To carry out the work, an investigation was carried out on "The Operating Budget as an element of Coordination, Information, Control and Motivation" in Cuban Companies, which aims to broaden knowledge regarding the importance that should be attributed to the budgetary control since this contributes to the identification of the corrective measures that can help to achieve the business objectives and for this it is necessary to carry out a timely and correct analysis of the real events that the company has experienced in comparison with those that had been foreseen and assess the reason for the deviations that occurred.
INTRODUCTION
As a result of the great economic crisis that Cuba suffered, starting in the 90s and due to the consequences that this brought with it; In an arduous struggle to maintain the conquests obtained, the Cuban State adopts new measures that will help it to recover its economy. All this caused significant economic changes, as well as the application of new techniques that were used in the rest of the world.
the-operating-budget-as-element-of-coordination-information-control-and-motivation-in-Cuban-companiesProfessionals in the economics of Cuban companies have had to incorporate these techniques that allow them to evaluate the situation of their entities in a similar way to other places internationally.
Budgets are quantitative forecasts about the future of the company. If you wonder why is budgeting important? We would say that:
- The preparation of budgets not only helps to forecast the future, but also serves to control and evaluate the management of all parts of the company and to take the pertinent corrective measures that allow improving management results.
Faced with this situation, it is proposed to apply a procedure that allows the company to guarantee efficient budgeting, for which the Ventanas de Las Tunas Factory was taken as an example.
Problem: What instruments should be applied to guarantee budgeting and obtaining better results in the management of the company?
The topicality of the subject, the wide field of application and the significant contribution that this would have for Cuban companies allowed to formulate the following hypothesis:
Improved budgeting will guarantee efficient fulfillment of the company's objectives and allow measures to be taken to improve results.
The investigation has the following objective:
- Adapt the budgeting technology linked to obtaining better results.
- THEORETICAL FRAMEWORK
How does the Budget arise?
Formally, the budget appears for the first time in Europe in articles 341 and 342 of the Cadiz Constitution and it is there where its institutional profile was consolidated. The budget to really deserve this name must have the following elements: simultaneous determination of income and expenses in order to estimate whether the forecasts are balanced or a deficit is expected, since the surplus is in principle unacceptable, approval by the representation national and a posteriori control of the accounts by an independent institution dedicated to this sole purpose.
Before 1812 the term was never used in legal texts and only in the French Constitution of 99 are the aforementioned component elements duly presented. In England, the Civil List Act of 1698 granted William III a fixed amount of 700,000 pounds for the maintenance of his house and other civil services of a public nature, renouncing any control of spending as long as it did not exceed this amount. The French Constitution of 1791 and that of 1795 entrusted to the legislative power the debate and approval of the contributions, the publicity of the accounts of expenses without even raising the estimate of income and expenses. In the one of 1799 this appears,without defining any quantitative relationship between them and only in 1814 did the word budget appear in the constitutional text that reestablished the Bourbons.
In Spain, the Constitution of Bayonne, in accordance with the French model of 99, provided for the triennial approval of "the quota of the annual income and expenses of the State" and the decree of the Cortes of March 22, 1821 ordered that it be made a list of expenditures for each ministry "so that, after examining and sanctioning everything by the Cortes, the list or general budget of the disbursements corresponding to the peculiar obligations of each branch can be formed."
The Constitution of Cádiz methodically developed the idea without recognizing the Minister of Finance, who is the one who submits the budget to the Cortes, the ability to arbitrate between the requests of his colleagues, without any other being able to do so by not forming the council ministers, nor have the presider (aa. 227 and 341) The expenditure budget will be accompanied by "the plan of the contributions to be imposed to fill it" (a. 342) with what appears in a still blurred version the principle of budget balance.
341. So that the Courts can set the expenses in all branches of public service and the contributions that must cover them, the Secretary of the Treasury Office will present them, after they are gathered, the general budget of those deemed necessary…
342. The same secretary of the Treasury office will present with the budget of expenses the plan of the contributions that must be imposed to fill them.
