08 Fungtional Activity-Based Costing
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Transcript of 08 Fungtional Activity-Based Costing
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PPT 8 -1
AGUS SISWANDI
01153056
MANAGEMENT ACCOUNTING
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PPT 8 -2
Chapter Eight
Functional andActivity-Based Budgeting
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PPT 8 -3
Learning Objectives
q Define budgetingand discuss its role in planning,
control, and decision making.
qDefine and prepare the master budget, identify itsmajor components, and explain the
interrelationships of its various components.
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PPT 8 -4
Learning Objectives (continued)
q Describe flexible budgeting and identify the
features that a budgetary system should have to
encourage managers to engage in goal-congruent
behavior.
q Describe activity-based budgeting.
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PPT 8 -5
Definition and Role of Budgeting
Strategic Plan Monitoring of Actual Activity
Long-Term Objectives
Short-Term Objectives
Short-Term Plan
Budgets Comparison of Actual with Planned
Feedback Investigation
Corrective action
Planning
Control
Budgets are quantitativeexpressions of plans
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PPT 8 -6
Purposes of Budgeting
q It forces managers to plan.
q It provides information that can be used to improve
decision making.
q It provides a standard for performance evaluation.
q It improves communication and coordination.
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PPT 8 -7
Two Dimensions of Budgeting
There are two dimensions to budgeting:
1. How is the budget prepared?
2. How is the budget used to implement theorganizations plan?
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PPT 8 -8
Master Budget
A master budgetcan be divided into operating and
financial budgets.
Operating budgetsdescribe the income-generatingactivities of a firm: sales, production, and finished
goods inventories.
Financial budgets detail the inflows and outflows
of cash and the overall financial position.
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PPT 8 -9
The Operating Budget
q Sales budget
q Production budget
q Direct material purchases budget
q Direct labor budget
q
Overhead budgetq Selling and administrative expenses budget
q Ending finished goods inventory budget
q Cost of goods sold budget
The operating budget consists of a budgetedincome statement accompanied by the following
support schedules:
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PPT 8 -10
Sales Budget (Schedule 1)
______________Quarter____________
1 2 3 4 Year
Units 2,000 6,000 6,000 2,000 16,000
Unit selling price x $0.70 x $0.70 x $0.80 x $0.80 x $0.75
$1,400 $4,200 $4,800 $1,600 $12,000===== ===== ===== ===== ======
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PPT 8 -11
Production Budget (Schedule 2)
_____________Quarter____________
1 2 3 4 Year
Sales (Schedule 1) 2,000 6,000 6,000 2,000 16,000
Desired ending inventory 500 500 100 100 100
Total needs 2,500 6,500 6,100 2,100 16,100
Less: Beginning inventory (100) (500) (500) (100) (100)
Units to be produced 2,400 6,000 5,600 2,000 16,000==== ==== ==== ==== =====
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PPT 8 -12
Direct Materials Budget (Schedule 3)
______________Quarter______________
1 2 3 4 Year
Units to be produced (2) 2,400 6,400 5,600 2,000 16,000
Direct materials per unit x 26 x 26 x 26 x 26 x 26
Production needs 62,400 156,000 145,600 52,000 416,000Desired ending inventory 8,000 8,000 5,000 5,000 5,000
Total needs 70,400 164,000 150,600 57,000 421,000
Less: Beginning inventory (5,000) (8,000) (8,000) (5,000) (5,000)
Direct materials to
be purchased 65,400 156,000 142,600 52,000 416,000
Cost per pound x$0.01 x $0.01 x $0.01 x $0.01 x $0.01
Total purchase cost $654 $1,560 $1,426 $520 $4,160
=== ===== ===== ==== =====
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PPT 8 -13
Direct Labor Budget (Schedule 4)
________________Quarter____________
1 2 3 4 Year
Units to be produced (Sch. 2) 2,400 6,000 5,600 2,000 16,000
Direct labor time x 0.015 x 0.015 x 0.015 x 0.015 x 0.015
Total hours needed 36 90 84 30 240
Average wage per hour x $10 x $10 x $10 x $10 x $10
Total direct labor cost $360 $900 $840 $300 $2,400
=== === === === ====
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PPT 8 -14
Overhead Budget (Schedule 5)
_____________Quarter_____________
1 2 3 4 Year
Budgeted DLH ( Sch. 4) 36 90 84 30 240
Variable overhead rate x $8 x $8 x $8 x $8 x $8
Budgeted variable overhead $288 $720 $672 $240 $1,920
Budgeted fixed overhead* 320 320 320 320 1,280
Total overhead $608 $1,040 $992 $560 $3,200
==== ===== ==== ==== =====
*Includes $200,000 of depreciation in each quarter.
