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INDEX Cost Auditing  Objectives  Types  Qualification  Importance

 Cost Audit Procedures  Appointment of cost auditor  Duty of company

 Eligibility, Rights and Duties

Budgetary Control

 Budgetary control methods

 Budgetary control and responsibility centres  Advantages

 Problems in budgeting

Standard Costing

o Defination

o Standard Costing Systems:

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o Reasons for using a Standard Costing System

Introduction

Definition:-An internal audit used for enterprise governance to assess operational efficiencies and resource management. Special attention is given to verification of cost records and adherence to acceptable cost accounting procedures. Cost Audit represents the verification of cost accounts and check on the adherence to cost accounting plan. Cost Audit as certain the accuracy of cost accounting records to ensure that they are in conformity with Cost Accounting principles, plans, procedures and objective.

Cost Audit comprises following;

1 Verification of the cost accounting records such as the accuracy of the cost accounts, cost reports, cost statements, cost data and costing technique and

2 Examination of these records to ensure that they adhere to the cost accounting principles, plans, procedures and objective.

Objectives of Cost Audit

Prospective Objective: Under which cost audit aims to identify the undue wastage or losses and ensure that costing system determines the correct and realistic cost of production.

Constructive Objectives: Cost audit provides useful information to the management regarding regulating production, economical method of operation, reducing cost of operation and reformulating Cost accounting plans .

Types of Cost Audit

Cost Audit on behalf of the management. Cost audit on behalf of a customer

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Cost Audit on behalf of Government Cost Audit by trade association 5 Statutory Cost Audit

Qualification

Basic qualification for a cost auditor is the prescribed examinations and practices by the professional & Regulatory body for Cost & Management Accountancy of the country or in case a person is the member of other professional bodies, exemption should be allowed to him/her under the mutual recognition agreements (MRAs) to become a cost auditor.

Cost Audit Procedures

Cost audit comprises following three steps; 1 Review

2 Verification 3 Reporting

Cost Audit Importance

The important advantages of cost audit are briefly discussed as follows: Advantages of Cost Audit to the Management

1. Cost audit provides reliable cost data for managerial decisions. 2. Cost audit helps management to regulate production.

3. Cost audit acts as an effective managerial tool for the detection of errors, frauds and irregularities so that reliable and smooth functioning of the system is continued.

4. Cost audit reduces the cost of production through plugging loopholes relating to wastage of material, labor and overheads.

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5. Cost audit can fix the responsibility of an individual wherever irregularities or wastage are found.

6. Cost audit improves efficiency of the organization as a whole and costing system in particular by constant review, revision and checking or routine procedures and methods.

7. Cost audit helps in comparing actual results with budgeted results and points out the areas where management action is more needed.

8. Cost audit also enables comparison among different units of the factory in order to find out the profitability of the different units.

9. Cost audit exercises moral influence on employees which keeps them efficient and alert.

10. Cost audit ensures that the cost accounts have been maintained in accordance with the principles of costing employed in the industry concerned. Advantages of Cost Audit to the Shareholders

1. Cost audit ensures that proper records are maintained as to purchases, utilization of materials and expenses incurred on various items i.e wages and overheads etc. It also makes sure that the industrial unit has been working efficiently and economically.

2. The cost audit enables shareholders to determine whether or not they are getting a fair return on their investments. It reflects managerial efficiency or inefficiency.

3. Cost audit ensures a true picture of company's state of affairs. It reveals whether the resources like plant and machinery are being properly utilized or not.

Advantages of Cost Audit to the Society

1. Cost audit tells the true cost of production. From this the consumer may know whether the market price of the article is fair or not. The consumer is saved from the exploitation.

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2. Cost audit improves the efficiency of industrial units and thereby assists in economic progress of the nation.

3. Since price increase by the industry is not allowed without justification as to increase in cost of production, consumers can maintain their standard of living.

Advantages of Cost Audit to the Government

1. Cost audit assists the 'Tariff Board' in deciding whether tariff protection should be extended to a particular industry or not.

2. Cost audit helps to ascertain whether any particular industry should be given any subsidy in order to develop that industry.