In its primitive version, the budget did not include more than expenses, although it had to be accompanied by a project of contributions that balanced them, but shortly after, at the time of approving the first of all, the one corresponding to 1814 had already been integrated. of income and expenses in the budget.
A budget is not a simple estimate of income and expenses for the year following its approval. For the government that elaborates the project it is the definition of an economic policy and implies the request of the necessary means for its realization. For the Courts that approve it, a means of guiding government management and, if necessary, a means of pressure capable of compelling the executive, given that the rejected project makes any act intended to collect contributions illegal. The budget could therefore not appear in history before the division of powers, and when this was promulgated the national representation was erected in the instance that had to grant its consent both to collect and to spend.
The budget process begins with an estimate of income and a proposal of expenses that the Minister of Finance submits to the Courts, which reject, amend or approve the project in each of its parts. Once promulgated, it is executive, that is, payments can be demanded and expenses can be made in accordance with the terms defined in the sanctioned text. The executive will not have the capacity to make transfers from one item to another and the finance minister who authorizes such a movement of funds will incur political responsibility. Once the term of validity has concluded, the budget is settled, a function similar to that performed by the accountants of the Old Regime, although they were careful above all to prosecute fraud,while the preferential interest is now to check that the expenses incurred have been respected.
Although Canga Argüelles reported abundantly to the Cortes of the state of the Treasury, only on one occasion did he touch on the subject, in a reading he made at the beginning of May 1811 in which he dealt with the budget from a more political than financial point of view. Of those who succeeded him, none completed the year in office and it is therefore not easy to attribute the paternity of the first budget, that of 1814, unless we recognize Manuel López Araujo as the author, who was the last minister of the liberal stage. and that he held the position again throughout the year 1816. The budget that the Cortes of Cádiz approved before being dissolved, is characterized by the brevity of its items in which on one side the total amounts of each ministry appear up to a total of 950 million, which ordinary income only covered 48%.The rest and even more would have to be obtained through the direct contribution whose regional distribution we have previously offered.
Of the total mass of expenditures, the Ministry of War consumed 82% and it is not easy to imagine that less than 776 million would be spent, a figure that will reappear, as we will have occasion to see, on the occasion of the Carlist war. Despite the high figure and the doubtfulness of his attention to the contribution, there were still items not included, such as the expenses of the Regency, those of the Cortes or the sinking funds that had been separated from the budget by a decree promulgated the eve.
Although it did not complete the parliamentary procedure, the expenditure table is preserved, which, if the coup d'état by the king had not occurred after his return to Spain, would have been the budget of 1815. In it, some items of expenses are repeated, the expenses of the Royal House and the Cortes appear for the first time, the income items are reduced to two and a deficit is also offered for the first time.
The practice of the 1814 budget can be assumed as distant as you like from the project approved by the Cortes, without losing any of its political significance or financial novelty through it, to the point that a future absolutist minister will not hesitate to adopt it even though be partial.
1.1 THE BUDGET AS AN ELEMENT OF CONTROL
Control is the systematic effort to match the results with the proposed objectives.
How important is control?
- The dynamics of the environment requires constant monitoring of external changes, which if not detected in time can affect the system.The constant increase in the organizational complexity of the entity forces to increase the control of work in interdependencies, preventing them from being wasted management coordination efforts. Humans make mistakes, so mistakes must be identified before they cause harm.
The Plan and the Control have to work together to achieve efficient results.
Plan Provides the directional sense to achieve the objectives.
Control Focuses on guiding designated activities to achieve these goals.
An effective control system has the following characteristics:
- To be precise. Provide accurate and timely information. To be objective. Clearly understood, accepted by those who are subjected to it. Be focused on strategic points. In which it is possible to expect deviations to occur or cause greater damage.Be economical. Your benefits must be real; be integrated into the workflow. Provide feedback to the point where immediate corrective action can be taken Be flexible. It must assimilate eventualities or unexpected events. Be operational. When there is deviation, it must indicate the action to be taken.
Control can be expressed as the set of procedures, methods and activities that are used to determine if a certain process behaves in its execution in accordance with the budgets, plans, standards, laws or directives that regulate it.