S lli d Ad i i i
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PPT 8 -15
Selling and Administrative
Expenses Budget (Schedule 6)
________________Quarter____________
1 2 3 4 Year
Planned sales in units (Sch. 1) 2,000 6,000 6,000 2,000 16,000
Variable S & A exp. per unit x $0.05 x $0.05 x $0.05 x $0.05 x $0.05
Total variable expense $100 $300 $300 $100 $ 800Fixed S & A expenses:
Salaries $ 35 $ 35 $ 35 $ 35 $ 140
Advertising 10 10 10 10 40
Depreciation 15 15 15 15 60
Insurance -- -- 15 -- 15Travel 5 5 5 5 20
Total fixed expenses $ 65 $ 65 $ 80 $ 65 $ 275
Total S & A expenses $165 $365 $380 $165 $1,075
=== === === === ====
E di Fi i h d G d
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PPT 8 -16
Ending Finished Goods
Inventory Budget (Schedule 7)
Unit-cost computation:
Direct materials (26 lb.. @ $0.01) $0.26
Direct labor (0.015 hr. @ $10) 0.15
Overhead:
Variable (0.015 hr. @ $8) 0.12
Fixed (0.015 hr. @ $5.33*) 0.08
Total unit cost $0.61
====*$1,280/240 = $5.33
Unit
Units Costs Total
Finished goods: Concrete block 100,000 $0.61 $61,000
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PPT 8 -17
Cost of Goods Sold Budget (Schedule 8)
Direct materials used (Schedule 3)* $4,160
Direct labor used (Schedule 4) 2,400
Overhead (Schedule 5) 3,200
Budgeted manufacturing costs $9,760
Beginning finished goods 55
Goods available for sale $9,815
Less: Ending finished goods (Schedule 7) (61)
Budgeted cost of goods sold $9,754
=====
*Production needs x $0.01 = 416,000 x $0.01
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PPT 8 -18
The Financial Budgets
The usual financial budgets prepared are:
q The cash budget
q The budgeted balance sheet
q The budget for capital expenditures
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PPT 8 -19
The Cash Budget
Beginning cash balance $x,xxx
Add: Cash receipts x,xxx
Cash available $x,xxx
Less: Cash disbursements x,xxxLess: Minimum cash balance x,xxx
Cash surplus (deficiency) $x,xxx
Add: Cash from loans x,xxx
Less: Loan repayments x,xxx
Add: Minimum cash balance x,xxx
End cash balance $x,xxx=====
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PPT 8 -20
Cash Budget Example
a. A $100,000 minimum cash balance is required for the end of
each quarter. Money can be borrowed and repaid in
multiples of $100,000. Interest is 12 % per year. Interest
payments are made only for the amount of the principalbeing repaid. All borrowing takes place at the beginning of
a quarter and all repayment takes place at the end of a
quarter.
b. Half of all sales are for cash, 70% of credit sales arecollected in the quarter of sale, and the remaining 30% are
collected in the following quarter. The sales for the fourth
quarter of 2000 were $2 million.
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PPT 8 -21
Cash Budget Example (continued)
c. Purchases of raw materials are made on account; 80% of
purchases are paid for in the quarter of purchase. The
remaining 20% are paid for in the following quarter. The
purchases for the fourth quarter of 2000 were $500,000.d. Budgeted depreciation is $200,000 per quarter for overhead
and $15,000 per quarter for selling and administrative
expenses (see Schedules 5 and 6).
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PPT 8 -22
Cash Budget Example (continued)
e. The capital budget for 2001 revealed plans to purchase
additional equipment to handle increased demand at a small
plant in Nevada. The cash outlay for the equipment,
$600,000, will take place in the first quarter. The companyplans to finance the acquisition of the equipment with
operating cash, supplementing it with short-term loans as
necessary.
f. Corporate income taxes are approximately $650,000 and willbe paid at the end of the fourth quarter (Schedule 9).
g. Beginning cash balance equals $120,000.