3. Cost audit provides reliable data to the government for fixing up the setting prices of the various commodities.

4. Cost audit helps the government to take necessary measures to improve the efficiency of sick industrial units.

5. Cost audit can reveal the fraudulent intentions of the management.

6 Cost statements may be helpful to authorities in imposing tax or duty at the cost of finished products.

7 Cost audit facilitates settlement of trade disputes of the companies.

Relevance

Cost audit is the independent audit of cost records maintained by companies. The concept of cost audit was introduced in 1965 when Companies Act, 1956 was amended to incorporate the provisions relating to the maintenance of cost accounting records and cost audit. Cost audit got an impetus in 2011 when its scope was expanded and the rules and reporting formats were simplified to address industry concern of confidentiality.

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cost records and cost audit. The government has notified the Companies (cost records and audit) Rules 2014 on June 30, 2014. The 2014 Rules have severely curtailed the scope of cost audit. This U-turn in policy has dismayed the cost accounting profession and experts.

The new Rules mandate the maintenance of cost records in companies engaged in the production of specified goods in strategic sectors, companies engaged in an industry regulated by a sectoral regulator or a ministry or department of central government, companies operating in specified areas of public interest and companies engaged in the production, import and supply or trading of specified medical devices.

The Rules also provide for a threshold in terms of net worth or turnover of companies, thus, restricting its applicability to large companies.

It appears that the government has mandated maintenance of cost records and cost audit only in those sectors, which might require policy intervention. For the first time, it has brought construction companies, companies engaged in health services and companies engaged in education services within the ambit of cost audit. The government has categorised those as companies operating in the area of public interest.

The government has excluded the industries in which the competition among companies is significant. Presumably, the government has taken the view that cost audit is not relevant in companies that operate in a competitive environment.

It is argued that those companies maintain cost records voluntarily, as they are required to continuously analyse cost and revenue data for managing costs, in order to retain and enhance competitiveness on the face of competition from competing firms or competing substitutes.

In those companies, the management information system draws data from cost records. Therefore, there is no need to mandate maintenance of cost records and cost audit. But there is a flaw in this argument. Cost audit is no less relevant for companies operating in a competitive environment.

Any audit provides reasonable assurance about the integrity of audited information. For example, financial audit provides assurance to shareholders and other stakeholders about the integrity of information provided through financial statements. Financial audit is mandated to protect the interest of

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minority shareholders from the opportunistic behavior of managers. The underlying assumption in mandating financial audit is that managers are human beings and, therefore, are inherently opportunistic.

Managers show opportunistic behavior even in presenting information before the board of directors. This is the reason why SEBI had to mandate the minimum information to be presented before the board of directors. It is not unknown that managers man oeuvre board process to get favorable board decisions.

Companies Act, 2013 aims to strengthen corporate governance by empowering the board of directors. It requires independent directors to get involved in critical decisions. They have been made responsible for strategy review, risk management, performance evaluation and key appointments.

All these require analyses of cost and revenue data. If, we agree that managers are inherently opportunistic, the board of directors need an assurance from an independent agency about the integrity of cost and revenue information that is placed before it. Only cost audit by an independent cost auditor can provide that assurance.

Cost audit has not lost relevance, even for companies operating in a competitive environment. Benefits from cost audit outweigh its cost. If a company is already maintaining cost records, the incremental cost is the audit fee.

The cost of regular staff, which support the audit, is fixed in nature. Therefore, while the cost is immaterial, benefits in terms of improved corporate governance are immense, may not be from the management's perspective. By introducing the concept of 'public interest', which is difficult to define, the government has made the 2014 Rules unnecessarily complicated and difficult to implement. Rules should be transparent and simple.

The current Rules provides the scope for jockeying for inclusion and exclusion of companies from the ambit of cost audit. The government should bring all companies, except small companies, within the ambit of cost audit. It is also important that the cost accounting profession quickly upgrades skills in developing costing systems for emerging businesses, including those in the service sector.

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Statutory Audit

Statutory Audit is an checking of accounts required by law. A municipality may be required by its own law to have an annual audit of financial records or a company which is governed by any Law, the Law may require the audit to be conducted and the manner in which audit should be conducted and to whom the report of auditors should be presented. like in case of companies the Companies Act requires audit of accounts, its reporting and manner of audit report.

One conducted to meet the particular requirements of a governmental agency. Where such audits take place, the scope and audit programs are set by the governmental body. Banks, insurance companies, and brokerage firms have statutory audits.

