 Total cost variance analysis 4.3 Flexible budget performance analysis 4.4 Variance analysis | | 5.0 Strategies, interpretations, recommendations and justifications | | 6.0 Conclusion | | 7.0 References | | 1.0 INTRODUCTION Danshui Plant No. 2 in southern China has a one-year contract with Apple Inc. to assemble 2.4 million iPhones. In the first three months of the contract, the plant is unable to assemble as many phones as expected and is operating at a loss. The plant manager must analyze the budget and prepare a summary of monthly operations to help identify the source of performance problems. The plant has had difficulty hiring enough workers despite raising wages over 30%. In addition, the assembly process for an iPhone is complicated, with 140 steps involving over 100 components. The plant manager considers whether a flexible budget would be more useful for uncovering problems than the static budget currently being used. Wentao Chen, manager of Danshui was anxious upon reviewing the monthly operation’s performance for August as in the third month of the contract, production was only about 180,000 units. Meanwhile, Jianye Ma, the plant controller requested a summary of monthly operations for August as soon after the end of the month as possible. 2.0 MAIN ISSUE Danshui Plant manager Wentao...
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...Table of Contents Preface: Master Budget………………………………………………………………………….3 1. Summary Report for Budgets…………………........................................................................4 2. Concerns of Budget Planning and Profomas…….....................................................................4 3. Evaluation of Flexible Budget and Variances………………...................................................5 4. Identify, Described, Analyze, and Outcomes…………………………………………………6 5. Favorable or Unfavorable…………………………………………………………………..…6 6. Reaction to Changes………………………………………………………………..…………6 7. Results of Budget …………………………………………………………………………….6 8. Corrective Action for Variance Analysis……..........................................................................6 9. Concepts of Management by Exception (MBE).......................................................................7 10. Choosing a Flexible Budget…………………………………………………………………..8 11. Reference Page………………………………..........................................................................9 Competition Bikes, Inc. MASTER BUDGET 1. Management anticipates that the market will improve moderately during the coming year. 2. The Sales forecast is 3510 CarbonLite units in Year 9. 3. No change in this pricing is expected for the coming year. 4. Factory overhead will be has been budgeted at $481,798 for the year. This figure includes $150,000 in manufacturing depreciation expense. 5. For accounts...
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...(ICQs) CHAPTERS 7 & 8 TEMPLATE ICQ1 7-34 (30 min.) Direct manufacturing labour and direct materials variances, missing data. 1. Flexible Budget (Budgeted Input Actual Costs Qty. Allowed for Incurred (Actual Actual Input Qty. Actual Output Input Qty. × Actual Price) × Budgeted Price × Budgeted Price) Direct mfg. labour Price variance Efficiency variance Flexible-budget variance 2. Unfavourable direct materials efficiency variance of $12,500 indicates that more pounds of direct materials were actually used than the budgeted quantity allowed for actual output. = Budgeted pounds allowed for the output achieved = Actual pounds of direct materials used = 3. Actual price paid per pound = = $ 4. Actual Costs Incurred Actual Input × (Actual Input × Actual Price) Budgeted Price Price variance ICQ2 8-16 (20 min.) Variable manufacturing overhead, variance analysis. 1. Variable Manufacturing Overhead Variance Analysis for Esquire Clothing for June 2013 ------------------------------------------------- ...
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...JET2 Task 2 A1. Concerns There are many concerns with the budget planning for Competition Bike. From year 2006 to 2008, Competition Bike experienced a 13.3% increase in sales. In year 9, sales are projected to increase to 3510 units to give sales revenue of $5,247,450. This is a bold increase after 3400 units sold in 2008 and 4000 sold in 2007. I do not think the sales will be as robust with the economy rebounding. Sales projections should be 3425 with net sales at $5,120,375. Since the Competition Bike Company projected overly optimistic sales, there are several areas in the budget that will be affected. The areas affected are Sales Commission, Transportation Out, Advertising, Research and Development, Raw Materials, and Labor. * Sales Commission: With commissions budgeted for 3% of sales revenue, this amount is budgeted too high since the budgeted net sales is inflated * Advertising: This expense line will be incorrect due to it being based on 2% of the Gross Margin. The Gross Margin will be off due to inflated projections. * Raw Materials: Due to inflated sales projections, the raw materials cost should be lowered to reflect a realistic net sales projection. * Labor: Labor cost should be reduced due to fewer hours being used with my projection of fewer units being sold as compared to the 2009 projections. It takes 15 hours/unit, so with fewer than projected sales, this should be reduced. * Transportation Out: Since the projected sales...