Having made a brief summary about what control is, we can continue with the topic in question, starting from its concept:
Budgets are quantitative forecasts about the future of the company. The preparation of budgets not only helps to forecast the future, but also serves to control and evaluate the management of all parts of the company and to take the pertinent corrective measures that allow improving management results.
These corrective measures can affect the objectives of the company, the means it has, or even the budgets themselves, since sometimes they have to be modified to reconcile what you want to achieve with what you can achieve.
Budgeting is the management tool used for planning and control. Traditionally, budgets were used to calculate and authorize costs, but it is more useful to consider budgets as a management tool that helps achieve objectives (effectiveness) with optimal use of resources (efficiency). To do this, it is convenient that the budget preparation process meets some requirements:
- All those who are responsible for income, costs or investments must participate in the preparation of budgets. When budgets are imposed unilaterally by senior management, they become a source of demotivation. The approval of the integration of all budgets is the responsibility of the top management of the company. For this reason, it is common for the preparation of budgets to require an interactive process through which an attempt is made to reconcile the objectives and perspectives of all those responsible with those of senior management. A certain calendar must be respected so that budgets are approved before the start of the budgeted period. As the budgeted period progresses, it is necessary to inform the revenue managers,costs and investments of the march of reality in relation to the budget, in order to be able to take corrective measures, if deemed appropriate, on time.There must be some type of incentive, material or immaterial, for those responsible who manage to comply the objectives set in their budgets.
Budgets can be made on an annual, monthly, weekly or daily level. They can also be separated for each of the company's units, with the aim of evaluating the performance of each unit.
It is important to clarify that this process serves more than to project the future of the company. In reality, the main objectives of the budget system are:
- Coordinate the general objectives and means with the specific objectives and means of each department of the company. Report on the progress of the company's progress at a global level and at the level of each of its units. Control the level of achievement of the Objectives at a global level and by units Encourage the different employees of the company Take the necessary corrective measures to optimize management results.
1.2 PROCESS FOR PREPARING THE BUDGET
Once the objectives of the company have been defined, at the level of the time horizon covered by the budget and the means that will be available, the process can begin. As illustrated, the process starts with the formulation of the sales forecast and from this the budgets for production, consumption, purchase and the rest of the provisional financial statements are prepared.
In the preparation of the budget, each of the responsibility centers must participate, but it is the management that must set the general guidelines. It is generally the responsibility of the finance department or the management control department to coordinate the budget process and set completion dates and deadlines. Generally, the budgeting process involves tough negotiation phases between the centers, with the aim of coordinating individual objectives with the overall and general objectives of the company, which is why it usually takes several meetings and several repetitions in the calculation of the budget until get the global budget and its acceptance by management. It is very important that it is the management itself who drives the budget to motivate its monitoring by each person in charge,and clearly identify your individual contributions to the business as a whole.
Sales Budget
The preparation of this budget requires determining the units to sell of each product and the sale prices. Normally, this budget is made by the commercial department of the company.
Sales Budget = Sales Forecast * Sales Price
Production Budget
Contains the number of units that will be produced in the period considered. To determine this, it is necessary to know the number of units to be sold and the initial and desirable level as the end of stocks of finished items, in order to determine the units to be produced.
Sales forecast
+ Final Inventory of Finished Items
- Initial inventory
= Production Plan
Raw Material Consumption Budget
Knowing the expected production, the material needs per unit of product and the purchase price of the raw material, the expected consumption of raw material can be determined.
Production plan
* Consumption Standard
= Raw Material Requirement
* Purchase Price of Raw Material
= Budget of Raw Material Consumption
Raw Material Purchase Budget
Based on the expected raw material consumption, purchases can be estimated if the necessary stock levels of materials are set. Finally, with this information and the expected unit prices of each material, the amounts to be purchased can now be calculated.
