MALİYET VE YÖNETİM MUHASEBESİ - Deneme Sınavı - 6

Master budget; is the comprehensive set of schedules and budgets that covers all phases of the company’s operations and describes the company’s overall financial plans for the following period.

Static (Fixed) budgets; are the budgets, in which the predetermined sales levels are used in preparing the budgets. In other words, the static budget remains unchanged irrespective of the actual level of activity. This kind of budget does not consider a possible difference between the actual and budgeted production volumes. Therefore, any deviation from the budget may result because of the difference between either the actual and budgeted volume or different-than-standard unit costs/prices. It mainly aims to coordinate sectional activities to attain company objectives.

Flexible budgets; are prepared to prevent the unexpected effects of uncertainties in activity volumes, as opposed to static budgets. The flexible budgets are prepared for a specific interval, rather than a specific activity level, by considering the cost behavior pattern. These budgets help management with the variance analysis and make it easier to match the variances with the corresponding responsibility centers. For example, if the actual income differs from the budgeted income, which portion of the deviation results from the deviation in sales volume and which portion results from the difference between standard and actual unit costs (and/or sales prices) can be revealed with the help of flexible budgets.

Over the years, budgeting techniques have taken different forms in order to improve the efficiency of planning and executing the operations. Different approaches are developed for different companies, depending on the nature and variety of their operations. If the operations are suggested to incur cumulatively over the years, “incremental budgeting” is preferable; whereas “zero-based budgets” may be better for planning each year separate than the preceding one. On the other hand, companies with a high variety of activities may plan for and assess the performance of their operations by using the “Activity-Based Budgeting (ABB)” technique. As a philosophy of continuous improvement, it may be the best choice to apply kaizen budgeting instead of the other techniques.

Decision making is a flexible action. In decision making, the manager’s judgment, intuition, mood, and personal values can also be effective. Decisionmaking problem basically involves three stages:

A good decision should have the following qualities:

Programmed (Routine) Decisions: Programmed decisions are routinely repeated decisions. Such decisions are implemented in the same way as they have been once taken. Most of the daily decisions are considered as this type of decisions. Managers don’t need to allocate time for these types of decisions. Most of the decisions taken by lower-level managers and mid-level managers are scheduled decisions. Decisions related to staff affairs or decisions related to the purchase of raw materials and supplies are examples of this type of decisions.

Non-programmed (Nonroutine) Decisions: Non-programmed decisions are special decisions that will affect the profitability of businesses in future periods. This type of decisions are often unacceptable and can not be taken as a reference. Non-programmed decisions can be taken by toplevel managers. Purchasing additional machinery to increase the capacity of the business or changing the location of the business can be given as an example for non-programmed decisions.

As cost information is used within the decisionmaking process and to measure activity, various cost information concepts have emerged. Costs for decision making can be classified as follows (ICAI, 2012: 11):

Opportunity cost is the value of benefit sacrificed in favor of an alternative course of action.

Marginal cost is the additional cost incurred when making or producing (of a good or service) one additional unit. In other words, the change in total cost that arises from the quantity changes by one unit is called marginal cost.

The sunk cost is excluded from future business decisions. Thus, it doesn’t need to be taken into consideration while decision making. In other words, all costs that do not qualify as relevant costs are called sunk costs. Main features of sunk costs are that they are not related to future decisions and they do not change between various alternatives.

Differential cost is the difference in total cost that will arise from the selection of one alternative to the other

We can list the essential factors that have a role in making a profit as follows:

Use of standard costing makes it easier to compare the actual results with budgeted results, by providing the opportunity to determine a new target that is adjusted for the actual output level, instead of a fixed level of production. Next to planning, correction, and performance evaluation benefits, using the standard costs instead of the actual costs helps management with pricing decisions, too. Additionally, standard costing is better than the actual costing in terms of timeliness of cost data to use in pricing decisions.

The difference is that for labor cost, purchasing and consumption incur at the same time.

The rate refers to the amount of cost allocated to each unit of the allocation base.

These costs are generally accepted as the investments that companies incur in order to create the needed capacity.

The second component of direct materials flexible-budget variance is the direct materials efficiency variance, which reflects the company’s efficiency in using the materials. Efficiency variance is the difference between the actual quantity of materials used and the standard quantity that should have been used for producing the actual output, multiplied by the standard price per unit of direct material.

Operating budgets reflect the company’s short-term plans related to the implementation of strategic projects, and result in the preparation of budgeted income statement.