Section 6: Planning, Control, and Analysis Flashcards
Strategic Planning
Long term overall goals and policies
Tactical Planning
Short term objectives and temporary techniques
Tactics
Specific actions to meet goals
Master Budget
Budget at one level production
Static Budget but for the whole company
Summarizes the Operating and Financial Budgets
Static Budget
Analyze conditions for a specific level of activity (what would our labor costs be if sales were at X?)
Operating Budget
Income Statement
Financial Budget
Capital budget, cash budget, B/S budget, etc.
Kaizen Budget
Budget with improvements that have not been implemented yet
Preparing a Master Budget
- Est. Sales Volume
- Use Est Sales Volume to est. Revenues
- Use collection histories to est. collections
- Est. Cost of Sales based on # of units sold
- Use Current Fin Inventory, budgeted end inv., & cost of sales to eat the # of units to be manufactured
- Use units manufactured to est. material needs, labor costs, & O/H costs
- Use material needs, current raw inv., and budgeted end inv. to budget purchases
- Use purchase terms to eat. payments
- Analyze expenses & payment patterns to complete operating & cash budgets
Budgeting Material Purchases & Payments
Units Sold \+ Budgeted increase in FG - Budgeted decrease in FG = Units to be Manufactured * Units of RM per unit of FG = Units of RM req. for production \+ Budgeted increase in RM - Budgeted decrease in RM = Budgeted RM purchases \+ Budgeted decrease in A/P - Budgeted increase in A/P = Budgeted payments for RM
Production Budget
Budgeted Sales \+ Desired End Inv. of FG = Total Needs - Beg. Inv. of FG = Number of Units to be produced
Order Budgets are Prepared
Sales
Production
RM Purchases
Cash Disbursements
Flexible Budget Equation
Y = a + (b * X) TC = FC + (VC * X)
Y is dependent
X is independent (cost driver)
Correlation Coefficient
p
Between -1 and 1
Close to -1, strong inverse relationship
Close to 1, strong direct relationship
Close to 0, no reliable relationship
Coefficient of Determination
R^2
“Goodness to Fit of the line”
Btw 0 and 1
Closer to 1 is a better fit
Responsibility Accounting
Evaluate managers’ and divisions’ performance
Cost center
Manager is responsible for the costs incurred by that center
Profit Center
Manager is responsible for both (1) the revenues earned and (2) the costs incurred by that center
Investment Center
Manager is responsible for all of (1) the revenues earned, (2) the costs incurred, and (3) the capital investments from each center
Value-Adding Costs
Costs there actually make the product test or make it better for customers
Non Value-Adding Costs
Ex: Moving, handling, storage, factory utilities, or depreciation of manufacturing equipment
Direct Allocation of Service Department Costs
Service Dept costs directly to production dept
Step Allocation of Service Department Costs
Service to service to Production
- Rank Service dept. from those that service the most to the least
Standard Deviation
- Determine Arithmetic Avg Return
- Calculate the diff. from the avg for each individual period
- Square those differences
- Determine the avg. of those squared values
- Calculate the square root of this avg.
