Financial Performance Management: Costing and Budgeting Report

This report delves into the intricacies of financial performance management, offering a comprehensive analysis of costing methods, including absorption costing and activity-based costing (ABC). It examines overhead allocation, cost driver analysis, and the impact of different costing approaches on product profitability. The report also explores variance analysis, calculating material usage, mix, and yield variances, and discusses the implications of these variances on production management. Furthermore, it contrasts zero-based budgeting with incremental budgeting, outlining the advantages and disadvantages of each approach. The analysis includes sensitivity analysis, assessing how changes in input information impact model results. The report uses numerical examples and calculations to illustrate the concepts, providing a practical understanding of financial performance management principles.

Financial Performance
Management

Contents
Contents...........................................................................................................................................2
QUESTION 1..................................................................................................................................1
QUESTION 2..................................................................................................................................4
QUESTION 3..................................................................................................................................6

QUESTION 1
A).
Total Overhead cost
Setup costs 120000
Receiving 30000
Despatch 15000
Machining 65000
230000
Overhead absorption rate:
Lipstick Lip-balm
Lip-
gloss
Production Volume 30000 35000 3000
Labour hour per unit 3 2 2
total labour hours 90000 70000 6000 166000
Total Overhead rate
230000 /
166000 = 1.3855
Cost per unit:
Lipstick Lip-balm
Lip-
gloss
Sales 22 26 24
Raw material 5 10 10
Labour cost 5 5 5
Overheads rate 4.16 2.77 2.77
Cost 14.16 17.77 17.77
Profit per unit 7.84 8.23 6.23
Units 30000 35000 3000
Profit 235301.20 288012.05
18686.7
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b).
Cost
Driver
Setup costs 120000 25 setups
Receiving 30000 22 deliveries
Despatch 15000 50 despatched
Machining 65000 12
machinin
g
Cost driver data:
Machine hours per unit 4 4 4
Number of setups 10 14 1
Number of deliveries received 10 10 2
Number of orders despatched 20
20 10 20 20 10
Cost per setup
120000/2
5 4800
Cost per receiving activity
30000 /
22
1363.636
4
Cost per despatch
15000 /
50 300
Cost per machining activity
65000 /
12
5416.666
7
Allocation of overheads to each
product
Lipstick Lip-balm Lip-gloss
Setup costs 48000 67200 4800
12000
0
Receiving 13636.4 13636.4 2727.28 30000
2