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PPT 8 -23
Cash Receipts from Customers
Source Quarter1 Quarter 2 Quarter 3 Quarter 4
Cash sales $ 700,000 $2,100,000 $2,400,000 $ 800,000
Received on
account from:
Quarter 4, 2000 300,000
Quarter 1, 2001 490,000 210,000
Quarter 2, 2001 1,470,000 630,000
Quarter 3, 2001 1,680,000 720,000
Quarter 4, 2001 560,000
Total cash receipts $1,490,000 $3,780,000 $4,710,000 $2,080,000
======== ======== ======== ========
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PPT 8 -24
Cash Disbursements for Raw Materials
Source Quarter1 Quarter 2 Quarter 3 Quarter 4
Current quarter $523 $1,248 $1,141 $416
Prior quarter 100 131 312 285
Total cash
disbursement
for raw materials $623 $1,379 $1,453 $701
==== ===== ===== ====
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PPT 8 -25
Cash Disbursements
____________ ______Quarter__________________1 2 3 4
Less cash disbursements:
Raw materials:
Current quarter $523 $1,248 $1,141 $416
Prior quarter 100 131 312 285
Direct labor 360 900 840 300
Overhead 408 840 792 360
Selling and adm. 150 350 365 150
Income taxes --- --- --- 650
Equipment 600 --- --- ---
Total disbursements $2,141 $3,469 $3,450 $2,161
==== ==== ==== ====
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PPT 8 -26
Cash Budget (Schedule 10) _________ ______Quarter_______________
1 2 3 4 Year
Beginning cash balance $ 120 $ 169 $ 162 $ 986 $ 120
Cash collections (PPT 8-23) 1,490 3,780 4,710 2,080 12,060
Total cash available $1,610 $3,949 $4,872 $3,066 $12,180
Total disbursements (PPT 8-25) $2,141 $3,469 $3,450 $2,161 $11,221
Minimum cash balance 100 100 100 100 100
Total cash needs $2,241 $3,569 $3,550 $2,261 $11,321
Excess (deficiency) of cash $ (631) $ 380 $1,322 $ 805 $ 859
Add: Borrowings 700 --- --- --- 700
Less: Repayments --- (300) (400) --- (700)
Less: Interest paid --- (18) ( 36) --- (54)
Ending cash balance $ 169 $ 162 $ 986 $ 905 $ 905====== ====== ====== ===== ======
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PPT 8 -27
Budgeted Income Statement
Sales (Schedule 1) $12,000
Less: Cost of goods sold (Schedule 8) (9,754)
Gross margin $ 2,246
Less: Selling and administrative expenses (Schedule 6) (1,075)
Operating income $ 1,171
Less: Interest expense (Schedule 10) (54)
Income before taxes $ 1,117
Less: Income taxes (PPT 8-25) (650)
Net income $ 467
======
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PPT 8 -28
Total Assets, Last Year
Assets
Current assets:
Cash $ 120
Accounts receivable 300
Raw materials inventory 50
Finished goods inventory 55
Total current assets $ 525
Property, plant, and equipment:
Land $ 2,500
Building and equipment 9,000
Less: Accumulated depreciation (4,500)
Total property, plant, and equipment 7,000
Total assets $7,525
=====
Total Liabilities and Stockholders
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PPT 8 -29
Total Liabilities and Stockholders
Equity, Last Year
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable $ 100
Stockholders equity:
Common stock, no par $ 600
Retained earnings 6,825
Total stockholders equity 7,425
Total liabilities and stockholders equity $7,525
=====
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PPT 8 -30
Budgeted Total Assets
Assets
Current assets:
Cash $ 905
Accounts receivable 240
Raw materials inventory 50
Finished goods inventory 61Total current assets $1,256
Property, plant, and equipment:
Land $2,500
Building and equipment $ 9,600
Less: Accumulated depreciation (5,360)
Total property, plant, and equipment 6,740
Total assets $7,996
=====
B d t d T t l Li biliti d
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PPT 8 -31
Budgeted Total Liabilities and
Stockholders Equity
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable $ 104
Stockholders equity:
Common stock, no par $ 600
Retained earnings 7,292
Total stockholders equity 7,892
Total liabilities and stockholders equity $7,996
=====
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PPT 8 -32
Flexible and Static Budgeting
Static Budgetingis a budget for a particular level of
activity.
Flexible Budgetingis a budget that provides a firmwith the capability to compute expected costs for a
range of activity.
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PPT 8 -33
The Uses of Flexible Budget
q The flexible budget can be used to prepare the budget
before the fact for the expected level of activity.
q Flexible budgeting can be used to compare what costs
should have been for the actual level of activity.
q Flexible budgeting can help managers deal with uncertainty
by allowing them to see the expected outcomes for a range
of activities.