Raw Material Requirement
+ Final Raw Material Inventory
- Initial Inventory of Raw Material
= Amount of Raw Material to Buy
* Purchase Price of Raw Material
= Budget of Purchase of Raw Material
The material stock budget allows you to forecast the storage space needs and the funds invested in the warehouse. In addition, this budget allows to schedule orders to suppliers in advance.
Direct Labor Budget
This budget is also prepared from the production budget. In order to know its cost, the precise time of direct labor per unit of product and the hourly rate must be taken into account.
In the event that different types of direct labor are involved to produce a product, it must be calculated for each of them. The direct labor budget allows forecasting in advance the needs of this type of personnel to detect surpluses or possible needs.
Production plan
* Consumption Standard
= Total Requirement in Hours
* Salary Rate
= Direct Labor Budget
Indirect Manufacturing Cost Budget
This budget is made up of fixed and variable costs and is made in monetary units.
Indirect Fixed Manufacturing Costs
+ Indirect Variable Manufacturing Costs
= Budget of Indirect Manufacturing Costs
Final Inventory Budget
This budget is calculated for both raw materials and finished items, in the case of raw materials, the ending inventory in monetary units will be the result of the multiplication of the ending inventory in units by the purchase price of this and for the finished items, we already know how much your ending inventory is in units, but we need to know the unit cost of the raw material to make a unit of finished product, so as many budgeted cost sheets as you have products must be made.
Raw Material Finished Items
Final Inventory Final Inventory
* Purchase Price * Unit Cost
= Final Inventory = Final Inventory
U / M Elements Consumption Norm * Price = Unit Cost
Direct Material
Direct Labor
Indirect Manufacturing Cost
The price of the manufacturing overhead is calculated through a rate.
Budgeted CIF Application Rate = Total Budgeted CIF / Total HMOD
Cost of Sale Budget
From the budgets of expected consumption of materials, direct labor, CIF, the cost of sale budget can be calculated, provided that the inventory levels of finished items, both initial and final, are known.
Raw Material Consumption Budget
+ Direct Labor Budget
+ Budget of Indirect Manufacturing Costs
= Manufacturing Cost
+ Initial Inventory of Finished Items
- Final Inventory of Finished Items
= Cost of Sales Budget
Operating Expenses Budget
It is the sum of all the expenses that were incurred.
Selling expenses
+ Administration Expenses
+ Financial Expenses
= Budget of Operating Expenses
Budgeted Income Statement
It is made from the different budgets.
Sales Budget
- Cost of Sales Budget
= Gross Profit
- Budget of Operating Expenses
= Profit in Operations
- Distribution to Workers
= Earnings Before Taxes
- Income taxes
= Budgeted Net Income
1.3 ANALYSIS OF DEVIATIONS
The most relevant part of the deviation analysis is the detailed evaluation of each of the variables that directly and indirectly condition the results obtained. Deviations are calculated from the comparison between forecast and reality.
Variations that are analyzed for standard costs are as follows:
- For Direct Material:
- Variations in Price (PV) Variations in Efficiency (EV)
VP = (PR - PE) * Actual Quantity Purchased
VE = Actual Quantity Used - Standard Quantity Allowed) * PE
Where:
PR Real Price
PE Standard Price
If PR is less than PE and the Actual Quantity Used is less than the Standard Allowable Quantity, the situation is favorable because the actual costs are lower than expected.
When analyzing the deviation in the raw material, the cause of the deviation in the cost may be the amount of raw material consumed, or the price of the same. The deviation in quantity will inform the best or worst performance in the consumption of raw materials (either as a consequence of their use, the quality of the material, or possible theft, for example).
- For Direct Labor: Variations in Price Variations in Efficiency
VP = (TR - TE) * HMOD Really Worked
VE = (HMOD Actually Worked - Standard HMOD Allowed) * TE
Where:
TR Real Rate
TE Standard Rate
HMOD Direct Labor Hours
With this, the efficiency of labor in the production process is measured, which may be due to using more or fewer hours than planned and / or due to being cheaper or more expensive than expected.
The time deviation of the MOD will be favorable or unfavorable depending on the amount of time consumed. When it is unfavorable, it can be basically due to problems of motivation, training (ignorance of the procedures to be used), absenteeism, or the fact that the forecast was made incorrectly.
