Beruflich Dokumente
Kultur Dokumente
(ACCA, CISA,
CIISA)
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Decision-making techniques
Budgeting
D
E
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Examiner:
Examiner: Ann
Ann Irons
Irons
Mar
ks
Question
1
20
Question
2
20
Question
3
20
Question
4
20
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Question 2
Pricing decisions
Question 3
Question 4
Question 5
Slide
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Basic Variances
Question 2
Question 3
Linear Programming
Question 4
Question 5
Slide
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Question 2
Question 3
Linear Programming
Question 4
Transfer Pricing
Question 5
Slide
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Throughput accounting
Question 2
Performance management
Question 3
Variance analysis
Question 4
Decision making
Question 5
Budgeting
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Performance measurement
Question 2
Risk
Question 3
Learning curves
Question 4
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Variance analysis
Question 2
Linear programming
Question 3
Performance measurement
Question 4
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Target costing
Question 2
Performance measurement
Question 3
Question 4
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Costing
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15.00
Direct labour
18.00
Prime cost
33.00
Variable Overheads
2.00
Fixed Overheads
3.00
38.00
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Production costs
Direct
Indirect
Dept A
Dept A
Dept B
Dept C
Dept B
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OAR =
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15.00
Direct labour
18.00
Prime cost
33.00
Variable Overheads
2.00
$
X
X
X
(X)
X
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Activity based
costing
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Production
department
A
OAR
= machine
hrs
Machine
repairs
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Volume related
overheads
Complexity
Complexity
Diversity
Diversity
No. of production
set ups
OAR
No. of machine
hours
OAR
No. of labour
hours
OAR
Supervisors Salary
Activities
Cost drivers
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1.
2.
3.
4.
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10
5
15
10
5
15
5
10
15
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Cost driver
Machining
55,000
Machine hours
QC & Setup
90,000
Production runs
Receiving
30,000
Component receipts
Packing
15,000
Customer orders
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Production
20,000
25,000
2,000
40,000
50,000
4,000
Total
94,000
$29,255
$2,341
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Machining
QC & set-up
Receiving
Packing
A
$23,404
B
$29,255
C
$2,341
Total
Units
20,000
25,000
2,000
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A
Machining $23,404
QC & set-up $36,000
Receiving
$13,636
Packing
$5,000
B
$29,255
$46,800
$13,636
$5,000
C
$2,341
$7,200
$2,728
$5,000
Total
$78,040
$94,691
$17,269
Units
20,000
25,000
2,000
$3.90
$3.79
$8.63
OAR / unit
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Profit/unit ($):
Prime cost
Overheads
Product cost
15.00
3.90
18.90
15.00
3.79
18.79
15.00
8.63
23.63
Sales price
20.00
20.00
20.00
1.10
1.21
(3.63)
Profit
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Target costing
Traditionally:
The focus
is internal
mark-up
(2nd)
Cost
(1st)
selling
price
(3rd)
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Target costing:
The focus is
external
Profit
(2nd)
target
cost
(3rd)
selling
price
(1st)
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$/unit
Target price
Target profit (w)
Target cost
67.50
37.50
30.00
Estimated
Estimated
cost
cost
Target
Targetcost
cost
Cost
Cost Gap
Gap
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Lifecycle
costing
volumes
Maturity
Growth
Introduce
Develop
Decline
Sales
revenue
Profit
time
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Throughput
accounting
Key concept
Throughput sales revenue less material
cost
All costs other than materials are deemed
to be fixed in the short term
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Sales
100 units
per hr
50 units
per hr
100 units
per hr
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Environmental
Management
Accounting
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Environmental costs
Internal costs directly
impact on the income
statement of a company.
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Limiting factor
analysis
Yes
Is there just
one
constraint?
