Budgeting and Overhead Cost Allocation

8/16/2019 Budgeting and Overhead Cost Allocation

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Overhead Cost Allocation

Costs are ordinarily assigned to products and

services by using a two stage process. In frststage, service department and other costs are

allocated to operating departments. In second

stage, the costs that have been assigned to

operating departments are allocated to products

and services. Here we will ocus on the frst

stage, in which service department costs areallocated to operating departments.

In the frst stage, service department costs are

allocated to operating departments by using a

unique allocation base or each service

department. The allocation base that is used toallocate a particular service department's costs

should drive those costs. !or e"ample, the

number o meals served would commonly be

used as the allocation base or caeteria costs

because the costs incurred in the caeteria are

driven to a large e"tent by the number o mealsserved.

Ideally the total cost incurred in the service

department should be directly proportional to the

allocation base. I the allocation base increases

or decreases by #$%, the service department

cost should increase or decrease by #$% as well.

&anagers also oten argue that an allocation


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base should reect as accurately as possible the

benefts that the various departments receive

rom the service department.

!or e"ample the most managers would argue

that square eet building space occupied by each

department should be used as the allocation

base or (anitorial services because both the

benefts and costs o (anitorial services tend to be

proportional to the amount o space occupied by

a department. ) given service department's costmay be allocated using more than allocation base

*see e"amples below+. !or e"ample, data

processing costs may be allocated on the basis o

C- minutes or mainrame computers and on

the basis o number o personal computers used

in each operating department.

In addition to e"planation o how to select an

allocation base, another critical actor should not

be overlooed. The allocation base should be

clear and straightorward and easily understood

by the managers to whom the costs are beingallocated.

BUDGET AND BUDGETARY CONTROL

#.) /udget is essentially a plan, a statement o

e"pected results e"pressed in numerical terms.

The process o reducing plans to defnite

numbers orces a ind o orderliness that helps


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the authority in bringing about co0ordination and

e1ective control over di1erent activities o an

organisation. Co0ordination and control leads to

methodical orecasts, setting up o some

standards and targets. 2uch standards and

targets orm the yardstics or measuring

e3ciency o various activities. /udget is thus the

most e1ective device o managerial control. It is

to plan wor and wor the plan. The latter is

more important.4ssentials o a /udget

5. The use o the /udget as a planning as well as

a control instrument has several implications. It

should be based upon actual e"pectations rather

than ideal goals. /asing on the perormance oprevious years and agreed targets o e"pected

perormances, taing into consideration the

availability o the means o production, budget is

made out in such broad details as could be

wored out with as meticulous care as possible.


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Budgetary control methods

a+ Budget

) ormal statement o the fnancial resourcesset aside or carrying out specifc activities in agiven period o time.

It helps to co0ordinate the activities o theorganisation.

)n e"ample would be an advertising budget orsales orce budget.

!" Budgetary control

) control technique whereby actual results arecompared with budgets.

)ny di1erences *variances+ are made theresponsibility o ey individuals who can eithere"ercise control action or revise the originalbudgets.

Budgetary control and res#onsi!ilitycentres$

These enable managers to monitor organisationalunctions.

A res#onsi!ility centre can be defned as anyunctional unit headed by a manager who isresponsible or the activities o that unit.

There are our types o responsibility centres6

a+ Revenue centres


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7rganisational units in which outputs aremeasured in monetary terms but are not directlycompared to input costs.

b+ Expense centres

-nits where inputs are measured in monetaryterms but outputs are not.

c+ Proft centres

8here perormance is measured by thedi1erence between revenues *outputs+ ande"penditure *inputs+. Inter0departmental salesare oten made using transer prices.

d+ Investment centres

8here outputs are compared with the assets

employed in producing them, i.e. 97I.Advantages o% !udgeting and !udgetarycontrol

There are a number o advantages to budgetingand budgetary control6

Compels management to thin about theuture, which is probably the most importanteature o a budgetary planning and controlsystem. !orces management to loo ahead, toset out detailed plans or achieving the targetsor each department, operation and *ideally+each manager, to anticipate and give theorganisation purpose and direction.


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romotes coordination and communication.

Clearly defnes areas o responsibility. 9equiresmanagers o budget centres to be maderesponsible or the achievement o budgettargets or the operations under their personalcontrol.

rovides a basis or perormance appraisal*variance analysis+. ) budget is basically ayardstic against which actual perormance is

measured and assessed. Control is provided bycomparisons o actual results against budgetplan. :epartures rom budget can then beinvestigated and the reasons or the di1erencescan be divided into controllable and non0controllable actors.

