MALİYET VE YÖNETİM MUHASEBESİ - Deneme Sınavı - 7

Financial leverage, is the use of debt in financing the acquisition of new assets. By using debt financing, a return that is generated over equity is increased as well as the tax to pay decreases, because of interest expense.

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.

Classification According to Updating Frequency: The two contrast types of standards are “fixed standards” and “kaizen (continuous-improvement) standards”

The standard cost for direct materials has three facets as quality, quantity, and price.

Depending on the nature of the product/production process, management chooses among costing methods that differ in the extent of product cost definition. All manufacturing related factors are considered as part of product cost within the scope of the most extensive method, whereas the definition of the product cost includes only the cost of direct materials used, in the least extensive one. The costing methods by the scope of product
cost coverage are;
• Full Costing Method
• Normal Costing Method
• Variable Costing Method
• Direct Costing Method
• Throughput Costing Method

Actual Costing Method
In actual costing method, product cost is calculated at year-end by using the cost data that incurred during the year. In order to calculate the product cost, it is necessary that the production is completed and all related expenditures have incurred. Direct costs (direct material and direct labor) incur in parallel to the production process and they are traced to products, so they can be measured on time. However, for determining the actual manufacturing overhead cost per unit, an allocation is required, and this is possible only at the end of the year, when all
overhead for the year can be measured.

Depending on the product type, managers can choose among different costing systems for assigning costs to products. These systems, in fact, are separately applicable, but with the help of technological improvements, it became easier to collect and process cost data; which makes it possible to combine these methods and reach a more accurate costing system by dedicating the same amount of resources in terms of cost and effort. Fundamentally, there are two main costing systems that differ in costing style:
• Job Costing
• Process Costing

To calculate the unit cost, there is a five-step procedure of process costing. The steps are as follows:
1. Summarize the flow of physical units of output
2. Compute output in terms of equivalent units
3. Summarize the total cost to account for
4. Compute the cost per equivalent unit
5. Assign total cost to completed units and ending work-in-process inventory

Peanut butter costing is the name given to a costing system that broadly averages or spreads the cost of resources uniformly to cost objects. Producing higher variety of products causes companies to incur a higher variety of costs, as different products need different resources. In other words, every product does not use the same resources. This means that the cost of each unit should include only the cost of resources used in it’s production. Therefore, averaging the total cost to each unit (with the name given to it “peanut butter costing”) does not result in accurate cost calculation anymore.

Product-cost cross-subsidization is the term used to define the situation in which over-costing in one or more products results in under-costing in other products.

A refined costing system provides a more detailed analysis of cost assignment (rather than broad averaging), especially in terms of indirect costs’ allocation. In order to succeed in this, there are some key points, such as increasing the share of direct costs in total, increasing the number of indirect cost pools, and using more allocation bases for more diversified activities, etc

Activity-based costing (ABC) is a refined version of simple costing system, with increased number of cost pools and allocation bases. In an ABC system, the whole process is considered as a chain of activities and individual activities are the fundamental cost objects. With the most basic definition of the system, costs of individual activities are calculated at first, and then each of these costs are assigned to products to the extent the relevant activities are needed for their production.

Activity can be defined as any event or task that is carried out in order to meet a specific goal, such as designing, assembling, testing, etc.

Equivalent unit is a derived measure of output that reflects the number of completed units that could be produced with the same quantity of input consumed for both finished goods and workin-process inventories.

Budget is a quantitative expression of the managements’ plans for a specific period of time, either in physical or financial terms or both.

Capital budgeting is the process of evaluating the feasibility of a project, using some indicators such as rate of return, the time needed to pay back, etc.

A master budget is the combination of operational and financial budgets covering all aspects of company’s operations for a period of time

Managers prepare budgets with the objectives of;

Benefits of budgeting can be explained as follows:

Short-term budgets determine the goals to reach in the short-term period, which is usually a 12 months period