The economic deviation will be due to differences in the forecast of wages and other components of compensation.
- For Indirect Manufacturing Costs: Variation in one Factor Variation in two Factors Variation in three Factors
- in a factor
VT = (CIFR - CIFA)
CIFA = HMOD Standard Allowed * CIF Standard Total Application Rate
Where:
VT Total Variation
CIFR Indirect Costs of Real Manufacturing
CIFA Indirect Manufacturing Costs Applied
- in two factors
VP = (CIFR - CIFPHMOD Standard Allowed)
CIFPHMOD Standard Allowed = CIFV + CIFQ Budgeted
CIFV = HMOD Standard Allowed * Standard application rate of CIFV
VV = (HMOD of Denominator - Standard HMOD Allowed) * Standard Application Rate of Fixed CIFs
VT = (CIFR - CIFA)
Where:
VP Variation in Budget
CIFPHMOD Standard Allowed Indirect Budgeted Manufacturing Costs
in HMOD Standard Allowed
CIFV Indirect Variable Manufacturing Costs
CIFQ Indirect Fixed Manufacturing Costs
VV Variation in Volume
- in three factors
VP = (CIFR - CIF Budgeted in HMOD Actually Worked)
CIF Budgeted in HMOD Actually Worked = CIFV + CIF Fixed Budgeted
CIFV = HMOD Actually Worked * CIFV Standard Application Rate
VE = (HMOD Actually Worked - Standard HMOD Allowed) * Standard Application Rate of Fixed CIFs
VT = CIFR - CIFA
Indirect Costs can be analyzed in various ways, depending on the type of cost information available.
In the event that the fixed part of the indirect costs variable is not separated, the deviations are analyzed at the cost center level, globally, or by separating the deviation in price from the deviation in quantity.
If indirect costs can be separated into variable and fixed, the variances of both types of cost will be calculated separately. In this way, in the case of variable costs, the deviation in quantity and the deviation in price will be analyzed separately. For fixed costs, budget and volume deviation will be separated.
In the study on deviations, each of the significant deviations is usually reported, first, its expected figure, its real figure, the difference in absolute or relative terms and its rating depending on whether they are considered favorable or unfavorable for the company responsible for such deviation.
Second, those responsible should briefly explain the house, or causes of the deviations.
And, finally, proposals for possible solutions are provided so that the management can make the final decisions and corrective measures. When proposing corrective measures, it is also advisable to indicate the date by which they will be checked whether they have been effective or not.
DEVELOPING
PROPOSAL FOR THE PREPARATION OF BUDGETS and ANALYSIS OF VARIATIONS IN THE FACTORY OF WINDOWS OF LAS TUNAS
The Las Tunas Window Factory presents the following operations:
LAS TUNAS SALES FACTORY
Balance sheet
December 31, 2007
Assets Liabilities
Current Assets $ 4,000.00 Accounts Payable $ 45,000.00
Accounts receivable 19 000.00 Tax payable 10 000.00
Mat. Premiums 25,000.00 Total current $ 55,000.00
Art Completed 32 000.00 Pas. Fixed 35 000.00
Total A.Circ. $ 80,000.00 Total Liabilities $ 90,000.00
Furniture 50 000.00
Building $ 40 000.00 Accounting Cap.
Depreciation 5,000.00 35,000.00 Share capital 200,000.00
Machinery 173 000.00 Retained profit 10 000.00
Depreciation 38 000.00 135 000.00 Tot.cap.contable $ 210 000.00
Total Assets $ 300,000.00 Total Capital Pays $ 300,000.00
Additional Information:
The Company manufactures a single product, where its budgeted sales amount to:
25,000 pcs. with a sale price of $ 120.00
Product requirement:
Costs
Raw Material 3 lts $ 5.00 / lts
Direct Labor 1 hrs 25.00 / hrs
Inventories Mat. Premium X Art. Finished
Initial Inv 500
Final Inv. 7 000 1 200
There is no inventory in process.