4nables remedial action to be taen asvariances emerge.

&otivates employees by participating in thesetting o budgets.

Improves the allocation o scarce resources.

4conomises management time by using themanagement by e"ception principle.

The disadvantages o% !udgeting

include

Time required . It can be very time0

consuming to create a budget, especially in a


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poorly0organi;ed environment where many

iterations o the budget may be required. The

time involved is lower i there is a well0designedbudgeting procedure in place, employees are

accustomed to the process, and the company

uses budgeting sotware. The time requirement

can be unusually large i there is a participative

budgeting process in place, since such a system

involves an unusually large number o

employees.

Gaming the system. )n e"perienced

manager may attempt to introduce budgetary

slac, which involves deliberately reducing

revenue estimates and increasing e"pense

estimates, so that he can easily achieve

avorable variances against the budget. This can

be a serious problem, and requires considerable

oversight to spot and eliminate

Blame for outcomes& I a department does

not achieve its budgeted results, the department

manager may blame any other departments that

provide services to it or not having adequately

supported his department.

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Expense allocations& The budget may

prescribe that certain amounts o overhead costs

be allocated to various departments, and themanagers o those departments may tae issue

with the allocation methods used.

Spend it or lose it . I a department is

allowed a certain amount o e"penditures and it

does not appear that the department will spendall o the unds during the budget period, the

department manager may authori;e e"cessive

e"penditures at the last minute, on the grounds

that his budget will be reduced in the ne"t period

unless he spends all o the amounts authori;ed in

the current budget.

Only considers nancial outcomes.

/udgets are primarily concerned with the

allocation o cash to specifc activities, and the

e"pected outcome o business transactions 0 they

do not deal with more sub(ective issues, such as

the quality o products or services provided to

customers. These other issues can be stated as

part o the budget, but this is not typically done.

Strategic rigidity . 8hen a company creates

an annual budget, the senior management team


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may decide that the ocus o the organi;ation or

the ne"t year will be entirely on meeting the

targets outlined in the budget. This can be aproblem i the maret shits in a di1erent

direction sometime during the budget year. In

this case, the company should shit along with

the maret, rather than adhering to the budget.

'ro!lems in !udgeting

8hilst budgets may be an essential part o anymareting activity they do have a number odisadvantages, particularly in perception terms.

/udgets can be seen as pressure devices

imposed by management, thus resulting in6a+ bad labour relationsb+ inaccurate record0eeping.

:epartmental conict arises due to6

a+ disputes over resource allocation

b+ departments blaming each other i targets arenot attained.

It is di3cult to reconcile personal


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9esponsibility versus controlling, i.e. some costsare under the inuence o more than one person,e.g. power costs.

&anagers may overestimate costs so that theywill not be blamed in the uture should theyoverspend.

Characteristics o% a !udget

) good budget is characterised by the ollowing6

articipation6 involve as many people aspossible in drawing up a budget. Comprehensiveness6 embrace the wholeorganisation. 2tandards6 base it on established standards operormance. !le"ibility6 allow or changing circumstances. !eedbac6 constantly monitor perormance. )nalysis o costs and revenues6 this can bedone on the basis o product lines, departmentsor cost centres.

Budget organisation and administration

In organising and administering a budget systemthe ollowing characteristics may apply6

a+ Budget centres: -nits responsible or thepreparation o budgets. ) budget centre mayencompass several cost centres.

b+ Budget committee: This may consist o senior

members o the organisation, e.g. departmental


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heads and e"ecutives *with the managingdirector as chairman+. 4very part o theorganisation should be represented on the

committee, so there should be a representativerom sales, production, mareting and so on.!unctions o the budget committee include6

Coordination o the preparation o budgets,including the issue o a manual Issuing o timetables or preparation obudgets rovision o inormation to assist budgetpreparations Comparison o actual results with budget andinvestigation o variances.

c+ Budget Ocer: Controls the budgetadministration The (ob involves6

liaising between the budget committee andmanagers responsible or budget preparation dealing with budgetary control problems ensuring that deadlines are met educating people about budgetary control.

d+ Budget manual:

This document6

charts the organisation details the budget procedures contains account codes or items oe"penditure and revenue timetables the process


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clearly defnes the responsibility o personsinvolved in the budgeting system.

