Transcript 幻灯片 1 - Sun Yat-sen University

Lesson 14
Managerial Accounting:
Applications
Task Team of
FUNDAMENTAL ACCOUNTING
School of Business, Sun yat-sen University
Outline
• Segmented Reporting and Responsibility
Accounting System
• Cost-Volume-Profit Analysis
• Budgeting and Budgetary Control
• Standard Costs and Variance Analysis
• Managerial Decision Making
2
Introduction
• Let’s look at the XYZ Company example.
– A manager at XYZ Company wants to replace an old
machine with a new, more efficient machine.
New machine:
List price
Annual variable expenses
Expected life in years
Old machine:
Original cost
Remaining book value
Disposal value now
Annual variable expenses
Remaining life in years
3
900000
800000
5
720000
600000
150000
1000000
5
Introduction
• XYZ’s sales are $2000000 per year.
• Fixed expenses, other than amortization, are
$700000 per year.
• Should the manager purchase the new machine?
4
Introduction
• The manager recommends that the company
not purchase the new machine since disposal
of the old machine would result in a loss:
Remaining book value
Disposal value
Loss from disposal
5
600000
-150000
450000
Introduction
• Is it correct?
• What’s your comment to the
manager’s decision?
• After learning this chapter, you
will know how to employ the
tools of managerial accounting
and make decisions correctly.
6
Segment Reporting
• Organizations may break down their
operations into various segments
– divisions, stores, services, or departments.
• Management needs reports on each segment
for
– cost management
– performance evaluation
7
Segment Reporting
• Segments may be evaluated as
– a cost centre
– a profit centre
• Profit centre reports include information on a
segment’s revenues and costs.
– an investment centre.
• Some costs are direct and some are indirect.
– Indirect costs may be allocated to various
departments.
8
Segment Reporting
• Service department costs are shared indirect
expenses of operation departments.
• They may be allocated using a variety of bases.
Service Department
General Office
Personnel
Payroll
Advertising
Purchasing
Cleaning
Maintenance
Common Allocation Bases
Number of employees
Number of employees
Number of employees
Sales
Number of Purchase Orders
Floor space occupied
Floor space occupied
9
Responsibility Accounting System
Responsibility Accounting System
•
•
•
An accounting system
assigns managers the responsibility for
costs and expenses under their control.
10
Responsibility Accounting System
• Responsibility accounting budgets
– are prepared prior to each accounting period
• Responsibility accounting performance
reports
– compare actual costs and expenses to budgeted
amounts
11
Cost-Volume-Profit Analysis
(CVP)
• CVP analysis is used to answer:
– How much must I sell to earn my desired income?
– How will income be affected if I reduce selling
prices to increase sales volume?
– How will income be affected if I change the sales
mix of my products?
– ……?
12
Assumptions of CVP Analysis
• CVP analysis assumes relations can be
expressed as straight lines within the relevant
range.
Unit selling price remains constant.
Unit variable costs remain constant.
Total fixed cost remain constant.
• If the expected cost and revenue behaviour is
different from the assumptions, then the results of
CVP analysis are of limited use.
13
Scatter Diagram
Total Cost in
1,000’s of Dollars
Change in cost
Unit Variable Cost = Slope =
Change in units
20
*
10
0
* *
*
** * *
**
Vertical
distance is
the change
in cost.
Horizontal distance is the
change in activity.
0
1
2
3
4
Activity, 1,000’s of Units Produced
14
14
High-Low Method
Total Cost in
1,000’s of Dollars
Unit Variable Cost = 30 - 20 = $2.50/unit
5-1
30
20
10
0
* *
* *
*
*
* *
**
Horizontal distance is
the change in activity.
(5 - 1)
0
1
2
3
4
5
Activity, 1,000’s of Units Sold
15
Vertical
distance is
the change
in cost. (30
- 20)
Least-Squares Regression
• Least-squares regression
– is usually covered in advanced cost accounting
courses.
– is commonly used with computer software
because of the large number of calculations
required.
– The objective of the cost analysis remains the
same: determination of total fixed cost and the
variable unit cost.