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... Competition Bikes, Inc. Budget Process Budgets are used for forecasting future business growth and outcomes. Providing a comparison between a forecasted budget with previous year’s actual results allows leadership to strategize and plan for the company’s future on past performance. Producing a master budget roadmap for future operations may be done in two ways--by using fixed budget or flexible budgeting processes. There are advantages and disadvantages of each method of evaluation or projection of growth and it is recommended that the leadership of Competition Bikes, Inc, (CBI) consider all options presented to optimize future corporate growth. The CEO of Competition Bikes, Inc. requested a review of current budgetary information (“Year 8”) projection for the upcoming business year. Areas of analysis and management intervention have been reviewed based on data provided by CBI. Competition Bikes, Inc.’s “Year 9” budget (pro forma) has been based on financial information provided based on a current trend analysis from three previous years and focusing on “Year 8” financials. A master budget was created to plan and control revenues and costs for future growth and corporate development for “Year 9.” The benefit to CBI leadership in reviewing “Year 9” financial plans allows for decision-making on planning, coordination of operations, and benchmarking for an evaluation of actual performance at the end of “Year 9.” To review, a static budget does not change after it is...
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...that translates corporate intentions into specific tasks, and identifies the resources needed by each manager to carry them out. In the process, budgeting enhances communication and co-ordination of different administrative units, facilitates decision-making, and provides a framework for monitoring and for performance evaluation. All managers are responsible for preparing a budget. Since specific departments play important roles in improving various components of the balance sheet and the income statement, it is critical that they prepare their budgets in a responsible way. Once budgets are in place it is necessary to analyse the difference between the actual and budgeted costs (variance). A variance analysis involves the decomposition of the variance into the individual factors that caused the variance. Managers need to be able to understand how to break down and analysis the variances; this helps them determine the proper corrective action. PROBLEM The Midwest Ice Cream Company is doing many things wrong, and the mistakes they are making are being covered up by a poorly planned budget. ANALYSIS The overall variance at Midwest Ice Cream is $71,700F . This is considered a good variance because it means...
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...What is budget variance analysis? What is a flexible budget? A variance (difference between actual and forecast figures) is a signal to management that revenues or spending did not go according to plan. If the variance represents overspending, moreover, it is an indicator that there may be problems paying future expenses. Variance analysis attempts to find the reasons that actual figures were over or under forecast so that either Corrective action can be taken to reduce variances in the future, (an exercise in static budgeting) or Figures for future spending can be adjusted as necessary (the practice of flexible budgeting). Confusion sometimes arises in variance analysis because two different conventions for calculations commonly used. Convention 1: Incoming revenue variance = Actual – Forecast Expense spending variance = Actual – Forecast This convention is used in this encyclopedia and in many organizations. Under this approach, a positive variance always means the actual result was greater than the budgeted amount. Convention 2: Some organizations (such as the Project Management Institute), however, recommend using the above convention for revenue, but reversing the order for expense items: Incoming revenue variance = Actual – Forecast Expense spending variance = Forecast – Actual Under this convention, positive variances are always "good things" (more revenue or less spending than expected), and negative variances are always "bad things...
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...for the division for 2000 (see Exhibit 1). He knew that it had been a good year for ice cream, but he hadn't expected the results to be quite this good. Only the year before the company had installed a new financial planning and control system. This was the first year that figures comparing budgeted and actual results were available. Jim Peterson, president of the division, had asked Frank to make a short presentation at the next management meeting commenting on the major reasons for the favorable operating income variance of $71,700. Peterson asked him to draft his presentation in the next few days so that the two of them could go over it before the meeting. Peterson said he wanted to illustrate to the management group how an analysis of the profit variance could highlight those areas needing corrective attention as well as those deserving a pat on the back. THE PROFIT PLAN FOR 2000 Following the four-step approach outlined in the Appendix, the management group of the Ice Cream Division prepared a profit plan for 2000. Based on an anticipated overall ice cream...