Budget #re#aration

!irstly, determine the principal budget actor. Thisis also nown as the ey budget actor or limitingbudget actor and is the actor which will limit theactivities o an undertaing. This limits output,e.g. sales, material or labour.

a+ 2ales budget6 this involves a realistic salesorecast. This is prepared in units o each productand also in sales value. &ethods o salesorecasting include6

sales orce opinions maret research statistical methods *correlation analysis ande"amination o trends+ mathematical models.

In using these techniques consider6

company's pricing policy general economic and political conditions

changes in the population competition consumers' income and tastes advertising and other sales promotiontechniques ater sales service credit terms o1ered.


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b+ roduction budget6 e"pressed in quantitativeterms only and is geared to the sales budget. Theproduction manager's duties include6

analysis o plant utilisation wor0in0progress budgets.

I requirements e"ceed capacity he may6

subcontract plan or overtime

introduce shit wor hire or buy additional machinery The materials purchases budget's bothquantitative and fnancial.

c+ 9aw materials and purchasing budget6

The materials usage budget is in quantities. The materials purchases budget is bothquantitative and fnancial.

!actors inuencing a+ and b+ include6

production requirements planning stoc levels storage space trends o material prices.

d+ =abour budget6 is both quantitative andfnancial. This is inuenced by6

production requirements man0hours available grades o labour required


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wage rates *union agreements+ the need or incentives.

e+ Cash budget6 a cash plan or a defned periodo time. It summarises monthly receipts andpayments. Hence, it highlights monthly surplusesand defcits o actual cash. Its main uses are6

to maintain control over a frm's cashrequirements, e.g. stoc and debtors

to enable a frm to tae precautionarymeasures and arrange in advance or investmentand loan acilities whenever cash surpluses ordefcits arises

to show the easibility o management's plansin cash terms

to illustrate the fnancial impact o changes inmanagement policy, e.g. change o credit termso1ered to customers.

9eceipts o cash may come rom one o theollowing6

cash sales payments by debtors the sale o f"ed assets the issue o new shares the receipt o interest and dividends rominvestments.

ayments o cash may be or one or more o the

ollowing6


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purchase o stocs payments o wages or other e"penses purchase o capital items

payment o interest, dividends or ta"ation.

(te#s in #re#aring a cash !udget

i+ 2tep #6 set out a pro orma cash budget monthby month. /elow is a suggested layout.

)onth * )onth + )onth ,

- - -

Cash receipts

9eceipts rom debtors

2ales o capital items

=oans received

roceeds rom share issues

)ny other cash receipts

Cash payments

ayments to creditors

8ages and salaries

=oan repayments


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Capital e"penditure

Ta"ation

:ividends

)ny other cash e"penditure

Receipts less payments

Opening cash balance b! 8 > ?

Closing cash balance c! > ? @

ii+ 2tep 56 sort out cash receipts rom debtors

iii+ 2tep A6 other income

iv+ 2tep B6 sort out cash payments to suppliers

v+ 2tep 6 establish other cash payments in themonth

!igure B.# shows the composition o a masterbudget analysis.

.igure /&* Com#osition o% a master !udget

O'ERAT0NG BUDGET .0NANC0AL BUDGET

consists o60 consists o

/udget


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roduction budget /alance sheet

&aterials budget !unds statement

=abour budget

)dmin. budget

2tocs budget

+ 7ther budgets6

These include budgets or6

administration research and development selling and distribution e"penses capital e"penditures woring capital *debtors and creditors+.

The master budget *fgure B.#+ illustrates this.Dow attempt e"ercise B.#.

E1ercise /&* Budgeting 0

:raw up a cash budget or "# $ithole showing thebalance at the end o each month, rom theollowing inormation provided by her or the si"months ended A# :ecember #E>5.

a+ 7pening Cash F #,5$$.

*23+ *23,


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(ales at -+4 #er unit )AR A'R )AY 5UN 5UL AUG (E' OCT NO6 DEC 5AN .EB

5G$ 5$$ A5$ 5E$ B$$ A$$ A$ B$$ AE$ B$$ 5G$ 5$

Cash is received or sales ater A monthsollowing the sales.

c+ roduction in units6 5B$ 5$ A$$ A5$ A$ A$ A$ AB$ A#$ 5G$ 5$

d+ 9aw materials cost F


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Cultivation Irrigation !ield maintenance

Harvesting Transportation.