16
• The break-even point is
the unique sales level at
which a company neither
earns a profit nor incurs a
loss.
Costs and Revenue
in Dollars
Break-Even Analysis
Sales
Total costs
Volume in Units
17
Break-Even Analysis
• The break-even point may be expressed in
units or in dollars of sales.
Fixed Costs
Break-even point in units =
Contribution margin per unit
Unit sales price less unit variable cost
18
Break-Even Analysis
• The break-even formula may also be
expressed in sales dollars.
Break-even point in dollars =
Fixed Costs
Contribution margin ratio
Unit sales price
Unit variable cost
19
Computing Income from
Expected Sales
• What is the income given a predicted level of
sales?
Pre-tax
Income
Pre-tax
Income
or
20
Sales Volume Needed to
Earn a Target Income
• Break-even formulas can be adjusted to
show the sales volume needed to earn any
amount of income.
Unit sales =
Dollar sales =
Fixed costs + Target income
Contribution margin per unit
Fixed costs + Target income
Contribution margin ratio
21
Margin of Safety
• Margin of safety
– How much sales can decrease before the company
incurs a loss?
Expected sales - Break-even sales
Margin of
=
safety (%)
Expected sales
22
Sensitivity Analysis
• The effects of changes in variables such as
sales price, variable costs, and fixed costs.
• CVP analysis can be used to show the effects
of such changes.
New breakeven point =
in dollars
New fixed costs
New contribution margin ratio
23
Budgets
• Budgets
– formal statements of a company’s plans
expressed in monetary terms
– attempt to capture the future activities of an
organization
– are used by businesses, not-for-profit,
government, educational, and other types of
organizations.
24
Importance of Budgeting
Defines goals
and objectives
Promotes analysis and
a focus on the future
Communicates plans
and instructions
Advantages
Coordinates
business activities
Motivates employees
Provides a basis for
evaluating performance
25
Budget Committee
• Budget Committee
– Consists of managers from all departments
of the organization
– Provides central guidance
• to insure that individual budgets submitted from all
departments are realistic and coordinated.
26
Budget Committee
Top Management
Middle
Management
Supervisor
Middle
Management
Supervisor
Supervisor
Supervisor
Flow of budget data is a bottom-up process.
27
Budget Cycle
• Budget horizons are usually for one year
• but may extend for several years.
Operating Budget
2005
2006
2007
2008
The annual operating budget may be divided into
quarterlyor monthly budgets.
28
Rolling Budgets
Continuous or
Rolling Budget
2005
2006
2007
The budget may be a twelve-month
budget that rolls forward one month
as the current month is completed.
29
2008
Master Budget
• Master Budget
– A formal, comprehensive plan
• for the future of a company
– consists of several budgets linked together
• to form a coordinated plan for the organization
30
Master Budget
Prepare
sales
budget
Develop
production
budget
Prepare
manufacturing
budgets:
 material
 labour
 overhead
Prepare
financial
budgets:
 cash
 income
 balance sheet
Prepare
capital
expenditure
budget
Prepare
selling and
general
administrative
budgets
31
Sales Budget
• Sales budget
– the starting point in the budgeting process.
– Most of the other budgets are linked to the sales
budget.
– Sales personnel are often involved in developing
the sales budgets.
32
Sales Budget
Sales Budget
Estimated Unit Sales
Estimated Unit Price
Analysis of economic and market conditions
+
Forecasts of customer needs from marketing personnel
33
Merchandise Purchases Budget
• Merchandise Purchases Budget
– Provides detailed information about the purchases
– necessary to fulfill the sales budget and provide
adequate inventories.
Merchandise
inventory to
be purchased
=
Budgeted
ending
inventory
+
34
Budgeted
sales for the
period
_
Budgeted
beginning
inventory
Merchandise Purchases Budget
• The quantity purchased is affected by:
– Just-in-time inventory systems
• enable purchases of smaller, frequently delivered
quantities.
– Safety stock inventory systems
• provide protection against lost sales caused by delays in
supplier shipments.
