08 Fungtional Activity-Based Costing

8/4/2019 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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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Activity-Based Budgeting

Activity flexible

budgetingis theprediction of what

activity costs will be as

activity output changes.


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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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Activity Flexible Budget

Driver: Direct Labor Hours

Formula Level of Activity


Direct materials --- $10 $100,000 $200,000

Direct labor --- 8 80,000 160,000

Subtotal $0 $18 $180,000 $360,000== ===

Driver: Machine Hours


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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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


Purchasing $211,000 $1 $226,000 $236,000

======= ==

Total $678,000 $948,000======= =======


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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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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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End of Chapter 8

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08 Fungtional Activity-Based Costing