Financial Planning: Sales, Costs, and Budgeting
Walsh Company Production
Walsh Company expects sales of Product W to be 60,000 units in April, 75,000 units in May, and 70,000 units in June. D Company desires that the inventory on hand at the end of each month be equal to 40% of the next month’s expected unit sales. Due to excessive production during March, on March 31 there were 25,000 units of Product W in the ending inventory. Given this information, Walsh Company’s production of Product W for the month of April should be: 65,000 units
Dimitrov
Read MoreJob-Order Costing System Essentials
Key Concepts of Job-Order Costing Systems
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- The use of a predetermined overhead rate in a job-order cost system makes it possible to compute the total cost of a job before. FALSE
- The formula for computing the predetermined overhead rate is: Predetermined overhead rate = Estimated total manufacturing overhead cost รท Estimated total amount of the allocation base. TRUE
- When the predetermined overhead rate is
Budgeting and Variance Analysis: Key Concepts & Formulas
Chapter 22: Budgeting – Strategic Planning, Measurement, Evaluation, and Control
Sales: Estimates the quantity of sales and prior year’s sales as a starting point. Static: One activity level. Once the budget is determined, it doesn’t change even with activity changes. Production: Estimates the number of units to be manufactured to meet budgeted sales and desired inventory goals. Flexible: Shows expected results of a responsibility center for many activity levels. Master: Operating & financial
Read MoreBudgeting Techniques: Flexible, Fixed, Zero-Based & Performance
Budgeting Techniques
Advantages of a Flexible Budget
- It is a very useful device for controlling costs.
- It is very useful in unpredictable environments.
- It shows the impact of varying levels of activity on profits.
- It facilitates production and profit planning.
Steps in Creating a Flexible Budget
- Identify the relevant range of activity.
- Classify costs according to variability.
- Determine variable costs.
- Determine fixed costs.
- Prepare the budget for selected levels of activity.
Fixed Budget
A fixed budget is designed
Read MoreKey Concepts in Business Analysis and Cost Management
1: Information
- Relevance: Does the data apply to current/future forecasts? Be cautious with past data.
- Ease of Use: Is data accessible and usable?
- Integrity: Verify if the source is reliable and accurate.
- Timeliness: Is the data up-to-date or still relevant?
2: Types of Analytics
- Descriptive: What happened? Uses historical data.
- Predictive: What might happen? Statistical forecasting.
- Diagnostic: Why did it happen? Identifies patterns.
- Prescriptive: What should we do? Provides solutions.
3: Activity-Based
Read MoreKey Accounting and Budgeting Terms: Definitions
Absorption Costing
A costing method that assigns both variable and fixed costs to products.
Contribution Format
An income statement format that is geared to cost behavior in that costs are separated into variable and fixed categories rather than being separated according to the functions of production, sales, and administration.
Contribution Margin Income Statement
An income statement that separates variable and fixed costs; highlights the contribution margin, which is sales less variable expenses.