Since the auditor's report must conform to standards required by the governing agency, the statements and other financial data generated from these audits may not conform to Gaap.

Statutory auditors are elected by shareholders and hold a position in the hierarchy alongside the board of directors A company must have at least one statutory auditor.

Cost Audit as per Companies Act, 2013

The companies act, 2013 has come into existence on 29.08.2013 that replaces a nearly six decade-old legislation and overhauls the way corporate function and are regulated in the country. This article contains the description of some provisions related to cost audit as per companies Act, 2013.

When cost audit is

required:-Central government may direct to conduct cost audit in respect of companies engaged in the production of such goods or providing such services and have a

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net worth or turnover as may be prescribed. Note: If company is regulated by any special act then central government can direct to conduct cost audit only after consulting with regulatory body constituted under special act.

Appointment of cost auditor:-

Cost auditor shall be appointed by board whereas remuneration of cost auditor shall be determined by members.

Who can be appointed as cost

auditor:-Cost audit shall be done by cost accountant in practice. Qualifications, disqualifications, rights and duties of cost auditor:-Cost auditor shall have same qualifications, disqualifications, rights and duties as that of a company auditor. Further, it is the duty of cost auditor to comply with cost auditing standards and to submit his report to BOD.

Duty of

company:-After receiving the cost audit report, company shall furnish full information and explanations on every reservations or qualifications to CG within 30 days of receipt of cost audit report. If CG requires any further information then it is the duty of company to furnish such information within given time.

Punishment for contravention in case of

company:-If company contravenes any of the above mentioned provisions then company shall be punishable with fine of Rs. 25,000 to Rs. 5, 00,000 and officers of company shall be liable for fine of Rs. 10,000 to Rs. 1, 00,000 or imprisonment for a term which may extend to 1 year.

Punishment for contravention in case of cost

auditor-If Cost auditor contravenes any of the above mentioned provisions unknowingly then he shall be punishable with fine of Rs. 25,000 to Rs. 5, 00,000. Whereas,

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he contravenes any of the above mentioned provisions knowingly then he shall be punishable with fine of Rs. 1,00,000 to Rs. 25,00,000 along with imprisonment for a term which may extend to 1 year. Further, he shall be liable to refund the remuneration and pay damages to company.

COST AUDITOR: ELIGIBILITY, RIGHTS AND DUTIES

The Cost Auditor has to be appointed by the Board of Directors under Section 233-B of the Companies Act subject to prior approval of the Company Law Board. This will be done on receipt of specific order from the Company Law Board for getting audited the Cost Accounting Records of a particular year for specified products.

For appointment of auditor, the Board of Directors is required to pass a resolution either in its meeting or by circulation with a condition that the same is subject to approval of the Central Government. From the above, it can be concluded that the Cost Auditor is not appointed on regular annual basis as it is in the case of financial auditor.

Cost audit is not an annual feature. It is conducted only when ordered by the Central Government. As mentioned earlier, a Cost Auditor is appointed by the Board of Directors of a company subject to the prior approval of the Central Government under Section 233-B of the Companies Act, 1956 whereas a financial auditor is appointed by shareholders under Section 224 of the Companies Act, 1956.

Appointment of cost auditor is made on the receipt of an order from Central Government within a specified period. The person to be appointed as auditor

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must hold a certificate of practice from the Institute of Cost and Works Accountants of India.

Consent of the cost auditor should be obtained before making an appointment. Application in prescribed form (23-C) is submitted to the Central Government with the prescribed fee alongwith a copy of the Board’s resolution.

Approval for appointment is communicated by the Central Government to the company after considering the application and the name of the auditor proposed subject to the condition that the cost auditor is not disqualified under Section 233-B(5) of the Companies Act, 1956 as amended.

A copy of this communication will also be sent by the Central Government to the Cost Auditor giving the time limits, submission of Report in triplicate, the date of commencement and completion of audit.

The company should issue a formal letter of appointment to the concerned auditor after receiving the approval of the Central Government so that he can start the work of his assignment.

After receiving the letter of his appointment, the cost auditor should communicate with the previous auditor, if any, for his reaction. He must send his formal acceptance of the assignment to the company.