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...The flexible budget uses the same selling price and cost assumptions as in a original budget. Variable and fixed costs do not change categories. The variable amounts are recalculated using the actual level of activity, which in the case of the income statement is sales units. The important thing to remember in preparing a flexible budget is that if an amount, cost or revenue, was variable when the original budget was prepared, that amount is still variable and will need to be recalculated when preparing a flexible budget. If, however, the cost was identified as a fixed cost, no changes are made in the budgeted amount when the flexible budget is prepared. It’s important to remember in preparing a flexible budget is that if an amount, cost or revenue, was variable when the original budget was prepared, that amount is still variable and will need to be recalculated when preparing a flexible budget. If cost was identified as a fixed cost, and no changes are made in the budgeted amount when the flexible budget is prepared. Differences may occur in fixed expenses, but they are not related to changes in activity within the relevant range. When preparing budget reports, it is important to include in the report the items the manager can control. If a manager is only responsible for a department's costs, to include all the manufacturing costs or net income for the company would not result in a fair evaluation of the manager's performance. If, however, the manager is the Chief Executive...
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...The flexible budget uses the same selling price and cost assumptions as in a original budget. Variable and fixed costs do not change categories. The variable amounts are recalculated using the actual level of activity, which in the case of the income statement is sales units. The important thing to remember in preparing a flexible budget is that if an amount, cost or revenue, was variable when the original budget was prepared, that amount is still variable and will need to be recalculated when preparing a flexible budget. If, however, the cost was identified as a fixed cost, no changes are made in the budgeted amount when the flexible budget is prepared. It’s important to remember in preparing a flexible budget is that if an amount, cost or revenue, was variable when the original budget was prepared, that amount is still variable and will need to be recalculated when preparing a flexible budget. If cost was identified as a fixed cost, and no changes are made in the budgeted amount when the flexible budget is prepared. Differences may occur in fixed expenses, but they are not related to changes in activity within the relevant range. When preparing budget reports, it is important to include in the report the items the manager can control. If a manager is only responsible for a department's costs, to include all the manufacturing costs or net income for the company would not result in a fair evaluation of the manager's performance. If, however, the manager is the Chief Executive...
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...Cost-Volume-Profit Analysis is connected to the Flexible Budgeting Process and Variance Analysis To start a successful business, students need to understand the steps necessary to achieve their desired profits. While Managerial textbooks teach each step independently, we demonstrate how these steps are integrated. We present a Multi-Disciplinary Case-Method approach to teaching Cost-Volume-Profit (CVP) Analysis. Finally, students prepare a Flexible Budget demonstrating the importance of distinguishing between activity and revenue/spending variances. INTRODUCTION “We first present an alternative, more comprehensive teaching approach, for Cost-Volume-Profit (CVP) analysis from the commonly used approach which simply teaches students how to use a series of equations to solve various questions related to CVP analysis, in which unit selling price, total fixed costs, and unit variable costs are assumed to remain constant (Garrison et al., 2010; Choo and Tan, 2010). We use a multi-disciplinary approach in the context of a realistic case-analysis. We believe this approach offers useful insights and provides a useful learning tool for students pursuing an advanced Master’s Degree.” (Machuga, 2012). This case requires students to: (a) make assumptions about cost behavior in a dynamic and interactive way, and (b) research a variety of marketing issues for the proposed business that simulates a real life business situation, and (c) use the information from their CVP analysis for planning...
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...Introduction and background Cost accounting is the process of accumulating, measuring, analyzing, interpreting and reporting of the information related to the cost. This type of process is useful and relevant for all internal and external stakeholders of the business entity. In the management accounting, the term cost accounting includes the works of establishing budget and actual cost of operations, processes, departments, analysis of the variances and profitability or social use of the funds. In the external stakeholders we include all those who have invested money in the company, such as banks, financial houses, investors and others. Internal stakeholders are those people who work within the premise of the company, such as business or company directors, division heads and managers. Cost accounting has long been used to help managers understand the costs of running a business. Modern cost accounting originated during the industrial revolution, when the complexities of running a large scale business led to the development of systems for recording and tracking costs to help business owners and managers make decisions. In the early industrial age, most of the costs incurred by a business were what modern accountants call "variable costs" because they varied directly with the amount of production. Money was spent on labor, raw materials, power to run a factory, etc. in direct proportion to production. Managers could simply total the variable costs for a product and use this...
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