Indirect production costs:
Variables $ 60,000.00
Fixed 40 000.00
Total $ 100 000.00
In addition, the selling expenses amount to $ 200,000.00, those of administration $ 150,000.00 and the Financial expenses to $ 50,000.00. The distribution to workers on the profit is 8% and the income tax is 42%.
To calculate the variations in Direct Material, Direct Labor and Indirect Manufacturing Costs, the following information is available:
Direct Material Purchased 90,000 Lts
Direct Material Used in production 75,000 Lts
Real Price per Lts of MD $ 3.00
Real MOD Salary Rate 20.00
Actual MOD Hours Worked 40,000 Hrs
Indirect Manufacturing Costs $ 80,000.00
APPLICATION OF BUDGETS to the window factory of las tunas-
- Sales budget.
| Sales forecast | 25,000 |
| * Sales price | 120.00 |
| = Sales Budget | $ 3,000,000.00 |
The Las Tunas Window Factory expects to obtain revenues of $ 3,000,000.00
- Production Budget.
| Sales forecast | 25,000 |
| + Inv.Final Art.Term | 1 200 |
| - Inv.Inic.Art.Term | 500 |
| Production Budget (Units) | 25 700 |
You have to make 25,700 units.
- Raw Material Consumption Budget
| Production Budget | 25 700 |
| * Consumption Standard | 3 |
| = Raw Material Requirement | 77 100 |
| * Purchase Price of Raw Material | 5.00 |
| Consumption Budget of Raw Material | $ 385 500.00 |
He foresees an expense of $ 385,500.00 for the consumption of raw materials.
- Raw Material Purchase Budget
| Raw Material Requirement | 77 100 |
| + Inv. End of Raw Material | 7,000 |
| - Inv. Raw Material Initial | |
| Amount of Raw Material to Buy | 84 100 |
| * Purchase Price of Raw Material | 5.00 |
| = Budget of Purchase of Raw Material | $ 420 500.00 |
It requires buying $ 420,500.00 of raw material.
- Direct Labor Budget
| Production plan | 25 700 |
| * Consumption Standard | one |
| Total Requirement in Hours | 25 700 |
| * Salary Rate | 25.00 |
| Direct Labor Cost | $ 642 500.00 |
It is anticipated to incur a direct labor cost of $ 642,500.00
- Budget of Indirect Manufacturing Costs
| Indirect Fixed Manufacturing Costs | 40 000.00 |
| Indirect Variable Manufacturing Costs | 60 000.00 |
| Total Budgeted Indirect Costs | $ 100 000.00 |
Indirect manufacturing costs amount to 100,000.00
- Final Inventory Budget
| Final Inventory Finished Items | 1 200 |
| * Unit cost | 43.89 |
| Cost Inv. Final | $ 52 668.00 |
Budgeted Cost Sheet
| Elements | U / M | Consumption Standard | Price | Unit cost |
| Direct Material | Lts | 3 | 5.00 | 15.00 |
| Direct Labor | Hrs | one | 25.00 | 25.00 |
| Indirect manufacturing costs | Hrs | one | 3.89 | 3.89 |
| Unit cost | $ 43.89 |
It should cost the Factory $ 83.89 for each unit of product it manufactures.
CIF Total Application Rate
CIF Budgeted = Total HMOD
= 100 000.00
25 700 HMOD
= $ 3.89 / HMOD
For each HMOD, $ 3.89 of CIF is assigned to the product.
