Module 9 - Budgeting, LCC Flashcards
What is planning vs controlling in budgets?
Planning: looking ahead to determine what actions should be taken
Control: looking back to determine what happened
What are key concepts in a strategic plan?
Long term objectives
Short term objectives
Short term plan
Budgets
Why budget?
Forces managers to plan
Provides info for improved decision making
Provides a standard for evaluation
Improves communication and coordination
What is the master budget?
Financial plan for org as a whole
1. Operating budget
2. Financial budget (inflow/outflow of cash and company’s financial position)
What are the 3 main budget templates?
Static - for a particular level of activity
Flexible - compute expected costs for range of activities
Activity Based - prediction of what activity costs will be as activity output changes
What is the difference between what a static budget gauges vs a flexible one?
Static - effectiveness
Flexible - efficiency
What are incremental budgets?
Existing ops and current budget for activities used as starting point for preparing next annual budget
Adjusted to changes in product mix, volumes expected, price expectations
What are the advantages and disadvantages of incremental budgets?
(+) simple, suited for direct production and service costs
(-) majority of budget is unchanged year to year, inefficiencies carried forward
What is a zero-base budget?
No budget used as basis, activities justified and prioritized before decisions
What are the advantages of zero-base budgets?
Traditional budgeting extrapolates past, allocations based on need/benefit, funding isn’t taken for granted, questioning attitude, focuses outputs in relation to monetary value
What is life cycle costing of a product?
Total cost throughout its life including planning, design, acquisition, and support costs and any other costs directly attributed to owning or using asset
What is typically included in LCC?
Costs and revenues, environmental and societal costs
Why complete life cycle costing?
Pick most cost effective option, understand entire cost of projects for pricing, support ongoing cost monitoring and evaluation, determine where cost controls can be placed
When is LCC completed?
All stages of project
What are some methods of cost analysis?
Engineering cost method - direct estimation of particular cost elements by examining asset component by component
Analogous cost method - draws on historical data from components of assets with similar parameters
Parametric cost method - actual or historical detailed asset component data is limited to known parameters
