SMG AC 222 Final: AC222 final cheat sheet

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7 Feb 2017
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Chapter 8 Master Budgeting
S1 Sales Budget S2 Production Budget
April
May
June
Quarter
July
Budgeted Sales
+ E. Inv.
- B. Inv.
Required Prod
S1 Directly influences S2, S7
S2 Used to determine S3-5
S3 DM, Purchases, AP Budget S4 DL Budget S5 MOH Budget
Required Prod
Budgeted COGS
Required Prod
Budgeted DL-hrs
Units RM/unit FG
DL-hr/unit
VMOH rate
Units RM needed
+ Desired E. Inv.
Total hrs needed
VMOH
+ E. RM Inv.
Total Needs
FMOH
- B. RM Inv.
- B. Inv.
Total MOH[POHR] - ACCRUAL
Units RM to purch
- Depreciation
Unit cost RM
DL cost per hr
Unit cost RM
Cost of RM to purch
Required purch
Total DL cost
Cash Disbursements for MOH
S7 SG&A Budget
VSG&A/unit
Budgeted unit sales
Total VSG&A
FSG&A expenses:
Advertising
Depreciation
Total FSG&A
Total SG&A expenses - ACCRUAL
- Depreciation
Cash Disbursements for SG&A
Cash Budget
B. Cash Balance
Add: Cash Receipts I
Collections from Customers
Total Cash Available
Less: Cash Disbursements II
DM, DL, MOH, SG&A
Equipment Purchases
Dividends
Total Cash Disbursements
Excess/(Deficiency) of Cash Available
over Disbursements III
Financing: IV
Borrowings
Repayments
Interest
Total Financing
E. Cash Balance
Cash budget detailed plan showing how cash
resources will be acquired/used
All borrowings take place on 1st day of
borrowing period
All re-pmts take place on last day of final
period included in budget
Budget detailed plan for future usually expressed in formal quantitative terms
Used for planning (MB) and control (gathering feedback to ensure that plan is being
properly executed and modified as circumstances change)
Couiate aageet’s pla throughout the etire orgaizatio
Forces managers to think ahead and formalize long-range objectives
Provide means of allocating resources to parts of org where can be use most effectively
Advantages: increase employee motivation, expose bottlenecks, improve decision-making
processes, improve performance evaluations
Continuous/Perpetual budget 12-mo budget rolls forward 1 mo/Q as current mo/Q is
completed (1 added to end of budget as each mo/Q comes to close)
Self-imposed/Participative budget prepared w cooperation/participation of managers at all
levels (recognized as being part of a team greater support for the organization)
Person directly involved in activity more likely to be in position to make good budget est
Enhances motivation to meet budget estimates
Managers held responsible for reaching their goals and cannot easily shift blame
Limitation: may allow lower-level mangers to create too much slack
Schedule of Expected Cash Collections realization issue
Q1
Q2
Q3
Q4
AR
B. AR
Q1 Sales
Q2 Sales
Q3 Sales
Q4 Sales
Total Cash Collections
*Often included in sales budget
Master budget separate interdependent budgets that formally lay out goals
Top management generally best able at providing a perspective on company
as a whole
Zero-base budgeting all expenses must be justified for each new period
Responsibility accounting manager should be held responsible for those items
that he can actually control to a significant extent
Chapter 9 Flexible Budget and Performance Analysis
Planning budget prepared before the period begins and
is only valid for the planned level of activity (suitable for
planning, not for evaluation how well costs are control)
Flexible budget estimate of what revenues and costs
should have been, given actual level of activity
(plug in actual activity to cost formula)
As activity level increases, FC/Unit will decrease
Management by exception management system that compares actual results to a budget
so significant deviations can be flagged as exceptions and investigated further
Resposiilit for OHEV o ho’s i otrol of activity base underlying flex budget
Activity variance (F when flex revenue > planning, U when actual activity > planned)
If activity increases by 20%, VCs should increase by 20%
Revenue variance (F when actual revenue > flex)
Discrepancy can be cause by change in activity
Percentage change in net income > percentage change in activity due to FCs
Spending variance (F when actual cost < flex)
OH spending variance includes elements of waste, excessive usage, price variance
Cost centers reeue ad NI o’t appear o report ot aager’s resposiilit
Nonprofit revenue may consist of both F and V elements; revenue other than sales
Denominator activity base for POHR (selection of denominator important for
determining fixed rates that will be charged during the year)
Diff companies, having different strategies, should have different balanced scorecards
Flexible Budget vs. Actual results best isolates impact that changes in price of inputs and output have on performance
U revenue variance if average actual selling price is less than expected (if Q = units)
Common errors made in preparing performance reports based on budges and actual costs:
Assuming all costs are F or all are V these assumptions lead to inaccurate benchmarks and incorrect variances
Assuming all costs are F is error made when planning costs are compared to actual without adjusting for actual activity
Assuming all costs are V is error made when comparing budgets to actual results (F costs should not be adjusted)
Performance Report
(1)
(1-2)
(2)
(2-3)
(3)
Cost
Formula
(y = a + bX)
Actual
Budget
Revenue &
Spending
Variances
F/
U
Flexible
Budget
Activity
Variances
F/
U
Planning
Budget
Activity
Revenue
Expenses:
W&S
Supplies
Electricity
Insurance
Misc.
Total Expenses:
Net Op Income
Chapter 10 Standard Costs and Variances
Template 1 DM Variances ***FLEX***
Column I
Column II
Column III