No
Determine
optimum
production
using
contribution /
limiting factor
Determine
optimum
production
using linear
programming
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Pricing
decisions
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a)
b)
c)
d)
e)
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demanded
If using equations need to assume straight line in exam questions
P=a-bQ
a
b
Theoretical
maximum
price
Q
Change in P
Change in Q
(ie gradient
always -ve)
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Penetration
Skimming
Cost Plus
Premium
Volume
discounts
Pricing Strategies
Discrimination
Controlled
Bundling
Loss leaders
Complementary
product
Psychological
Product line
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Short-term
decisions
Cash
Incremental
Sunk
Committed
Apportioned
Approach
Calculate the variable cost to make each of the
units
Then calculate the difference between the cost
of buying and making per unit
Multiply this by the production volume
Compare this cost with the fixed cost savings to
determine whether the company should make
or buy
Consider non financial factors
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Risk and
uncertainty
Risk
No
Uncertainty
Risk Seeker
Best outcome
Risk averse
Worst outcome
Risk neutral
Special contract
Demand
800
700
500
300
400
Prob
0.2 (800x$3)+
$4,400
(400x$5)
(700x$3)+
$4,100
(400x$5)
$3,500
$2,900
500
0.3
As$4,400
above
(700x$3)+
$4,600
(500x$5)
$4,000
$3,400
700
0.4
$4,400
As$4,600
above
$5,000
$4,400
900
0.1
$4,400
$4,600
$5,000
$5,400
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Key formula
Expected value = px
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Maximin
Risk averse decision makers
Maximise the minimum return that the decision
maker could get
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Maximax
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Minimax Regret
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800
400
500
700
500
300
$300
$900
$1500
$200
$600
$1200
700
$600
$400
$600
900
$1000
$800
$400
Max regret
$1000
$800
$900
$1500
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Objectives of
budgetary control
Mission
Corp.
Objectives
Business
Objectives
Operational
Objectives
Individual
Objectives
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Control
Revise
objectives
Compare actual
with budget
Planning
Revise budget
Operate in line
with new
objectives
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P-
Planning
R - Responsibility
I -
M - Motivation
E - Evaluation
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plan
Taking necessary control action
Past
events
Corrective
action for
future
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forecast
Taking necessary control action
Forecast
Corrective
action for
future
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Planned
results
Control Action
Forecast
Current date
Time
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General considerations
Motivation
Challenging yet achievable
Goal congruence
Participation
Top-down
Bottom-up
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Budgetary
systems
Fixed budget
prepared before beginning of budget period
budget volumes and $
Flexible budget
changes as volume of activity changes
used to ascertain the budget cost allowance, or
flexed budget
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Disadvantages:
x Inefficient
x Budgetary slack
Disadvantages:
x emphasis on short
term benefits
x needs skills
x resistance
x time and effort
x limited resources
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Disadvantages:
x effort &
expense
x demotivational
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ABB
Advantages:
Looks at activity in its
entirety
Reflects strategy
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You
You should
should now
now be
be able
able to
to attempt
attempt the
the following
following key
key
questions
questions from
from the
the BPP
BPP Learning
Learning Media
Media Practice
Practice
and
andRevision
RevisionKit.
Kit.
Q25
Q26
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Quantitative
analysis in
budgeting
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260,000
200,000
(1+g)3 = 1.3
3
1 + g = 1.3
g
= 1.09
0.09 = 9%
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y = a + bx
(y)
dependent
variable
(x)
output
independent
variable
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y = a + bx
b = nxy - xy
nx2 - (x)2
a=
y - b x
n
n
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XY
X2
Y2
22
15
7
44
29
18
10
37
11
12
7
20
14
11
11
22
484
225
49
1,936
841
324
100
1,369
121
144
49
400
196
121
121
484
182
x
108
y
242
180
49
880
406
198
110
814
2,879
xy
5,328
x2
1,636
y2
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n=8
b = 8 x 2,879 - (182 x 108)
8 x 5,328 - 1822
= 3,376
9,500
= 0.3554
a = 108
8
- 0.3554 x
182
8
= 5.415
y = 5.415 + 0.3554x
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time series
trend
Random variation
time
Additive model: Y = T
+
S
Proportional model: Y = T
S
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Yr1 Q1
Q2
Q3
Q4
Yr2 Q1
Q2
Q3
Q4
Yr3 Q1
Q2
Q3
Q4
Sales (S)
18
60
90
102
30
72
99
120
36
90
114
135
4 period MA
67.50
70.50
73.50
75.75
80.25
81.75
86.25
90.00
93.75
(T)
Seasonal
Variation (SV)
A/T
90 / 69
69.00
72.00
74.63
78.00
1.304
1.417
0.402
0.923
81.00
84.00
88.13
91.88
1.222
1.429
0.409
0.981
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Q2
Yr1
Q3
Q4
1.304
1.417
1.222
1.429
Yr2
0.402
0.923
Yr3
0.409
0.981
Average
0.406
0.952
1.263
1.423
Rounded SV
0.4
0.9
1.3
1.4
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quarters.
