Essay About Cash Budget Layout And Variances Flow

English Lit
CHAPTER 6: Cash budget layout ->beg. cash +cash receipts = total cash available – cash disbursements (do NOT include depreciation) = total cash disbursements = cash balance before borrowing (total cash available – total cash disbursements) – financing requirements (interest & loan payments) = total financing requirements = cash balance, ending (cash balance before borrowing – total financing requirements). Production Budget (units) -> budgeted sales (units) + target end. inv. (units) – begin. inv. (units). Sales Budget-> units (ex.40,000) x selling price (ex. $205). DM Purchase Budget (cost)-> units to be produced x DM per unit = prod. Needs (DM) + desired ending inv. = total needs – beg. inv. = DM to be purchased (units) x cost per unit of DM = total cost. Direct Manufacturing Labour (DML)-> production(units) x DML hrs to produce one unit = total DML hrs x DML rate per hr ($) = DML cost. Manufacturing Overhead Budget -> total DML hrs x OH rate/DML hr = manufacturing overhead cost. DL Budget -> units to be produced x DL time per unit($) = total hrs needed x cost per hour = total DL cost. Overhead Budget-> budget DL hrs x variable OH rate = budgeted variable OH + budgeted fixed OH = Total OH. Selling & Admin Expense Budget-> planned sales x variable s&a rate per unit($) = total variable s&a expense + fixed s&a expense = total s&a expenses. Cash Receipts: outlines our expected pattern of collection of receivables (beg. cash bal + cash receipts). Cash Disbursements (payments): how we expect cash to flow out of the company for: purchase of material/other expenses/any capital investment (remember to exclude depreciation). Financing Requirements: excess cash – repay loans & interest deficit – borrow money (interest payments are included in this section). CHAPTER 7: Quantity Standards: how much of a resource should be used to make one unit of product. Price Standards: price we expect to pay for one unit of resource. Standard Cost of a Resource: cost of input required to make one unit of output (SQ x SP). Standard Cost of a Unit of Production: sum of standard costs of all inputs needed to make the unit (standard cost of DM, DL, OH). SP for DM: price I expect to pay per unit of DM needed. SQ for DM: amount of materials I expect to use to make one unit of product, plus an allowance for unavoidable waste, spoilage, and other inefficiencies. Standard Cost of DM per Unit of Product: SP x SQ.  Standard Rate (SR) for DL:  pay rate earned by the employee plus fringe benefits, other costs.  Standard Hours (SH) for DL:  standard labour hrs required to complete one unit of product.  Standard Cost of DL per Unit of Product:  SR x SH. Variances Flow: Static Budget Variance -> Sales Volume Variance & Flexible Budget Variance -> Fixed Cost Variance & Selling Price Variance & Variable Cost Variance -> Rate Variance & Efficiency Variance. Variances Formulas: Static Budget Variance = actual operating income – static budget operating income. Sales Volume Variance= flexible budget OP – static budget OP. Flexible Budget Variance = actual OP – flexible budget OP. Fixed Cost Variance= actual FC – flexible budgeted FC. Selling Price Variance= (actual SP – budgeted SP) x actual units sold. Variable Cost Variance= actual VC – flexible budgeted VC. Rate Variance = (standard rate per unit of input – actual rate per unit of input) x actual quantity of input purchased or used. Efficiency Variance= (standard quantity of input for actual output – actual quantity of input used) x standard rate of input per unit of input. Variance Cost Variance = Rate Variance + Efficiency Variance. Flexible Budget Variance = Selling Price Variance + Fixed Cost Variance + Variable Cost Variance. Static Budget Variance = Flexible Budget Variance + Sales Volume Variance. Static Budget: is a budget prepared for only one level of activity, it is based on the level of output planned at the start of the budget period. Flexible Budget: is developed using budgeted revenues or cost amounts based on the level of output actually achieved in the budget period. A key difference between a flexible budget and a static budget is the use of the actual output level in the flexible budget. DM Rate Variance: is calculated on purchase, not necessarily quantity. DL Rate Variance: hours used. If the standard is greater than the actual then it is favourable (F) but if the actual is greater than the standard then it is unfavourable (U).  CHAPTER 8: Fixed Manufacturing Overhead (FMOH): property taxes, depreciation on production equipment, lease expenses, insurance, management salaries… (does NOT change with level of production)(we ASSIGN FMOH costs to units of output because: the only way to recover costs is to charge a reasonable price for products). Budget FOH Rate (per unit of allocation base (not units of output))= Budget FOH Costs / Budget Quantity of Allocation Base Units (ex. If machine hr -> allocation base -> # of machine hrs expected to be used for capacity available => denominator). FMOH Static, Flexible, Rate, etc are all the same formula = Budget FOH – Actual FOH. Production Volume Variance (PVV) = Budgeted FOH – (Budget FOHR x Standard hrs that should have been used for actual output). Applied & allocation mean the same thing