The MCA, vide its order dated April 2011 has amended the procedure of appointments of Cost Auditors.

Under the revised procedure, appointment of Cost Auditor will be through Audit Committee and also revised the procedure of prior approval requirement of the Central Government.

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Eligibility for Appointment

Following persons are eligible to be appointed as cost auditor under Section 233-B:

(1) Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959, or

(2) Any such Chartered Accountant within the meaning of the Chartered Accountants Act, 1949 and a Fellow of the Institute of Chartered Accountants of India for a period of 10 years and has passed Part I of the Management Accountancy Examination of the Institute of Chartered Accountants of India, or (3) Other person, as may possess the prescribed qualifications.

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DISADVANTAGES OF COST AUDITS

Cost audits verify expense records and accounts. Audits also ensure that accountants and bookkeepers are in compliance with ethical practices. Effective cost audits provide a complete breakdown of expenses that give a company financial clarity about accounts. Although they provide such transparency, there are many disadvantages to conducting cost audits.

 Expensive

One primary disadvantage associated with cost audits is the excessive fees. Auditors are typically independent contractors who can charge relatively high prices for services rendered. In addition to initial charges, auditors may increase fees in the middle of the project if companies fail to prohibit such action in the contract. A person or corporation can essentially go from paying $4,000 to $6,000 for an audit.

 Lengthy

Cost audits are also lengthy processes that require employee devotion. Although the auditor may be an outside contractor, employees must provide requested information and be accessible in case further explanation of documents is necessary. People must also provide contractors with a proposed schedule. If a company wants an audit to be completed in three months, employees must give the auditor a road map on how to accomplish the goal within the given time frame. This process requires additional time and effort on an employee's part.

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 Lost Time

Although thorough, an auditor's report is usually given three to five weeks after the balance sheet is released. This means people who have been stealing from an establishment have nearly a month to form an excuse or leave the company. Regardless of the chosen option, time lost between the balance sheet release and auditor's report may cost the company money as evidence against the employee weakens.

 Uncertainty

Because a major part of the process involves estimating, there's the possibility of numerical figures being wrong. In addition, if receipts and other forms of recordkeeping are skewed, an auditor relying on such documents may produce an inaccurate report. Unorganized companies won't find cost audits helpful, because the process merely lays out information without putting it in order.

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BUDGETARY CONTROL

A system of management control in which actual income and spending are compared with planned income and spending, so that you can see if plans are being followed and if those plans need to be changed in order to make a profit.

Budgetary control methods a) Budget:

A formal statement of the financial resources set aside for carrying out specific activities in a given period of time.

It helps to co-ordinate the activities of the organisation.

An example would be an advertising budget or sales force budget. b) Budgetary control

A control technique whereby actual results are compared with budgets.

Any differences (variances) are made the responsibility of key individuals who can either exercise control action or revise the original budgets.

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Budgetary control and responsibility centres.

These enable managers to monitor organisational functions.

A responsibility centre can be defined as any functional unit headed by a manager who is responsible for the activities of that unit.

TYPES OF RESPONSIBILITY CENTRES

a) Revenue centres

Organisational units in which outputs are measured in monetary terms but are not directly compared to input costs.

b) Expense centres

Units where inputs are measured in monetary terms but outputs are not. c) Profit centres

Where performance is measured by the difference between revenues (outputs) and expenditure (inputs). Inter-departmental sales are often made using "transfer prices".

d) Investment centres

Where outputs are compared with the assets employed in producing them, i.e. ROI.

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ADVANTAGES OF BUDGETING AND BUDGETARY CONTROL

There are a number of advantages to budgeting and budgetary control:

 Compels management to think about the future, which is probably the most important feature of a budgetary planning and control system.

 Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the organisation purpose and direction.

 Promotes coordination and communication.

 Clearly defines areas of responsibility. Requires managers of budget centres to be made responsible for the achievement of budget targets for the operations under their personal control.

 Provides a basis for performance appraisal (variance analysis). A budget is basically a yardstick against which actual performance is measured and assessed. Control is provided by comparisons of actual results against budget plan.

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 Departures from budget can then be investigated and the reasons for the differences can be divided into controllable and non-controllable factors.  Enables remedial action to be taken as variances emerge.

 Motivates employees by participating in the setting of budgets.  Improves the allocation of scarce resources.