8ith each operation, there will be costs orlabour, materials and machinery usage.

Thereore, or e.g. harvesting, these may includeour resources, namely6

=abour60cutting0sundry

Tractors Cane trailers Implements and sundries.

Having identifed cost centres, the ne"t step willbe to mae a quantitative calculation o theresources to be used, and to urther brea thisdown to shorter periods, say, one month or threemonths. The length o period chosen is importantin that the shorter it is, the greater the controlthat can be e"ercised by the budget but the

greater the e"pense in preparation o the budgetand reporting o any variances.

The quantitative budget or harvesting may becalculated as shown in fgure B.5.

.igure /&+ 7uantitative harvesting !udget

8arvesting *st 9uarter +nd 9uarter ,rd 9uarter /th 9uarter


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=abour

Cutting nil E,$$$ tonnes #G,$$$ tonnes #$,$$$ tonnes

2undry nil A$$ man days B$ man days B$ man days

Tractors nil GA$ hours #,#$$ hours $$ hours

Cane trailers nil E,$$$ tonnes #G,$$$ tonnes #$,$$$ tonnes

Imp, K sundries nil E,$$$ tonnes #G,$$$ tonnes #$,$$$ tonnes

4ach item is measured in di1erent quantitativeunits 0 tonnes o cane, man days etc.0anddepends on individual (udgement o which is the

best unit to use.

7nce the budget in quantitative terms has beenprepared, unit costs can then be allocated to theindividual items to arrive at a budget orharvesting in fnancial terms as shown in tableB.5.

Charge out costs

In table B.5 tractors have a unit cost o F.$ perhour 0 machines lie tractors have a whole rangeo costs lie uel and oil, repairs andmaintenance, driver, licence, road ta" andinsurance and depreciation. 2ome o the costs

are f"ed, e.g. depreciation and insurance,


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whereas some vary directly with use o thetractor, e.g. uel and oil. 7ther costs such asrepairs are unpredictable and may be very high

or low 0 an estimated fgure based on paste"perience.

.igure /&, 8arvesting cost !udget

0temharvesting

Unit cost *st9uarter

+nd9uarter

,rd9uarter

/th9uarter

Total

=abour

Cutting F$. pertonne

0 G,$ #5,$$$ ,$$ 5G,5$

2undry F5.$ per day 0 $ #,#5 #,#5 A,$$$

Tractors F.$ per hour 0 B,5 ,5$ ,5$ #,55

Cane Trailers F$.# pertonne

0 #,A$ 5,B$$ #,$$ ,5$

Imp. K sundries F$.5 pertonne

0 5,5$ B,$$$ 5,$$ ,$

0 F#,5 F5, F#, FG#,B

2o, overall operating cost o the tractor or theyear may be budgeted as shown in fgure B.B.

I the tractor is used or more than #,$$$ hoursthen there will be an over0recovery on itsoperational costs and i used or less than #,$$$

hours there will be under0recovery, i.e. in the frst


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instance maing an internal 'proft' and in thesecond a 'loss'.

.igure /&/ Tractor costs

Unit rate Cost #er annum :*;444hours"

:-" :-"

!i"ed costs :epreciation 5,$$$.$$ 5,$$$.$$

=icence and insurance 5$$.$$ 5$$.$$

:river #$$.$$ per month #,5$$.$$

9epairs G$$.$$ per annum G$$.$$

Jariable costs !uel and oil 5.$$ per hour 5,$$$.$$

&aintenance A.$$ per 5$$ hours #,$$.$$

,$$.$$

Do. o hours used #,$$$.$$

Cost per hour .$

)aster !udget

The master budget or the sugar cane arm maybe as shown in fgure B.. The budget representsan overall ob(ective or the arm or the wholeyear ahead, e"pressed in fnancial terms.