purchased used
  
DM Price Variance: COL2 COL1 or  
DM Quantity Variance: COL3 COL2 or 
DM SPENDING VARIANCE: COL3 COL1 [BUDGETED ACTUAL]
Price vars caused by what was paid for input vs. flex budget price formula (expected to pay)
Purch mnger buys less expensive RM but were low quality F price var, U quantity var
Purch in Col2, used in Col3 bc more timely var reports, simplifies bookkeeping
Quantity (use/efficiency) vars = how much input was USED vs. that specified in flex budget
A favorable variance will INCREASE income; an unfavorable variance will DECREASE income
U quantity var = actual usage of material > the standard material allowed for this output
DM quantity standard generally includes allowance for waste
Template 2 DL Variances
Column I
Column II
Column III



  
DL Rate Variance: COL2 COL1 or  
DL Efficiency Variance: COL3 COL2 or 
DL SPENDING VARIANCE: COL3 COL1 [BUDGETED ACTUAL]
Purch manager purchases less expensive but lower quality RM U labor efficiency var
Poorly trained workers F labor rate variance, U materials quantity var
When OT work at premium rates is charged to the DL account U labor rate var
Trade-off between DLR var and DLE var: manager wants more skilled workers (higher pay = U
rate variance) in order to achieve efficiency (F efficiency variance). Total DL var will only be
achieved if higher skilled workers do work efficiently enough to overcome their higher pay
Template 3 VMOH Variances
Column I
Column II
Column II



  
VOH R Var: COL2 1  
VOH Eff Var: COL3 2 or 
VOH SPENDING VARIANCE: COL3 COL1 [BUDGETED ACTUAL]
Column I AR AVOH/AH Column II,III AR POHR
Template 4 FMOH Variances
   
   
 
 
F when standard hours > denominator hours
FOH VV is error that occurs when level of activity is incorrectly est.
After all variances have been calculated for a period, they are closed to
COGS (over/unapplied) if they are not material in amount
 
Standard cost (benchmark) for each
variable cost, the budgeted cost per unit
of output
Ideal only achieved by org under optimal
conditions; to promote continuous
improvement (does’t allo for ahie
breakdowns, work interruptions; requires
peak efficiency at all times)
Practical tight although ahieale 
reasonable but highly effective operations
(allow for normal machine downtime and
employee rest periods)
Historical average of past performance, of
little use for control
Advantages
-Element in management by exception
-Provide benchmarks to judge own perf
(promotes economy, efficiency)
-Simplifies bookkeeping
-Fits in system of responsibility accounting
Disadvantages
-Var reports may be outdated
If used to assign blame morale suffers
-In some cases, F var can be worse than U
-DL standards make 2 assumptions: pdn
process is labor-paced (but often
determined by machines), labor is a VC
(DL may b essentially fixed)
-Too much emphasis on meeting stds may
overshadow other obj (maintaining,
improving quality, on-time delivery,
customer satisfaction)
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