Despatch 6000 6000 3000 15000
Machining
21666.66
7
21666.66
7 21666.67 65000
89303.06
7
108503.0
7 32193.95
Production Volume 30000 35000 3000
Overhead cost per unit
2.976768
9
3.100087
6 10.73132
Sales price (per unit) 22 26 24
Material cost (per unit) 5 10 10
Labour hours (per unit) 3 2 2
Overhead cost per unit 2.98 3.10 10.73
Profit 11.02 10.90 1.27
(C)
In the equations that think that way, the two approaches that cover different approaches,
the expenses, are taken into account. The benefits for absorption costs are different. The unit
income per unit become 7.84, 8.23, and 6.23 overall for three items that have certain operating
costs based on work times whereas the activity-based costing that takes profit outlook is 11.02,
10.90, 1.27.
The two methods in this equation include different definitions for products and their
quantities. Because the demand is unique. The absorbance value is 235301, 288012, 18686 for
all three products. The marginal cost with ABC amounts to 11.02, 10.90, and 1.27.
The expense of absorption shall be considered for manufacturing expenses, including
fixed labour costs, warehouse rentals and plant utility costs. This involves different costs
including direct labour, costs including the manager's salaries. The acceptable selling price for
the goods may be evaluated. The profitability analysis does not support purchase decision, but it
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involves the assigning of fixed manufacturing costs for the product. The cost of absorption offers
poor evaluation for real item-making prices. Activity-based costing seems to be the technology
for a more detailed allocation of the overhead expenses for the operations. The expense estimate
for the activities and the costs assigned to the cost goals utilizing the operations. The system can
be used to reduce integrated production expenses. ABC duties are complex when different
devices, products and tangled structures are present, who for estimates are not pleasant. This
does not mean that production processes are reduced by simplified environment. Different
helpful information requirements for ABC devices are available. This specificity is accessible as
it constructs the method that provides information for each decision. If the company installs the
generic ABC picture, it uses it to determine that it does not have data. For cost benefit analysis,
the systemic mechanism is determined which solutions to approve, and the cost to the system
becomes useful for knowledge that resulted in its use. The research looks at the approach of
market foundation, which would be important for enterprise analysis that allows financial
performance.
[d]. How the sensitivity analysis enables employees cope?
For determining the answer to the model results for shifts for input information,
sensitivity model is conducted. Assumptions are expected cash flows that will greatly rely on
future projections, income levels in future and compensation activity. The defects in these
formulas influence the calculation needed. The study of sensitivity seeks to identify assumptions
that have the predictions' effects required. Users should be concerned with management.
Measuring the sensitivity is simple to use, spreadsheet packages. The specificity analysis
describes the factors that influence different values for predictor variables. Sensitivity assessment
is an aspect that describes how the objective factors impact external uncertainty known as
concerns of input. This procedure is graded to decide if the outcomes for cases based on the
different parameters are eliminated. The method of analysing variable variations which shape the
performance of the variable sequence. The subjective variables measured when the
responsiveness tests for companies contribute to higher performance. The analyst discusses the
requirements of how well the indicators impact the company's goals of organisational success.
QUESTION 2
(a) Compute the resulting modifications for the last month:
(i) The material usage modification for each element and in full:
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Should use
(KG)
Did
use
(KG)
Difference(K
G)
Standar
d
cost/kg
($)
Variance(
$)
Alpha 1840 2200 360A 2 720A
Beta 2760 2500 260F 5 1300F
Gam
ma 920 920 1
5520 5620 580F
(ii) the total material Mix variance.
AQSM
AQA
M
Difference(KG
)
Standard
cost/kg
($)
Variance($
)
Alpha 1873.33 2200 326.67A 2 653.34A
Beta 2810 2500 310F 5 1550F
Gamm
a 963.67 920 16.67F 1 16.67
5620 5620 913.33F
(iii) Yield variance
SQSM AQSM
Difference(K
G)
Std
cost/kg
($)
Variance($
)
Alpha 1840
1873.3
3 33.33A 2 66.66A
Beta 2760 2810 50A 5 250A
Gamm
a 920 936.67 16.67A 1 16.67
5520 5620 333.33A
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Alternative solution:
5,620 kg input must manufacture 4,683·
33 kg of Omega 5,620 kg input did produce 4,600 kg of Omega
Difference = 83·33kg x $4 per kg ($400/100 kg) = $333·32 A
(b) Address the issues with the new measurement method and reporting differences in the
production management performance evaluation.
The prices of raw materials variations in the study are beyond the range for the
accountability of the producer for procurement managers. The attempt to develop of the
organization is not involved in the standard blend. It motivates management to remain
accountable for disagreements that are not tracked. The degree of the value of continuous input
materials uses the criteria of ex front prices that have distorted perceptions for mixing
differences.
Kappa Co actually has ratings, and the business's sales director lacks a genuine picture of
performance. Analysis variations are not really tracked. Kappa Co is not really able to control
costs that are apathetic and impact the company of Kappa due to its many differences.
There is a relationship between material mixing variance, yield strength variability, and a
combined used by products that have different requirements has a $913.33 savings study. For
Kappa, the research seems to have a structural component mixture which helps to improve
efficiency and encourage companies to increase functionality. It looks at the deviations for the
organization that lead to better utilization of its capital that help to make companies profit.
QUESTION 3
Zero based budgeting and increment budgeting
ZBB budgets
The expenditure plan from the set must be planned with a zero basis. This is a money
management approach are not even the difference is the specific calculation of any expenditure
for a new cycle. In doing so, each State must be supported by justifying the profits produced by
the business by each expense. All professionals are required not only to adjust the current year
but to justify all spending. Null-based financial planning is much more versatile to be used on all
types of expenditures such as running costs, advertising costs, product sale costs etc.
Benefits:
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• To verify whether adjustments to budgets for the preceding year and review any
component in revenue are made to the exactness of budgeting. Which helps to minimize
costs, as it offers a simple cost picture.
• This aims to strengthen the value of the company and increase its shareholders' assets for
productivity allocations of capital. It guarantees a precise and effective distribution of
resources.
• It gives the firm the true clarity to offer strong management and graphic picture.
• It also increases teamwork and collaboration within the organization and allows workers
to take part in judgment.
• The underlying assumptions are often altered due to technical advances, new procedures
and attractive changes. The decisions about the company react to zero-based budgetary
control.
Drawbacks:
• It takes time since a team needs more hours to execute it.
• In any case, companies do not always adhere to the budget. This could often occur that
causes management to receive the unforeseen probability expenses.
• This is a daunting challenge at any expense and needs the preparation of managers.
Increment Budgeting
This method of budgeting relies on the financial proposal, which can be adjusted with a
few slight adjustments to the expenditure for the existing year. Incremental budgeting is
primarily taken by those businesses whose administration does not take some time and those
with no limited capital to build the expenditure plan.
Benefits:
• Compared to other expenditures plan, this form of budget is really easy to understand,
since complicated measurements are not needed.
• Many businesses have used this tactic to actually fight rivalry or create a fair value
between departments, as both departments earn a similar percentage of money about a
year ago.
• Thus it is likely to integrate why corporations use this kind of budgeting when planning a
budget.
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• This process of analysis is indeed very versatile, so when introducing a new strategy or
planning a new budget it allows adjustments very rapidly.\
Disadvantages
• Incremental budgeting involves financial support, placing pressure from each entity to
finance their activities. The Team would then aim to invest the sum they can make sure
how they can obtain a corresponding amount during the next programme.
• In line with this budgeting, it expects the same way of working if there are minor
adjustments in budget allocations for the previous year. This can result in the absence of
creativity and cost reduction.
• This budgeting leads to money being distributed to different agencies, but they are not
required for the next few years.
• Even though resources are allocated through one year, equivalent sums would be
allocated to this kind of expenditure plan for other years.
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