ACCA BT Syllabus C. Business Functions, Regulation and Technology - Management Accounting Reports - Notes ^{2 / 2}

Cost Schedules

Cost schedules are used to calculate the cost of producing products for a period of time. 

The cost of goods amount is transferred to the finished goods inventory account during the period and is used in calculating cost of goods sold on the income statement.

Cost schedules are needed at regular intervals to enable managers to keep a check on what the business is spending.

Cost Schedules may be produced for the following areas:

• Wages and salaries

• Departmental costs

• Cost of sales

• Selling expenses

• Administration costs

Schedules may be split by PRODUCT or PROCESS, depending on the level detail required by management.

For example, if a business makes cars then the overall cost of producing a car can be broken down by each part that the car is made from and the cost of performing the process to build the car.

By listing the cost of each part or process a detailed analysis of the cost can be achieved.

Budgets

Budgets are part of a company's planning system. 

It is a set of interlinked plans that quantitatively describe an entity's projected future operations. 

A budget is used as a yardstick against which to measure actual operating results, for the allocation of funding, and as a plan for future operations.

• Most businesses will prepare a BUDGET.

  This may be a budget for the year ahead, showing projected sales, the costs involved in generating those sales, overheads and projected profit.

• Budgets may be produced for the business as a whole and for individual departments.

• The finance department will also produce a CASH FLOW BUDGET (or Cash Flow forecast) identifying the amounts of cash likely to come into and out of the business.

  This will enable the department to identify potential problems and arrange overdraft facilities in advance.

Variance Reports

• Once a budget is established, one of the main financial tasks is to explain variances between actual performance (Cost schedules) and the budget.  

  It may be things have changed from the budget. 

  Volume may have changed increased, or there may have been unexpected price increases.

• For example, if the cost of certain car parts and processes is greater than budget, then steps can be taken to reduce them and therefore  keep the overall cost of producing the car down.

• Performance reports are made regularly and  are usually on a monthly basis.

Working Capital reports

are needed to manage cash inflows and outflows.

An organisation's working capital is:

1. Inventory

2. Receivables

3. Payables

4. Cash

Businesses need cash to pay their debts.

Cash is created when raw materials are converted into products that are sold to customer.

Inventory reports

• Show the value of materials and finished products held in stock and the length of time they have been held for.

• Holding large amounts of inventory reduces the availability of cash because it is tied up in assets.

• The business should monitor inventory to make sure it is converted into finished products and cash afterwards.

Receivables Reports

• Show how much customers owe the business and how long the debt has been outstanding.

• Holding large amounts of receivables reduces the availability of cash because it is tied up in assets.

• By analysing receivables, decisions can be taken over which debts should be chased up.

Payables Reports

• Show how much the business owes its suppliers and how long have debts been outstanding.

• Delaying paying debts increases the availability of cash because it is not paid until necessary.

• The business should pay its debts, but not so early that it does not make use of periods of credit, nor so late that it faces legal action for not paying what it owes.

Cash Reports

• Show how much cash and liquid assets the business has.

• It is important to ensure sufficient cash is available as required to pay business expenses and other commitments.