Planning, Control & Analysis Flashcards
Types of Planning
1) Strategic planning - long-term overall goals and policies
- Mission statement - purpose and highest values
2) ID goals and objectives
- Set up performance measures for each
3) Tactical planning - specific actions to meet goals
Types of Budgets
1) Master - static budget for company as a whole and summarizes:
- Operational budget
- Financial budget
2) Static - analyze conditions for specific level of activity
- Do no change as activity levels change
3) Kaizen budgeting - cost projections based on expectations of future improvements
Preparing Master Budget
1) Estimate sales volume
2) Use sales volume to estimate revenues
3) Collection histories to estimate collections
4) Estimate COGS by # of units sold
5) Use beg finished goods, budgeted ending finished goods, and COGS to estimate # of units to be manufactured
6) Use units manufactured to estimated material, labor, and OH costs
7) Use material needs, beg raw materials, and bugeted ending raw materials to budget purchases
8) Purchases to estimate payments
9) Payments and expenses to complete operating & cash budgets
Budgeting Material Purchases and Payments
Units Sold \+ Budgeted increase in finished goods - Budgeted decrease in finished goods = Units manufactured x Units of raw materials per unit of finished goods = Units of raw materials to for production \+ Budgeted increase in raw materials - Budgeted decrease in raw materials = Units of raw materials needed to be purchased \+ Budgeted decrease in AP - Budgeted increase in AP = Budgeted payments for raw materials
Production Budget
Budgeted Sales \+ Budgeted Ending Finished Goods = Total Needs - Beginning Finished Goods = # of Units to be produced
Budget Order
1) Sales budget
2) Production budget
3) Direct/Raw materials purchases budget
4) Cash disbursements budget (ALWAYS AT THE END)
5) Budgeted financial statements
Flexible Budgeting
1) Usually use direct costing method
Sales ($) - Variable costs = Contribution margin
- Fixed costs = Operating profit
Or Y = a + (b * X)
2) Can modify the sales and variable costs depending on changes in activity level
Correlation Analysis
1) ID which predictors to use as X and Y
2) Used to calculate correlation coefficient between two variables at a time
- Between -1 and 1
- Closer to -1 or 1 = strong relationship
- Closer to 1 = direct relationship
- Closer to -1 = indirect relationship
- 0 = no relationship
Regression Analysis
1) Used to test which, among various independent variables, is(are) the best predictor(s) of the dependent variable
2) Coefficient of determination (R squared) - % of variation in the dependent variable explained by variation in the independent variables
- Between 0 and 1 (closer to 1 better)
3) High-low method:
- Difference at highest and lowest points of Y/Same of X
Responsibility Accounting
1) Used to evaluate managers’ and divisions’ performance:
- Cost center - responsible for costs incurred by that center
- Profit center - revenue and costs
- Investment center - revenues, costs, and capital investments
Economic Value Added (EVA)
1) Used to evaluate performance of investment center
2) Earnings of the center over cost of capital
- Cost of center x weighted average cost of capital = cost of capital
- Center’s operating profit - cost of capital = EVA
Activity Based Costing (ABC)
1) Accumulates cost by specific activities being performed using the cost driver (analyze to eliminate activities that do not add value) and traditional accumulates costs by department or function
2) Example - Depreciation, repairs, and maintenance grouped together as activities affected by machine hours
3) Segregate manufacturing OH into numerous cost pools, which include costs with common elements (cost driver)
- Enhances usefulness of multiple regression analysis
4) Costs classified as value-adding or nonvalue-adding (moving, handling, storage, utilities, depreciation)
Service Department Costs
1) Service departments - incur overhead costs providing support to production departments
2) ABC approach - allocate service department OH costs to appropriate production departments
- Direct allocation - service department costs allocated directly to production departments
- Step allocation - costs allocated both to production departments and “temporarily or as a step” to other service departments
Service Department Costs (Direct Allocation Method)
Service department costs allocated directly to production departments
Service Department Costs (Step Allocation Method)
Service department costs allocated both to production departments and “temporarily or as a step” to other service departments:
1) Rank service departments (performing services for te most other service departments)
2) Allocate 1st SD’s costs to remaining SDs and production departments
3) Cost of next SD’s costs allocated
4) Repeat
Probability Analysis
1) Possible outcomes relating to a single action and likelihood of occurrence of each possible outcome
2) Take amount of outcome x % of probability
Risk Management (Expected Returns - Gordon Growth Model)
Total Return = Distribution Rate + Growth Rate
Portfolio
Group of investments - weighted average of the expected return of each individual investment
Average Returns (Arithmetic/Simple Average Return Rate)
Add the returns for several periods/# of periods