35
Selling Expense Budget
• Selling Expense Budget
– lists the types and amounts of selling expenses
– Predictions of expenses are based on the sales
budget and past experience.
36
General and Administrative Expense Budget
• General and Administrative Expense Budget
– lists the predicted operating expenses not listed in
the sales budget
– Includes both cash and non-cash expenses
– Often prepared by the office
manager or person responsible
for general administration
37
Capital Expenditures Budget
• Capital Expenditures Budget
– lists the cash inflows or outflows pertaining
to the disposal or acquisition of capital
equipment.
– is usually affected by the organization’s
long-term plans.
38
Cash Budget
• Cash Budget
– lists the expected cash inflows and
outflows for the period
– a tool used by management to
avoid excess cash balances or
cash shortages
– Information from other budgets is used in its preparation
– Information from the cash budget is used to prepare the
budgeted income statement and balance sheet
39
Production and Manufacturing Budgets
• Manufacturing companies need to prepare
additional budgets that include:
– Production budgets
– Direct materials purchase budgets
– Direct labour budgets
– Manufacturing overhead budgets
40
Production and Manufacturing Budgets
• Production and Manufacturing Budgets
– Provides detailed information about the production
necessary to fulfill the sales budget and provide
adequate inventories.
Number of
units to be
produced
=
Budgeted
ending
inventory
+
Budgeted
sales for
the period
41
_
Budgeted
beginning
inventory
Production and Manufacturing Budgets
• Direct Materials Budget
– Provides detailed information about the purchases of raw
materials necessary to fulfill the production budget and
provide adequate inventories.
Units of raw
materials to
be purchased
=
Cost of raw
materials to
be purchased
Materials
needed for
production
=
+
Budgeted
ending
inventory
Units of raw
materials to
be purchased
42
×
_
Budgeted
beginning
inventory
Material price
per unit of
raw material
Production and Manufacturing Budgets
• Direct Labour and Manufacturing Overhead
Budgets
– Provides information about the labour and
manufacturing overhead costs given the level of
production for the period.
43
Preparing Financial Budgets
Cash
Budget
Expected
Receipts
and
Disbursements
Budgeted
Income
Statement
44
Budgeted
Balance
Sheet
Budgetary Control
Develop the budget
from planned objectives.
 Revise
 Compare
objectives
and prepare
a new
budget.
actual with
budget and
analyze any
differences.
 Take corrective and
strategic actions.
45
Capital Budgeting
• Capital Budgeting
– Analyzing alternative long-term investments and
deciding which assets to acquire or sell.
– These decisions require careful analysis since:
•
•
•
•
The outcome is uncertain.
Large amounts of money are usually involved.
Investment involves a long-term commitment.
Any decision may be difficult or impossible to
reverse.
46
Zero-based Budgeting
• Zero-based Budgeting
– are prepared assuming no previous
activities for the activities being
planned
– Managers must justify the amounts budgeted for
each activity
– is popular among government and non-profit
organizations.
47
Fixed Budget
• Fixed budgets
– are prepared for a single, predicted level of
activity
– Performance evaluation is difficult when actual
activity differs from the predicted level of activity.
• Example: How much of the unfavourable cost
variance is due to higher activity, and how much is due
to poor cost control?
• To answer these questions, we must flex the budget to
the actual level of activity.
48
Flexible (Variable) Budgets
• Flexible budgets
– are prepared after a period’s activities are complete.
– Show revenues and expenses that should have
occurred at the actual level of activity.
– Reveal cost variances due to good cost control or
lack of cost control.
– Improve performance evaluation.
49
Flexible (Variable) Budgets
• Flexible budgets
– To prepare a budget for different activity levels
• we must know how costs behave with changes in activity levels
– Total variable costs change in
direct proportion to
changes in activity.
– Total fixed costs remain
unchanged within the
relevant range.
50
Fixed
Standard Costs
• Standard Costs
– are preset costs for delivering a product
or service under normal conditions.
– are established through personnel,
engineering, and accounting studies
using past experience.
– are benchmarks used in evaluating
performance.
– are often used in setting budgets.
