Topic 9: Budgeting and Costing - Coggle Diagram
Topic 9: Budgeting and Costing
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 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.
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:
Elements of Cost:
Material, Labour and Expense
Product v Period Costs
inventory cost (cost of sales).
any cost for the period (operating expenses, other expenses)
Direct v Indirect Costs
can be directly traced to the cost object (product being manufactured)
: cannot be traced to the cost object so need to be
Must be set high enough to cover costs, but not too high to deter customers
cost +markup. Ignore customer demand, but is simple to apply
what customers are willing to pay. Responds to market and enables the entity to adapt, but it can be hard to estimate demand.