Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed
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| Types of budget The length of the budget period also depends on the nature of the business. A firm in a stable industry (e.g. a utility) will have a longer budget horizon than will a small startup company in a rapidly changing high-tech field. If the production process is labour paced, DL can be a reasonable base for allocating MOH, even if labour is only a small proportion of total costs. Ina labour-paced production process, workers control the speed with which the product moves through the plant. If MOH depends on the length of time the product is in the plant, and if this time is determined by DL, then DL which is readily available from the accounting records) is associated with MOH costs incurred, so it can provide a reasonable basis for allocation. Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 Closing stock is not just a leftover it is planned or budgeted. The amount budgeted depends on the firm’s philosophy (JIT or traditional, the variation in demand for the product, perishability, etc. Students often fail to appreciate potential behavioural effects of budgeting. If employees perceive budgets as too difficult to achieve, they may simply view the budget as unrealistic and give up trying to achieve it. This is particularly likely if employees feel the budget has been imposed by higher levels. On the other hand, if employees themselves determine the budget, they often set budgets that are too easily achieved by building in slack. (These behavioural issues arise in cost budgets as well as revenue budgets) Management must make tough choices in determining the degree of employee participation in the budgetary process and the extent to which employees should view the budget as achievable. The nature of the product makes it difficult for some companies to synchronise production levels with expected sales. When inputs are available only seasonally, production occurs when inputs are available. For example, a manufacturer of jams produces the year’s supply of strawberry jam during the strawberry season, the year’s supply of cherry jam during the cherry season, etc. Variable OH costs fluctuate in proportion to the quantity of the cost allocation base (DLH in the Wessex Engineering example, given in Chapter 14), whereas fixed OH remains constant across a wide range of output. Walk the students through the consumption of the cost/unit of FG. This shows how the DM, DL and MOH budgets fit together. Students often have trouble with this integration. Download 1.72 Mb. Share with your friends:
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