51
Standard Costs
•
Example: A standard cost card
Cost factor
Direct materials
Direct labour
Variable mfg. overhead
Total standard unit cost
Standard
Quantity
or Hours
1 kg
2 hours
2 hours
52
Standard
Price
or Rate
$
$
$
Standard
Cost
25 per kg
$
20 per hour
10 per hour
$
25.00
40.00
20.00
85.00
Variance Analysis
Prepare standard
cost performance
reports
Analyze variances
Take action
Investigate causes
53
Variance Analysis
• Management By Exception
– Standard cost accounting provides management with
information about costs that differ from budgeted
amounts (variances).
– Management may choose to focus only on variances
that are significant.
– This approach is referred to as
Management by Exception.
54
Variance Analysis
• Material Variances
Actual Quantity
×
Actual Price
Actual Quantity
×
Standard Price
Price Variance
AQ(AP - SP)
AQ = Actual Quantity
AP = Actual Price
Standard Quantity
×
Standard Price
Quantity Variance
SP(AQ - SQ)
SP = Standard Price
SQ = Standard Quantity
55
Variance Analysis
• Labour Variances
Actual Hours
×
Actual Rate
Actual Hours
×
Standard Rate
Standard Hours
×
Standard Rate
Rate Variance
Efficiency Variance
AH(AR - SR)
SR(AH - SH)
AH = Actual Hours
AR = Actual Rate
SR = Standard Rate
SH = Standard Hours
56
Variance Analysis
• Variable Overhead Variances
Actual
Variable
Overhead
Incurred
AH × AVR
Flexible Budget
for Variable
Overhead at
Actual Hours
AH × SVR
Spending
Variance
AH
AVR
SVR
SH
=
=
=
=
Applied
Variable
Overhead at
Standard Hours
SH × SVR
Efficiency
Variance
Actual Hours of Activity
Actual Variable Overhead Rate
Standard Variable Overhead Rate
Standard Hours Allowed
57
Variance Analysis
• Fixed Overhead Variances
Actual Fixed
Overhead
Incurred
Fixed
Overhead
Budget
Fixed
Overhead
Applied
SH × SFR
Spending
Variance
Volume
Variance
SFR = Standard Fixed Overhead Rate
SH = Standard Hours Allowed
58
Standard Costs
• Standard cost accounting systems
 record variances in the accounts
 simplify recordkeeping and help in the
preparation of reports
59
Discussions
• ABC Company has the following direct material
standard to manufacture one unit product:
3.0 kilograms per unit at $8.00 per kilogram
• Last week 6600 kilograms of material were
purchased and used to make 2000 units. The
material cost a total of $53000.
60
Discussions
What is the actual price per kilogram paid for
the material?
a. $7.26 per kilogram.
b. $8.13 per kilogram.
c. $8.03 per kilogram.
d. $8.00 per kilogram.
61
Discussions
What is the actual price per kilogram paid for
the material?
a. $7.26 per kilogram.
b. $8.13 per kilogram.
c. $8.03 per kilogram.
d. $8.00 per kilogram.
AP = $53000 ÷ 6600 kg
AP = $8.03 per kg
62
Discussions
ABC’s material price variance (MPV) for the
week was:
a. $198 favourable.
b. $198 unfavourable.
c. $189 favourable.
d. $189 unfavourable.
63
Discussions
ABC’s material price variance (MPV) for the
week was:
a. $198 favourable.
b. $198 unfavourable.
c. $189 favourable.
d. $189 unfavourable.
MPV = AQ(AP - SP)
MPV =6600 kg × ($8.03 - 8.00)
MPV = $198 unfavourable
64
Discussions
The standard quantity of material that should
have been used to produce 2000 units is:
a. 6500 kilograms.
b. 6000 kilograms.
c. 7000 kilograms.
d. 5000 kilograms.
65
Discussions
The standard quantity of material that
should have been used to produce
2000 units is:
a. 6500 kilograms.
b. 6000 kilograms.
c. 7000 kilograms.
d. 5000 kilograms.
