1、Self-review F5Part A Std. costingLife cycle costing estimates the costs and revenues attributable to a product over its entire expected life cycle, from production concept and design to eventual withdrawal from the market. How to maximize the return? (profit)1.Extend the length of the life span.2. M
2、inimize the time to market.3. Shorten the introduction.4.Control the RVariable cost of makingVariable cost of buyingExtra variable cost of buyingLimiting factor saved by buying(per unit)Extra variable cost of buying per hour savedRankingShut-down decisionsFactors to consider for shutting-down decisi
3、ons:1.Loss of contribution from the segment2.Savings in specific fixed costs from closure3.Penalties resulting from the closure4.Alternative use for resources released5.Non-quantifiable effects6.Knock-on impactloss leader 局部故意亏损以求整体利益If shut down;Cash inflows;Saved costsIncreased contribution of oth
4、er products（substitute）Cash outflows;Loss contribution (complementP=a-bQMR=a-2bQP=pricea=the price at which demand would be nil b= in price/ in quantityQ=the quantity demandedProfits maximised: MR=MCRevenue maximised: MR=0CVP analysisCost volume profit (CVP)/breakeven analysis is the study of the in
5、terrelationships between costs, volume and profit at various levels of activity.CPU-contribution per unitBEP=contribution-FCTo make zero profit, sales volume should be atBEP=FC/CPU To make zero profit, sales revenue should be atBreakeven revenue=FC/ c/s ratio Sales volume for target profit= FC+ targ
6、et profit/CPU利润率指标（不变）C/S ratio= contribution/ sales= CPU/ priceWeighted average sales price per unit=price*volume/volumeMargin of safetyMOS=budgeted sales- BEP -in sales MOS=budgeted units-breakeven units-in unitsMOS/budgeted sales （百分比形式）Limitations of CVP analysis1. It is assumed that fixed costs
7、 are the same in total and variable costs are the same per unit at all levels of output.2. It is assumed that sales prices will be constant at all levels of activity.3. Production and sales are assumed to be the same.4. Uncertainty in the estimates of fixed costs and unit variable costs is often ign
8、ored.Advantages1.Highlighting the breakeven point and the margin of safety gives managers some indication of the level of risk involved.2. Graphical representation of cost and revenue data (breakeven charts) can be more easily understood by non-financial managers.3. A breakeven model enables profit
9、or loss at any level of activity within the range for which the model is valid to be determined, and the C/S ratio can indicate the relative profitability of different products.Risk1. The expected value of a decision may be a value that will never occur.2. EV is an average value, it ignores the extr
10、eme outcomes.3.It ignores the aspect of probability distribution.Sensitivity analysisSensitivity analysis is used to testify the critical value to make the decision invalid. Sensitivity analysis can help to concentrate management attention on the most important factors.If xxx costs are more than x%
11、above estimate, the project would make a loss.X%=profit/xx costMonte carlo simulationSimulation models can be used to deal with decision problems when there are a large number of uncertain variables in the situation. Random numbers are used to assign values to the variables.Part C Budgeting and cont
12、rolA budget is a quantified plan of action for a forthcoming accounting period.Objectives of a budgetary planning and control system:1.Ensure the achievement of the organisations objectives2.Compel planning3.Communicate ideas and plans4.Co-ordinate activities5.Provide a framework of responsibility a
13、ccounting.6.Establish a system of control7.Motivate employees to improve their performanceThe planning and control cycle has seven steps.Step 1. Identify objectivesStep 2. Identify potential strategiesStep 3. Evaluate strategiesStep 4. Choose alternative courses of actionStep 5. Implement the long-t
14、erm planStep 6. Measure actual results and compare with the planStep 7. Respond to divergences from the planFeedbackFeedback is information produced as output from operations; it is used to compare actual results with planned results for control purposes.Budgeting and performance managementA fixed b
15、udget is a budget which remains unchanged throughout the budget period, regardless of differences between the actual and the original planned volume of output or sales. -planning purpose & prepared in advanceA flexible budget is a budget which, by recognising different cost behaviour patterns, is ch
16、anged as the volume of output and sales changes. -control purpose & prepared retrospectivelyTop-down (Imposed budgeting)Budget prepared by senior manager and being posted to individual managers. No participation of junior manager.Bottom-up (Participative budgeting)Budget prepared by lower management
17、 and submit to high level for approvalRolling budgets (continuous budgets) are budgets which are continuously updated throughout a financial year, by adding a further period (say a month or a quarter) and removing the corresponding period that has just ended.Aim: Rolling budgets may be used when the
18、 pace of change in the business environment is fast and continual. They represent an attempt to prepare realistic plans and keep tight control.Incremental budgeting is a method of budgeting in which next years budget is prepared by using the current years actual results as a starting point, and maki