 Economises management time by using the management by exception principle.

 Problems in budgeting.

Budgets can be seen as pressure devices imposed by management, thus resulting in

a) bad labour relations. b) inaccurate record-keeping. · Departmental conflict arises due to:

a) disputes over resource allocation.

b) departments blaming each other if targets are not attained. · It is difficult to reconcile personal/individual and corporate goals.

· Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is often coupled with "empire building" in order to enhance the prestige of a department.

Responsibility versus controlling, i.e. some costs are under the influence of more than one person, e.g. power costs.

· Managers may overestimate costs so that they will not be blamed in the future should they overspend.

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CHARACTERISTICS OF A BUDGET

A good budget is characterised by the following:

· Participation: involve as many people as possible in drawing up a budget. · Comprehensiveness: embrace the whole organisation.

· Standards: base it on established standards of performance. · Flexibility: allow for changing circumstances.

· Feedback: constantly monitor performance.

· Analysis of costs and revenues: this can be done on the basis of product lines, departments or cost centres.

Budget organisation and administration:

In organising and administering a budget system the following characteristics may apply:

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a) Budget centres: Units responsible for the preparation of budgets. A budget centre may encompass several cost centres.

b) Budget committee: This may consist of senior members of the organisation, e.g. departmental heads and executives (with the managing director as chairman). Every part of the organisation should be represented on the committee, so there should be a representative from sales, production, marketing and so on. Functions of the budget committee include:

· Coordination of the preparation of budgets, including the issue of a manual. · Issuing of timetables for preparation of budgets.

· Provision of information to assist budget preparations.

· Comparison of actual results with budget and investigation of variances. c) Budget Officer: Controls the budget administration the job involves:

· liaising between the budget committee and managers responsible for budget preparation.

· dealing with budgetary control problems. · ensuring that deadlines are met.

· educating people about budgetary control. d) Budget manual:

This document:

· charts the organization.

· details the budget procedures.

· contains account codes for items of expenditure and revenue. · timetables the process.

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BUDGET PREPARATION

Firstly, determine the principal budget factor. This is also known as the key budget factor or limiting budget factor and is the factor which will limit the activities of an undertaking. This limits output, e.g. sales, material or labour. a) Sales budget: this involves a realistic sales forecast. This is prepared in units of each product and also in sales value. Methods of sales forecasting include: · sales force opinions.

· market research.

· statistical methods (correlation analysis and examination of trends). · mathematical models.

In using these techniques consider: · company's pricing policy.

· general economic and political conditions. · changes in the population.

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· competition.

· consumers' income and tastes.

· advertising and other sales promotion techniques. · after sales service.

· credit terms offered.

b) Production budget: expressed in quantitative terms only and is geared to the sales budget.

The production manager's duties include: · analysis of plant utilization.

· work-in-progress budgets.

If requirements exceed capacity he may: · subcontract.

· plan for overtime. · introduce shift work.

· hire or buy additional machinery.

· The materials purchases budget's both quantitative and financial. c) Raw materials and purchasing budget:

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· The materials purchases budget is both quantitative and financial. Factors influencing

· production requirements. · planning stock levels. · storage space.

· trends of material prices.

d) Labour budget: is both quantitative and financial. This is influenced by:

· production requirements. · man-hours available. · grades of labour required. · wage rates (union agreements). · the need for incentives.

e) Cash budget: a cash plan for a defined period of time. It summarises monthly receipts and payments. Hence, it highlights monthly surpluses and deficits of actual cash. Its main uses are:

· to maintain control over a firm's cash requirements, e.g. stock and debtors. · to enable a firm to take precautionary measures and arrange in advance for investment and loan facilities whenever cash surpluses or deficits arises.

· to show the feasibility of management's plans in cash terms.

· to illustrate the financial impact of changes in management policy, e.g. change of credit terms offered to customers.

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Receipts of cash may come from one of the following: · cash sales.

· payments by debtors. · the sale of fixed assets. · the issue of new shares.

· the receipt of interest and dividends from investments.

Payments of cash may be for one or more of the following: · purchase of stocks.

· payments of wages or other expenses. · purchase of capital items.