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Ta!le /&< O#erating !udget %or sugar cane%arm *23/

*st 9uarter+nd 9uarter ,rd 9uarter /th 9uarter Total -

9evenue rom cane #A$,$$$ 5$,$$$ #5$,$$$ $$,$$$

=ess6 Costs

Cultivation A,5G# B,5G B5,AG ,B#G #A,A#A

Irrigation ,5 #,5E #,BA ##,A5E 5,A

!ield maintenance B,5G #5,E5A #,EE# ,5G5 B#,$$5

Harvesting 0 #,5 5, #, G#,B

Transportation 0 #B,#$$ 5B,$ #,$ B,G$$

BE,AG #$G,B#A #5E,A #$,GA5 AE5,G

)dd6 7pening valuation ,$$ #A,#G ##5,5B$ EB,5G$ ,$$

#A,#G 5B#, 5B#,E 5$#,E5 B,G

=ess6 Closing valuation #A,#G ##5,5B$ EB,5G$ E$,5E$ E$,5E$

Det crop cost 0 #5E,AA #B,AA ###,G$5 A,5

Lross surplus 0 GG,5$$ #$5,GGA ,AE ###,5A

=ess6 7verheads ,G ,AG# ,BG ,A5# 5G,$BB


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Det proftless+ *,G+ *G,GEE+ E,# A,$ ,GE

7nce the operating budget has been prepared,two urther budgets can be done, namely6

i. /alance sheet at the end o the year.

ii. Cash ow budget which shows the amount ocash necessary to support the operating budget.It is o great importance that the business has

su3cient unds to support the plannedoperational budget.

Re#orting !ac=

:uring the year the management accountant willprepare statements, as quicly as possible atereach operating period, in our e"ample, each

quarter, setting out the actual operating costsagainst the budgeted costs. This statement willcalculate the di1erence between the 'budgeted'and the 'actual' cost, which is called the'variance'.

There are many ways in which management

accounts can be prepared. To continue with oure"ample o harvesting on the sugar cane arm,management accounts at the end o the thirdquarter can be presented as shown in fgure B.G.

.igure /&> )anagement accounts ? actualcosts against !udget costs )anagementaccounts %or sugar cane %arm ,rd 9uarter

*23/


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0tem 8arvesting

,rd 9uarter Year to date

Actual Budget 6ariance Actual Budget 6ariance

=abour

0 Cutting #5,5$$ #5,$$$ *5$$+ #E,$G$ #,$ *A#$+

0 2undry B5 #,#5 AA #,B #, 5E#

Tractors E,A ,5$ *#,#5+ #A,$$ #5,E *5+

Cane trailers #,G 5,B$$ 55 5,$ A,$ #,5B

Imp K sundries B,5$ B,$$$ *5$+ G,#A G,5$ *5GA+

5,5G 5, *BE$+ BA,#G5 BA,G$$ BA

Here, actual harvesting costs or the Ard quarterare F5,5G against a budget o F5,indicating an increase o FBE$ whilst thecumulative fgure or the year to date shows anoverall saving o FBA. It appears that actualcosts are less than budgeted costs, so the

harvesting operations are proceeding within thebudget set and satisactory. However, a urtherloo may reveal that this may not be the case.

The budget was based on a cane tonnage cut o#G,$$$ tonnes in the Ard quarter and acumulative tonnage o 5,$$$. I these tonnageshave been achieved then the statement will be

satisactory. I the actual production was much


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higher than budgeted then these costs representa very considerable saving, even though only amarginal saving is shown by the variance.

2imilarly, i the actual tonnage was signifcantlyless than budgeted, then what is indicated as amarginal saving in the variance may, in act, be aconsiderable overspending.

'rice and 9uantity variances

Must to state that there is a variance on a

particular item o e"penditure does not reallymean a lot. &ost costs are composed o twoelements 0 the quantity used and the price perunit. ) variance between the actual cost o anitem and its budgeted cost may be due to one orboth o these actors. )pparent similaritybetween budgeted and actual costs may hide

signifcant compensating variances betweenprice and usage.

!or e"ample, say it is budgeted to tae A$$ mandays at FA.$$ per man day 0 giving a totalbudgeted cost o FE$$.$$. The actual cost oncompletion was F.$$, showing a saving o

F5.$$. !urther investigations may reveal thatthe (ob too 5$ man days at a daily rate oFA.$ 0 a avourable usage variance but a veryunavourable price variance. &anagement maythereore need to investigate some signifcantvariances revealed by urther analysis, which acomparison o the total costs would not haverevealed. rice and usage variances or ma(oritems o e"pense are discussed below.


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La!our

The di1erence between actual labour costs andbudgeted or standard labour costs is nown asdirect wages variance. This variance may arisedue to a di1erence in the amount o labour usedor the price per unit o labour, i.e. the wage rate.