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Seasonal
variation
(S)
Forecast sales
(Y)
Q1 91.88 + (3 3) 101
0.4
40.4
Q2 101 + 3
104
0.9
93.6
Q3
107
1.3
139.1
Q4
110
1.4
154.0
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General idea
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Requirements
Example
Output
1
Total Time
(hrs)
100
100
75%
150
75
75%
225
56.25
75%
337.5
42.1875
Cum.
average
time per
unit
Learning effect
Y = axb
Steady state
Cumulative output
y = axb
Where:
b = index of learning (log r/ log 2)
a = time taken for 1st
x = cumulative output
y = cumulative average time per unit
improvements
Physical limits reached
Workforce go-slow
further
Budgeting and
standard costing
Decision making
Budgeting
Control
Performance evaluation
Inventory valuation
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Ideal standard
perfect operating
conditions
Attainable standard
possible
improvements
Current standard
current efficiency
Basic standard
leave unaltered
over long period
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During
Adjust
materials
usage
budget
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Idle time
Build into an
attainable
labour hours
standard
Adjust
labour
budget
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Key concept
Managers should only be held
accountable for those items they can
control.
This is known as the principle of
controllability.
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Variance
analysis
$
1560
78 F
121 F
1759
Budgeted profit
Sales volume variance
Sales price variance
Cost variances:
Materials - price
- usage
Labour
- rate
- idle
- efficiency
Variable o/h - expenditure
- efficiency
Fixed o/h - expenditure
- volume
F
10
18
150
40
100
35
25
37
190
Actual profit
225
35 A
1725
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Cheaper materials
Favourable price
variance
Inferior quality
Adverse usage variance
(& efficiency?)
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Consider:
Size
Controllability
Cost
Interrelationships
Standard
Trend
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Materials
Total variance
Price variance
Usage variance
Mix
variance
Yield
variance
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750
750
5kg
10kg 1,500
should mix
Actual qty
actual mix
600
900
1,500
$/kg
Variance
$
150 F 2.00
150 A 4.00
300 F
600 A
Diff
(kg)
300 A
did mix
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Onions 5kg
Toms
Std qty
std mix
Actual qty
std mix
500
500
750
750
5kg
10kg 1,000
should qty
1,500
$/kg
Variance
$
250 A 2.00
250 A 4.00
500 A
1,000 A
Diff
(kg)
1,500 A
did qty
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Volume variance
Mix
variance
Quantity
variance
Slide
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Behavioural
aspects of
standard costing
Standard
Standard
cost
cost
card
card
Original
budgets
Revised
Revised
standar
standar
ds
ds
Revised
budgets
Planni
ng
Total
variances
Actual
Actual
Performan
Performan
ce
ce
Actual
results
Operatio
nal
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Performance
measurement
Profitability
Liquidity
Gearing
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Key formula
ROCE = Profit before Interest and tax
Capital Employed
PBIT
Sales
Net Profit
Margin
Sales
Capital Employed
Asset
Turnover
How efficiently
generate sales
from investment
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businesses
Consider how to improve them
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Financial
Gearing
Operating
Gearing
Contribution
PBIT
Measure of
financial risk
Measure of
business risk
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areas
Customer
Internal
Innovation &
Learning
Financial
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Dimensions
Profit
Competitiveness
Quality
Resource utilisation
Flexibility
Innovation
Standards
Ownership
Achievability
Equity
Rewards
Clarity
Motivation
Controllability
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the past
Non financial indicators also therefore vital
Balanced scorecard looks at all key areas of
the business
Building block model focuses on performance
measurement in service industries
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Divisional
performance
measures
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Key formula
ROI =
Divisional profit
100
Divisional Investment
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$
Controllable divisional profit
X
Less: imputed interest
(X)
(= divisional investment x cost of capital)
Residual income
X
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Minimum
transfer price
= Marginal cost +
Opportunity cost
Maximum
transfer price
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Further
performance
management
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Economy
Effectiveness
Efficiency
Sourcing inputs at
minimum cost while
maintaining standards of
quality
Success in achieving
objectives
Achieving better
productivity (output) from
resources input/consumed
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Stakeholders
Internal
External
Connected
Economic Environment
Competition
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