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MANAGEMENT ACTION AND COST CONTROL

Producing information in management accounting form is expensive in terms of the time and effort involved. It will be very wasteful if the information once produced is not put into effective use.

There are five parts to an effective cost control system. These are: a) preparation of budgets.

b) communicating and agreeing budgets with all concerned. c) having an accounting system that will record all actual costs.

d) preparing statements that will compare actual costs with budgets, showing any variances and disclosing the reasons for them, and

e) taking any appropriate action based on the analysis of the variances in d) above.

Action(s) that can be taken when a significant variance has been revealed will depend on the nature of the variance itself. Some variances can be identified to a specific department and it is within that department's control to take corrective action. Other variances might prove to be much more difficult, and sometimes impossible, to control.

Variances revealed are historic. They show what happened last month or last quarter and no amount of analysis and discussion can alter that. However, they can be used to influence managerial action in future periods.

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Zero base budgeting (ZBB)

After a budgeting system has been in operation for some time, there is a tendency for next year's budget to be justified by reference to the actual levels being achieved at present.

In fact this is part of the financial analysis discussed so far, but the proper analysis process takes into account all the changes which should affect the future activities of the company.

Even using such an analytical base, some businesses find that historical comparisons, and particularly the current level of constraints on resources, can inhibit really innovative changes in budgets.

This can cause a severe handicap for the business because the budget should be the first year of the long range plan. Thus, if changes are not started in the budget period, it will be difficult for the business to make the progress necessary to achieve longer term objectives.

One way of breaking out of this cyclical budgeting problem is to go back to basics and develop the budget from an assumption of no existing resources (that is, a zero base). This means all resources will have to be justified and the chosen way of achieving any specified objectives will have to be compared with the alternatives.

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For example, in the sales area, the current existing field sales force will be ignored, and the optimum way of achieving the sales objectives in that particular market for the particular goods or services should be developed. T his might not include any field sales force, or a different-sized team, and the company then has to plan how to implement this new strategy.

The obvious problem of this zero-base budgeting process is the massive amount of managerial time needed to carry out the exercise. Hence, some companies carry out the full process every five years, but in that year the business can almost grind to a halt.

Thus, an alternative way is to look in depth at one area of the business each year on a rolling basis, so that each sector does a zero base budget every five years or so.

Standard Costing

Standard costing is the practice of substituting an expected cost for an actual cost in the accounting records, and then periodically recording variances showing the difference between the expected and actual costs.

Standard Costs:

A standard, as the term is usually used in management accounting, is a budgeted amount for a single unit of output. A standard cost for one unit of output is the budgeted production cost for that unit.

Standard costs are calculated using engineering estimates of standard quantities of inputs, and budgeted prices of those inputs.

For example, for an apparel manufacturer, standard quantities of inputs are required yards of fabric per jean and required hours of sewing operator labor per jean.

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Budgeted prices for those inputs are the budgeted cost per yard of fabric and the budgeted labor wage rate.

Standard quantities of inputs can be established based on ideal performance, or on expected performance, but are usually based on efficient and attainable performance.

Research in psychology has determined that most people will exert the greatest effort when goals are somewhat difficult to attain, but not extremely difficult. If goals are easily attained, managers and employees might not work as hard as they would if goals are challenging.

But also, if goals appear out of reach, managers and employees might resign themselves to falling short of the goal, and might not work as hard as they otherwise would. For this reason, standards are often established based on efficient and attainable performance.

Hence, a standard is a type of budgeted number; one characterized by a certain amount of rigor in its determination, and by its ability to motivate managers and employees to work towards the company’s objectives for production efficiency and cost control.

There is an important distinction between standard costs and a standard costing system.

Standard costs are a component in a standard costing system. However, even companies that do not use standard costing systems can utilize standards for budgeting, planning, and variance analysis.

Standard Costing Systems:

A standard costing system initially records the cost of production at standard. Units of inventory flow through the inventory accounts (from work-in-process to finished goods to cost of goods sold) at their per-unit standard cost.

When actual costs become known, adjusting entries are made that restate each account balance from standard to actual (or to approximate such a restatement).

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The components of this adjusting entry provide information about the company’s performance for the period, particularly with regard to production efficiency and cost control.

