1. Budgeting and standard costing
Chapter10
Budgeting and standard costing
皮欣然
李宇琳 潘悦

2. Topic List
The use of standard costs
Deriving standards
Budgets and standards compared
Flexible budgets
The principle of controllability

3. Standard costs and standard cost card
Standard cost is an estimated unit cost built up of standards for each cost element.
（Standard cost=standard resource price *standard resource usage）
standard cost card include budget materials cost，labour cost，overhead cost for a product.

4. The use of standard costing
value inventory
prepare cost budgets for production
provide control information
Standard costing as a control technique：difference between Standard and actual cost is know as a variance.The process by which the total difference between standard and actual results Is analysed in known as variance analysis.

5. The principle of controllability
The principle of controllability is that managers of responsibility centres should only be held
accountable for costs over which they have some influence.

6. Controllable costs
Controllable costs are items of expenditure which can be directly influenced by a given manager within a given time span.
A cost which is not controllable by a junior manager might be controllable by a senior manager
A cost which is not controllable by a manager in one department may be controllable by a manager in another department.

7. The controllability of fixed costs
Most variable costs are thought to be controllable in the short term,but it is often assumed that all fixed costs are non-controllable in the short run.
Committed fixed costs（约束性固定成本）
Discretionary fixed costs（选择性固定成本）

8. Topic List
The use of standard costs
Deriving standards
Budgets and standards compared
Flexible budgets
The principle of controllability

9. 2 Deriving standards
The responsibility for deriving standard costs should be shared between managers able to provide the necessary information about levels of expected efficiency, prices and overhead costs.

10. Setting standards for materials cost
Direct materials costs per unit of raw material will be estimated by the purchasing department from their knowledge of the following.
Purchase contracts already agreed
Pricing discussions with regular suppliers
The forecast movement of prices in the market
The availability of bulk purchase discounts
The quality of material required by the production departments

11. Types of standard
An ideal standard is a standard which can be attained under perfect operating conditions: no wastage, no inefficiencies, no idle time, no breakdowns
An attainable standard is a standard which can be attained if production is carried out efficiently,machines are properly operated and/or materials are properly used. Some allowance is made for wastage and inefficiencies
A current standard is standard based on current working conditions (current wastage, current inefficiencies)
A basic standard is a long-term standard which remains unchanged over the years and is used to show trends

12. The impact on employee behaviour of the type of standard set
Impact on behviour
Ideal
Incentive to be more efficient
Attainable
Incentive to work harder
Current
Current working conditions
Basic
Unfavourable impact on the motivation of employees

13. 3 Budgets and standards compared
A budget is an overall plan and a stand cost is a unit cost.
Budgets and standards are similar in the following ways:
(a) They both involve looking to the future and forecasting what is likely to happen given a certain set of circumstances.
(b) They are both used for control purposes.

14. Important differences betweenBudgets and standards
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Gives planned total aggregate cost for a function or cost centre;
Can be prepared for all functions;
Expressed in money terms;
Shows the unit resource usage for a single task;
Limited to situations where repetitive actions are performed and output can be measured;
Need not be expressed in money terms;

15. Topic List
The use of standard costs
Deriving standards
Budgets and standards compared
Flexible budgets
The principle of controllability

16. Flexible budgets Definition：
A budget by recognising different cost behaviour patterns,changes with volume of activity changes.
Fixed budget and flexible budget
The connection with performance management

17. Fixed budgets and flexible budgets
Useful at planning stage
A common ground for preparation of many types of budget
Flexible budgets:
Budgetary control variance analysis
Using to complement master budget at planning stage

18. The connection with performance management

19. The reason for causing difference in profit is the sales volume

20. Thanks!
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