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PPT 8 -34
Performance Report (Exhibit 8-6)
Actual Budgeted Variance
Units produced 3,000 2,400 600 F
==== ==== ===
Direct materials cost $ 927.3 $ 624.0 $303.3 U
Direct labor costs 450.0 360.0 90.0 U
Overhead:
Variable:
Supplies 80.0 72.0 8.0 U
Indirect labor 220.0 168.0 52.0 U
Power 40.0 48.0 (8.0) F
Fixed:
Supervision 90.0 100.0 (10.0) F
Depreciation 200.0 200.0 0.0
Rent 30.0 20.0 10.0 U
Total $2,037.3 $1,592.0 $445.3 U
====== ====== =====
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PPT 8 -35
Flexible Production Budget (Exhibit 8-7)
Variable
Cost Range of Production
Production Costs per Unit 2,400 3,000 3,600
Variable:
Direct materials $0.26 $ 624 $ 780 $ 936
Direct labor 0.15 360 450 540
Variable overhead:
Supplies 0.03 72 90 108Indirect labor 0.07 168 210 252
Power 0.02 48 60 72
Total variable costs $0.53 $1,272 $1,590 $1,908
Fixed overhead:
Supervision $ 100 $ 100 $ 100
Depreciation 200 200 200Rent 20 20 20
Total fixed costs $ 320 $ 320 $ 320
Total production costs $1,592 $1,910 $2,228===== ===== =====
Actual vs Flexible Performance Report
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PPT 8 -36
Actual vs. Flexible Performance Report
(Exhibit 8-8)
Actual Budget VarianceUnits produced 3,000 3,000 -----
==== ==== ====
Production costs:
Direct materials $ 927.3 $ 780.0 $ 147.3 U
Direct labor 450.0 450.0 0.0
Variable overhead:
Supplies 80.0 90.0 (10.0) F
Indirect labor 220.0 210.0 10.0 U
Power 40.0 60.0 (20.0) F
Total variable costs $1,717.3 $1,590.0 $ 127.3 U
Fixed overhead:
Supervision $90.0 $100.0 $(10.0) FDepreciation 200.0 200.0 0.0
Rent 30.0 20.0 10.0 U
Total fixed costs $ 320.0 $ 320.0 $0.0
Total production costs $2,037.3 $1,910.0 $ 127.3 U
====== ====== =====
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PPT 8 -37
Behavior Dimensions of Budgeting
q Goal Congruence
q Dysfunctional Behavior
q Frequent Feedback on Performance
q Monetary and Nonmonetary Incentives
q Participative Budgeting
q Realistic Standards
q Controllability of Costs
q Multiple Measures of Performance
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PPT 8 -38
Activity-Based Budgeting
Activity flexible
budgetingis theprediction of what
activity costs will be as
activity output changes.
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PPT 8 -39
Flexible Budget: Direct Labor Hours
Cost Formula Direct Labor Hours
Fixed Variable 10,000 20,000
Direct materials --- $10 $100,000 $200,000
Direct labor --- 8 80,000 160,000Maintenance $ 20,000 3 50,000 80,000
Machining 15,000 1 25,000 35,000
Inspections 120,000 --- 120,000 120,000
Setups 50,000 --- 50,000 50,000
Purchasing 220,000 --- 220,000 220,000
Total $425,000 $22 $645,000 $865,000
======= === ======= =======
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PPT 8 -40
Activity Flexible Budget
Driver: Direct Labor Hours
Formula Level of Activity
Fixed Variable 10,000 20,000
Direct materials --- $10 $100,000 $200,000
Direct labor --- 8 80,000 160,000
Subtotal $0 $18 $180,000 $360,000== ===
Driver: Machine Hours
Fixed Variable 8,000 16,000
Maintenance $20,000 $5.50 $64,000 $108,000
Machining 15,000 2.00 31,000 47,000
Subtotal $35,000 $7.50 $95,000 $155,000====== ====
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PPT 8 -41
Activity Flexible Budget (continued)
Driver: Number of Setups
Fixed Variable 25 30
Inspections $80,000 $2,100 $132,500 $143,000
Setups --- 1,800 45,000 54,000
Subtotal $80,000 $3,900 $177,500 $197,000
====== =====
Driver: Number of Orders
Fixed Variable 15,000 25,000
Purchasing $211,000 $1 $226,000 $236,000
======= ==
Total $678,000 $948,000======= =======
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PPT 8 -42
Activity-Based Performance Report
Actual Costs Budgeted Costs Budget Variance
Direct materials $101,000 $100,000 $1,000 U
Direct labor 80,000 80,000 ---
Maintenance 55,000 64,000 9,000 F
Machining 29,000 31,000 2,000 F
Inspections 125,500 132,500 7,000 F
Setups 46,500 45,000 1,500 U
Purchasing 220,000 226,000 6,000 F
Total $657,000 $678,500 $21,500 F======= ======= ======
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PPT 8 -43
Variances for the Inspection Activity
Activity Actual Cost Budgeted Cost Variance
Inspection:
Fixed $ 82,000 $ 80,000 $2,000 U
Variable 43,500 52,500 9,000 FTotal $125,500 $132,500 $7,000 F
======= ======= =====
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PPT 8 -44
End of Chapter 8