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Topic 9: Budgeting and Costing - Coggle Diagram
Topic 9: Budgeting and Costing
Budgeting
Mission statement (goals and strategies to achieve those goals > strategic planning (long term planning) for goals > plans in place through budgets > which have short-term focus
Budgets:
budgets are plans, $ for future period. Provides as a control mechanism to monitor actual results and investigate differences that arise between actual and budget, and to evaluate and reward performance
Fixed or rolling:
involves estimating expected sales volumes and prices, which impact other budgets as production, purchases, labour, operating expenses, overheads, marketing and promotion.
Cash Budget:
a statement of expected future cash receipts and payments that projects what the ash balance will be in the future
forecasts deficit = arrange can be made to avoid it
forecasts surplus, investment opportunities can be considered
Variance Analysis: Comparing budget to actual results
Any deviation from budget is:
Variances
can be
favourable
or
unfavourable
Costing
Elements of Cost:
Material, Labour and Expense
Product v Period Costs
Product:
inventory cost (cost of sales).
Period:
any cost for the period (operating expenses, other expenses)
Direct v Indirect Costs
Direct Costs:
can be directly traced to the cost object (product being manufactured)
Indirect Costs
: cannot be traced to the cost object so need to be
allocated
Pricing
Must be set high enough to cover costs, but not too high to deter customers
Cost-based pricing:
cost +markup. Ignore customer demand, but is simple to apply
Market-based pricing:
what customers are willing to pay. Responds to market and enables the entity to adapt, but it can be hard to estimate demand.