SQ = 2000 units × 3 kg per unit
SQ = 6000 kg
66
Discussions
ABC’s material quantity variance (MQV) for the
week was:
a. $4300 unfavourable.
b. $4300 favourable.
c. $4800 unfavourable.
d. $4800 favourable.
67
Discussions
ABC’s material quantity variance (MQV)
for the week was:
a. $4300 unfavourable.
b. $4300 favourable.
c. $4800 unfavourable.
d. $4800 favourable.
MQV = SP(AQ - SQ)
MQV = $8.00(6600 kg - 6000 kg)
MQV = $4800 unfavourable
68
Managerial Decision Making
• Managerial Decision Making
– Cost accounting information is often used by
management for short-term decisions.
– Decision making involves five steps:
•
•
•
•
•
Define the problem.
Identify alternatives.
Collect relevant information on alternatives.
Select the preferred alternative.
Analyze decisions made.
69
Managerial Decision Making
• Accepting additional business
– should be based on incremental costs and
incremental revenues
– Incremental amounts are those that occur if the
company decides to accept the new business
70
Managerial Decision Making
• Make or Buy Decisions
– Incremental costs also are important in the
decision to make a product or purchase it from a
supplier
• The cost to produce an item must
include
– direct materials
– direct labour
– incremental overhead
• We should not use the predetermined overhead rate to
determine product cost
71
Managerial Decision Making
• Scrap or Rework Defects
– Costs incurred in manufacturing units of product
that do not meet quality standards are sunk costs
and cannot be recovered.
– As long as rework costs are recovered through sale
of the product and rework does not interfere with
normal production, we should rework rather than
scrap.
72
Managerial Decision Making
• Sell or Process Further
– sell partially completed products vs. process them
to completion
– As a general rule, process further only if
incremental revenues exceed incremental costs
73
Managerial Decision Making
• Selecting Sales Mix
– When a company sells a variety of products,
some are likely to be more profitable than
others. To make an informed decision regarding
sales mix, management must consider . . .
• The contribution margin of each product,
• The facilities required to produce each
product and any constraints on the facilities, and
• The demand for each product.
74
Managerial Decision Making
• Eliminating a Segment
– A segment is a candidate for
elimination if its
– Revenues are less than its avoidable
expenses
75
Managerial Decision Making
• Qualitative factors in decisions
– Qualitative factors are involved in most all
managerial decisions
•
•
•
•
•
•
Quality
Delivery schedule
Supplier reputation
Employee morale
Customer opinions
……
76
Summary
• Segments may be evaluated as a cost centre, a profit centre,
and an investment centre.
• CVP Analysis: break-even analysis, computing income from
expected sales, sales volume needed to earn a target income,
margin of safety, and sensitivity analysis.
• Importance of budgeting, master budget, and budgetary
control
• Standard costs, variance analysis and standard cost
accounting systems
• Managerial decision making: accepting additional business,
make or buy decisions, scrap or rework defects, sell or process
further, selecting sales mix, eliminating a segment
77
Discussions
• Consider the beginning XYZ case
78
Discussions
Relevant Cost Analysis
Savings in variable expenses
provided by the new machine
($200000 × 5 yrs.)
1000000
Net effect
$1000000 - $800000 = $200000 variable cost savings
79
Discussions
Relevant Cost Analysis
Savings in variable expenses
provided by the new machine
($200000 × 5 yrs.)
1000000
Cost of the new machine
(900000)
Disposal value of old machine
150000
Net effect
250000
80
Case Study
• ABC Corporation, a merchandising company, has
provided the following budget data:
May
June
July
August
September
Purchases
Sales
$84000
$96000
$72000
$108000
$120000
$144000
$132000
$120000
$156000
$132000
81
Case Study
• Collections from customers are normally 75% in the
month of sale, 15% in the month following the sale,
and 8% in the second month following the sale. The
balance is expected to be uncollectible. ABC pays for
purchases in the month following the purchase. Cash
disbursements for expenses other than merchandise
purchases are expected to be $28,800 for September.
ABC's cash balance on September 1 was $44,000.
82
Case Study
• Required:
– Compute the expected cash collections
during September.
– Compute the expected cash balance on
September 30.
83
The End of Lesson 14