19、ng adjustments for known changes.Zero based budgeting involves preparing a budget for each cost centre or activity from a zero base. Every item of expenditure has then to be justified in its entirety in order to be included in the next years budget.- administrative expenses and departments,The aim o
20、f zero based budgeting is to remove unnecessary and wasteful spending from the budget.ZBB is particularly useful for budgeting for discretionary costs and for rationalisation purposes, in areas of operations where efficiency standards are not properly established, such as administration work.ZBB rec
21、ognition: 1.The current years results may include wasteful spending and inefficiencies.2.Budgeted activities should be reviewed and assessed to establish whether they are still required or whether they should continue at the same level of activity as in the past.3 steps approach to ZBB Define decisi
22、on package(items or activities) for which costs should be budgeted, and spending decisions should be planned: Evaluate and rank the packages in order of priority: eliminate packages whose costs exceed their value. Allocate resources to the decision packages according to their ranking.Beyond Budgetin
23、g is a budgeting model which proposes that traditional budgeting should be abandoned. Adaptive management processes should be used rather than fixed annual budgets.Variance analysisA mix variance occurs when the materials are not mixed or blended in standard proportions and it is a measure of whethe
24、r the actual mix is cheaper or more expensive than the standard mix.A yield variance arises because there is a difference between what the input should have been for the output achieved and the actual input.The sales mix variance occurs when the proportions of the various products sold are different
25、 from those in the budget.The sales quantity variance shows the difference in contribution/profit because of a change in sales volume from the budgeted volume of sales.The principle of controllability is that managers of responsibility centres should only be held accountable for costs over which the
26、y have some influence.Part D Performance managementPerformance measurement is a vital part of the planning and control process.Non-financial measures may relate to a number of different aspects of performance, such as: Product or service quality Reliability Speed of performance Risk Flexibility Cust
27、omer satisfaction Innovation Capability DeliveryFPIs analyse return on capital, profitability, liquidity and financial risk, often in relation to a plan or budget, or in relation to performance in preceding time periods.Balance scorecardThe balanced scorecard is a strategic management technique for
28、communicating and evaluating the achievement of the strategy and mission of an organisation. It comprises an integrated framework of financial and non-financial performance measures that aim to clarify, communicate and manage strategy implementation. It translates an organisations strategy into obje
29、ctives and performance measurements for the following four perspectives:Financial perspective: this perspective considers how the organisation appears to shareholders. How can it create value for its shareholders? Kaplan and Norton, who developed the balanced scorecard, identified three core financi
30、al themes that will drive the business strategy: revenue growth and mix, cost reduction and asset utilisation.Customer perspective: this considers how the organisation appears to customers. The customer perspective should identify the customer and market segments in which the business units will com
31、pete. There is a strong link between the customer perspective and the revenue objectives in the financial perspective. If customer objectives are achieved, revenue objectives should be too.Internal perspective: this requires the organisation to ask itself the question what must we excel at to achiev
32、e our financial and customer objectives?. It must identify the internal business processes that are critical to the implementation of the organisations strategy. These will include three processes: the innovation process, the operations process and the post-sales process.Learning and growth perspect
33、ive: this requires the organisation to ask itself whether it can continue to improve and create value. The organisation must continues to invest in its infrastructure i.e. people, systems and organisational procedures in order to provide the capabilities that will help the other three perspectives t
34、o be achieved.Transfer pricingMaximum TP: market priceMinimum TP:1. With perfect external market, all of the goods can be sold outside.TP=market price-avoidable cost 2.Without perfect external market, not all of the goods can be soldTP=VC-avoidable cost 3.Without perfect external market, not all of
35、the goods can be sold, it has other alternatives (with spare capacity)TP=VC+OC-avoidable costPerformance measurement in not for profit organisationsValue for money means providing a service in a way which is economical, efficient and effective.ROI=PBIT/Capital employedRI=PBIT-notional interest on capital