The direct wages variance can be split into6

i+ 8age rate variance6 the wage rate was higheror lower than budgeted, e.g. using more unsilled

labour, or woring overtime at a higher rate.

ii+ =abour e3ciency variance6 arises when theactual time spent on a particular (ob is higher orlower than the standard labour hours specifed,e.g. breadown o a machine.

)aterials

The variance or materials cost could also be splitinto price and usage elements6

i+ &aterial price variance6 arises when the actualunit price is greater or lower than budgeted.Could be due to ination, discounts, alternative

suppliers etc.ii+ &aterial quantity variance6 arises when theactual amount o material used is greater orlower than the amount specifed in the budget,e.g. a budgeted ertiliser at A$ g per hectaremay be increased or decreased when the actualertiliser is applied, giving rise to a usage

variance.


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Overheads

)gain, overhead variance can be split into6

i+ 7verhead volume variance6 where overheadsare taen into the cost centres, a productionhigher or lower than budgeted will cause an over0or under0absorption o overheads.

ii+ 7verhead e"penditure variance6 where theactual overhead e"penditure is higher or lower

than that budgeted or the level o outputactually produced.

Calculation o% #rice and usage variances

The price and usage variance are calculated asollows6

rice variance N *budgeted price 0 actual price+ >actual quantity-sage variance N *budgeted quantity 0 actualquantity+ > budgeted price

Dow attempt e"ercise B.5.

E1ercise /&+ Com#utation o% la!our

variances

It was budgeted that it would tae 5$$ man daysat F#$.$$ per day to complete the tas costingF5,$$$.$$ when the actual cost was F#,.$$,being #$ man days at F#5.$ per day. Calculate6

i+ rice variance

ii+ -sage variance


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Comment briey on the results o yourcalculation.

)anagement action and cost control

roducing inormation in managementaccounting orm is e"pensive in terms o the timeand e1ort involved. It will be very wasteul i theinormation once produced is not put intoe1ective use.

There are fve parts to an e1ective cost controlsystem. These are6

a+ preparation o budgets

b+ communicating and agreeing budgets with allconcerned

c+ having an accounting system that will recordall actual costs

d+ preparing statements that will compare actualcosts with budgets, showing any variances anddisclosing the reasons or them, and

e+ taing any appropriate action based on the

analysis o the variances in d+ above.)ction*s+ that can be taen when a signifcantvariance has been revealed will depend on thenature o the variance itsel. 2ome variances canbe identifed to a specifc department and it iswithin that department's control to taecorrective action. 7ther variances might prove to


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be much more di3cult, and sometimesimpossible, to control.

Jariances revealed are historic. They show whathappened last month or last quarter and noamount o analysis and discussion can alter that.However, they can be used to inuencemanagerial action in uture periods.

@ero !ase !udgeting :@BB"

)ter a budgeting system has been in operationor some time, there is a tendency or ne"t year'sbudget to be (ustifed by reerence to the actuallevels being achieved at present. In act this ispart o the fnancial analysis discussed so ar, butthe proper analysis process taes into account allthe changes which should a1ect the utureactivities o the company. 4ven using such ananalytical base, some businesses fnd thathistorical comparisons, and particularly thecurrent level o constraints on resources, caninhibit really innovative changes in budgets. Thiscan cause a severe handicap or the businessbecause the budget should be the frst year othe long range plan. Thus, i changes are notstarted in the budget period, it will be di3cult orthe business to mae the progress necessary toachieve longer term ob(ectives.

7ne way o breaing out o this cyclicalbudgeting problem is to go bac to basics anddevelop the budget rom an assumption o no

e"isting resources *that is, a ;ero base+. This


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means all resources will have to be (ustifed andthe chosen way o achieving any specifedob(ectives will have to be compared with the

alternatives. !or e"ample, in the sales area, thecurrent e"isting feld sales orce will be ignored,and the optimum way o achieving the salesob(ectives in that particular maret or theparticular goods or services should be developed.

This might not include any feld sales orce, or adi1erent0si;ed team, and the company then has

to plan how to implement this new strategy.

The obvious problem o this ;ero0base budgetingprocess is the massive amount o managerialtime needed to carry out the e"ercise. Hence,some companies carry out the ull process everyfve years, but in that year the business canalmost grind to a halt. Thus, an alternative way isto loo in depth at one area o the business eachyear on a rolling basis, so that each sector does a;ero base budget every fve years or so.

Documents

Budgeting and Overhead Cost Allocation