STANDARD COSTING SYSTEMS AND FLEXIBLE BUDGETING

There is an important connection between flexible budgeting, which was discussed in Chapter 5, and standard costing. In fact, a standard costing system tracks inventory during the period at the flexible budget amount. Recall that the flexible budget is the budgeted per-unit cost multiplied by the actual number of units.

Hence, a standard costing system answers the question: what would the income statement and balance sheet look like, if costs and per-unit input requirements were exactly as planned, given the actual output achieved (units made and units sold).

Given the point made in the previous paragraph, it follows that the adjustment made at period-end to restate the inventory accounts for the difference between the standard cost account balance and the actual cost account balance constitutes the difference between the flexible budget amount and actual costs.

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For direct costs, such as materials and labor, this adjusting entry represents the sum of the price (or labor wage rate) variance and the efficiency (or quantity) variance. For overhead costs, this adjusting entry represents misapplied overhead.

For variable overhead, misapplied overhead consists of the sum of the spending variance and the efficiency variance. For fixed overhead, misapplied overhead consists of the sum of the spending variance and the volume variance.

Hence, standard costing systems track inventory at flexible budget amounts during the period, and post adjusting entries at the end of the period that provide variance information that managers use for performance evaluation and control. Reasons for using a Standard Costing System:

There are several reasons for using a standard costing system:

Cost Control: The most frequent reason cited by companies for using standard costing systems is cost control. One might initially think that standard costing provides less information than actual costing, because a standard costing system tracks inventory using budgeted amounts that were known before the first day of the period, and fails to incorporate valuable information about how actual costs have differed from budget during the period. However, this reasoning is not correct, because actual costs are tracked by the accounting system in journal entries to accrue liabilities for the purchase of materials and the payment of labor, entries to record accumulated depreciation, and entries to record other costs related to production.

Hence, a standard costing system records both budgeted amounts (via debits to work-in-process, finished goods, and cost-of-goods-sold) and actual costs incurred. The difference between these budgeted amounts and actual amounts provides important information about cost control. This information could be available to a company that uses an actual costing system or a normal costing system, but the analysis would not be an integral part of the general ledger system. Rather, it might be done, for example, on a spreadsheet program on a personal computer.

The advantage of a standard costing system is that the general ledger system itself tracks the information necessary to provide detailed performance reports showing cost variances.

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Smooth out short-term fluctuations in direct costs: Similar to the reasons given in the previous chapter for using normal costing to average the overhead rate over time, there are reasons to average direct costs. For example, if an apparel manufacturer purchases denim fabric from different textile mills at slightly different prices, should these differences be tracked through finished goods inventory and into cost-of-goods-sold? In other words, should the accounting system track the fact that jeans production on Tuesday cost a few cents more per unit than production on Wednesday, because the fabric used on Tuesday came from a different mill, and the negotiated fabric price with that mill was slightly higher? Many companies prefer to average out these small differences in direct costs.

When actual overhead rates are used, production volume of each product affects the reported costs of all other products: This reason, which was discussed in the previous chapter on normal costing, represents an advantage of standard costing over actual costing, but does not represent an advantage of standard costing over normal costing.

Costing systems that use budgeted data are economical: Accounting systems should satisfy a cost-benefit test: more sophisticated accounting systems are more costly to design, implement and operate.

If the alternative to a standard costing system is an actual costing system that tracks actual costs in a more timely (and more expensive) manner, then management should assess whether the improvement in the quality of the decisions that will be made using that information is worth the additional cost.

In many cases, standard costing systems provide highly reliable information, and the additional cost of operating an actual costing system is not warranted.

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The sheet resistance of ITO thin films on YSZ substrates heat treated at temperatures ranging from 530 to 800 °C measured after different steps of the fabrication is given in Table

Drew Charter School continues to build community, foster student success and remain true to its mission – to work together as a community of teachers, staff, students, families,

• High performance vacuum pump 40 cbm/h from BUSCH • Film width 322 mm • Index 240 mm • Thermoforming from 5 mm to 100 mm adjustable in 5 mm steps • Thermoforming tools

If used on a staff, it looses one charge and the arcanist gains a number of points to his arcane reservoir equal to the highest-level spell the staff can cast using only 1 charge

We study how determinacy and learnability of worldwide ratio- nal expectations equilibrium may be a¤ected by monetary policy in a simple, two country, New Keynesian framework under