- Cost of Sales Budget
| Raw Material Consumption Budget | 385 500.00 |
| + Budget MOD | 642 500.00 |
| + CIF budget | 100 000.00 |
| Manufacturing Cost | 1 180 668.00 |
| + Inv. Initial of Finished Items | 32 000.00 |
| - Inv. End of Finished Items | 52 668.00 |
| Budgeted Cost of Sale | $ 1,160,000.00 |
The Factory expects to have a budgeted cost of sale of $ 1,160,000.00
- Operating Expenses Budget
| Selling expenses | 200 000.00 |
| + Administration Expenses | 150 000.00 |
| + Financial Expenses | 50 000.00 |
| Budgeted Operating Expenses | 400 000.00 |
The Factory will have an operating expense of $ 400,000.00
- Budgeted Income Statement
LAS TUNAS WINDOW FACTORY
Budgeted Income Statement
December 31, 2007
Sales $ 3,000,000.00
- Cost of Sales 1 160 000.00
Gross Profit 1 840 000.00
- Operations Expenses 400 000.00
Income from Operations 1,440,000.00
- Distribution to Workers (8%) 115 200.00
Earnings Before Interest and Taxes 1 324 800.00
- Income Tax (42%) 556 416.00
Budgeted Net Income $ 768 384.00
Cía Estrella expects to have a Budgeted Net Profit of $ 768 384.00
Analysis of Variations
Direct Material Variations:
VP = (PR - PE) Actual Quantity Purchased
VP = (3.00 - 5.00) 90,000
PV = $ 180,000.00 Favorable
The company in the purchase of the raw material saved $ 180,000.00 in price, by paying
$ 2.00 less per liter for the 90,000 purchased.
VE = (Actual Quantity Used - Standard Quantity Allowed) PE
VE = 75,000 - 75,000
VE = $ 0 No Variation
Standard Quantity Allowed = EE x Quantity Units to Produce
= 3 x 25,000
= 75,000
The Company used the same amount of Direct Material that had been projected for the 25,000 liters.
Direct Labor Variations:
VP = (TR - TE) HMOD Actually Worked
VP = (20.00 - 25.00) 40,000
PV = $ 200,000.00 Favorable
The Company paid $ 5.00 less for HMOD for the 40,000 HMODs that were actually worked.
VE = (HMOD Actually Worked - Standard HMOD Allowed) TE
VE = (40,000 - 25,000) 25.00
EV = $ 375,000.00 Unfavorable
HMOD Standard Allowed = 1 x 25,000
= 25,000
The Company used 15,000 more hours of direct labor than the Standard HMOD Allowed in the production of 25,000 liters; had to use more HMOD to produce one unit.
VT = $ 175,000.00
Variation of the CIF (In a factor)
VT = CIFR - CIFA
VT = 80,000 - 100,000
VT = $ 20,000.00 Favorable
CIFA = Standard HMOD Permitted x CIF Standard Application Rate
CIFA = 25,000 x 4.00
CIFA = $ 100 000.00
CIF Standard Application Rate = 100 000
25,000
= $ 4.00 / HMOD
CONCLUSIONS
Budget
Budgeting and budget control is a powerful management tool that can help calculate and manage costs more efficiently.
Through these we can project ourselves into the future and predict and evaluate our results and performance at the business level.
Deviations
The analysis of deviations is the second part of budgetary control and to be useful it must be done immediately after the corresponding period has ended. Furthermore, the identification of deviations, especially negative ones, must imply the implementation of corrective measures with the consensus of the person responsible for said deviation.
RECOMMENDATIONS
The following recommendations are proposed to the entity:
- It is recommended that entities gradually implement the budget mechanisms until they are fully implemented and adapt them according to their characteristics, since it is considered of vital importance for decision-making. Achieve the adoption of organizational measures in a short time and functional that allow compliance with the regulations established in order to improve the current situation of our entities.
BIBLIOGRAPHY
- AECA: "The Budgetary Process in the Company" Document 4 of the Management Accounting Commission, Madrid, 1993Amat. JM “Budgetary Control”, Ediciones Gestión 2000, Barcelona 1989.Blanco, F. “Accounting of Costs and Management”, Ediciones Deusto, Bilbao, 1993 Chapters 22, 23, 24 and 26.Rosanas, JM and Ballaría, E: “ Cost Accounting for Decision Making ”, Editorial Desclée de brouwer, Bilbao, 1994.Benítez Miranda, MA and Miranda Dearribas, MV. "Accounting and Finance for the Economic Training of Management Tables". Amat, Oriol and Soldevila, Pilar: "Accounting and Cost Management".
