Short Cut Lecture (Dell's Conflicted Copy 2014-01-25)

8/12/2019 Short Cut Lecture (Dell's Conflicted Copy 2014-01-25)

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Masum, Bangladesh Uni versity of Textil es

The Statement ofCash Flows

THE STATEMENT OF CASHFLOWS Provides information about an entitys

cash receipts and cash payments during a

period.

1)Where did the cash come from duringthe period?

2)What was the cash used for during the

period?

3)What was the change in the cash

balance during the period?


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MEANING OFCASH FLOWSPrepared using cash and cash equivalents as

its basis.

Cash equivalents- short-term, highly liquid

investments that are both:

1)readily convertible to known amounts ofcash

2)so near to their maturity that theirmarket value is relatively insensitive tochanges in interest rates.

Types of Cash FlowsOperating Activities Cash inflows:

From sale of goods or services

From return on loans (interest received) and on

equity securities (dividends received)

Cash outflows:

To suppliers for inventory

To employees for services

To government for taxes

To lenders for interest

To others for expenses


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Types of Cash FlowsInvesting Activities Cash inflows:

From sale of property, plant, and equipment

From sale of debt or equity securities of other entities

From collection of principal on loans to other entities

Cash outflows:

To purchase property, plant, and equipment

To purchase debt or equity securities of other entities

To make loans to other entities

Types of Cash FlowsFinancing Activities Cash inflows:

From sale of equity securities (company's own

stock)

From issuance of debt (bonds and notes)

Cash outflows:

To stockholders as dividends

To redeem long-term debt or reacquire capital

stock


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SignificantNoncash Activities... That do NOTaffect cash are NOTreported

in the body of the statement of cash flows.

Are reported:

In a separate schedule at the bottom

of the statement of cash flows or

In a separate note or supplementary

schedule to the financial statements.


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SignificantNoncash Activities...1. Issuance of common stock to

purchase assets.

2. Conversion of bonds into common

stock.

3. Issuance of debt to purchase assets.

4. Exchanges of plant assets.

COMPANY NAMEStatement of Cash Flows

Period Covered

Cash flows from operating activities

(List of individual items) XX

Net cash provided (used) by operating activities XXX

Cash flows from investing activities

(List of individual inflows and outflows) XX

Net cash provided (used) by investing activities XXX

Cash flows from financing activities(List of individual inflows and outflows) XX

Net cash provided (used) by financing activities XXX

Net increase (decrease) in cash XXX

Cash at beginning of period XXX

Cash at end of period XXX

Noncash investing and financing activities

(List of individual noncash transactions) XXX

The general

format of the

SCF:

Is the 3activities

previously

discussed

operating,

investing, and

financingplus

the significant

noncash investing

and financing

activities.

FORMAT OF STATEMENT OFCASH FLOWS

Square Textiles Example
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USEFULNESS OFTHE STATEMENT OF CASHFLOWS

1)Ability to generate future cash flows.

2)Ability to pay dividends and meet obligations.

3)Reasons for the difference between net income

and net cash provided (used) by operating

activities.

4)Cash invested and financing transactions

during the period.

Copyright 2008, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin

Chapter 8

Activity-Based Costing: A

Tool to Aid Decision Making

Masum, Ban ladesh Universit of Textiles


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8-13 How Costs are Treated UnderActivityBased Costing

ABC differs from traditional cost accounting in three ways.

Manufacturing

costs

Nonmanufacturing

costs

ABC assigns both types of costs to products.

Traditionalproduct costing

ABCproduct costing



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How Costs are Treated UnderActivityBased Costing

ABC does not assign all manufacturing costs to products.

Manufacturing

costs

Nonmanufacturing

costs

Traditional

product costing

ABC

product costing

All

Som

e

ABC differs from traditional cost accounting in three ways.



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Simple count

of the number oftimes an activity

occurs.

Transaction

driver

A measure

of the amountof time needed

for an activity.

Duration

driver

Two common types of activity measures:

How Costs are Treated UnderActivityBased Costing



Chapter 10

Standard Costs and

Balanced Scorecard



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Standard Costs

Standards are benchmarks or norms

for measuring performance. Two types

of standards are commonly used.

Quantity standards

specify how much of an

input should be used to

make a product orprovide a service.

Cost (price)

standards specify

how much should be

paid for each unitof the input.



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Standard Costs

DirectMaterial

Deviations from standards deemed significant

are brought to the attention of management, a

practice known as management by exception.

Type of Product Cost

Amount

DirectLabor

ManufacturingOverhead

Standard



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Variance Analysis Cycle

Prepare standard

cost performance

report

Analyze

variances

Begin

Identify

questions

Receive

explanations

Take

corrective

actions

Conduct next

periods

operations

Exhibit

10-1



10-20

Learning Objective 6

Compute delivery cycle

time, throughput time,

and manufacturing

cycle efficiency (MCE).



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Process time is the only value-added time.

Delivery Performance Measures

Wait TimeProcess Time + Inspection Time

+ Move Time + Queue Time

Delivery Cycle Time

OrderReceived

ProductionStarted

GoodsShipped

Throughput Time



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Delivery Performance Measures

Manufacturing

Cycle

Efficiency

Value-added time

Manufacturing cycle time=

Wait TimeProcess Time + Inspection Time

+ Move Time + Queue Time

Delivery Cycle Time

OrderReceived

ProductionStarted

GoodsShipped

Throughput Time

Masum, Bangladesh University of Textiles


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Quick Check

A TQM team at Narton Corp has recorded the

following average times for production:

Wait 3.0 days Move 0.5 days

Inspection 0.4 days Queue 9.3 days

Process 0.2 days

What is the throughput time(Manufacturing cycle time)?

a. 10.4 days

b. 0.2 days

c. 4.1 days

d. 13.4 days



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Process 0.2 days

What is the throughput time?

a. 10.4 days

b. 0.2 days

c. 4.1 days

d. 13.4 days

Quick Check

Throughput time = Process + Inspection + Move + Queue

= 0.2 days + 0.4 days + 0.5 days + 9.3 days

= 10.4 days



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Quick Check





Process 0.2 days

What is the Manufacturing Cycle Efficiency?

a. 50.0%

b. 1.9%

c. 52.0%

d. 5.1%



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Process 0.2 daysWhat is the Manufacturing Cycle Efficiency?

a. 50.0%

b. 1.9%

c. 52.0%

d. 5.1%

Quick Check

MCE = Value-added time Throughput time

= Process time Throughput time

= 0.2 days10.4 days= 1.9%



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Quick Check





Process 0.2 days

What is the delivery cycle time?

a. 0.5 days

b. 0.7 days

c. 13.4 days

d. 10.4 days



10-28





Process 0.2 days

What is the delivery cycle time?

a. 0.5 days

b. 0.7 days

c. 13.4 days

d. 10.4 days

Quick CheckDelivery cycle time = Wait time + Throughput time= 3.0 days + 10.4 days

= 13.4 days



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End of Chapter 10



Segment Reporting and

Decentralization

Chapter Twelve



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Cost, Profit, and Investments Centers

Responsibility

Center

Cost

Center

Profit

Center

Investment

Center

Cost, profit,

and investment

centers areallknown as

responsibility

centers.Masum, Bangladesh University of Textiles


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Cost Center

A segment whose

manager has control

over costs,but not over revenues

or investment funds.



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Profit Center

A segment whose

manager has control

overbothcosts and

revenues,

but no control over

investment funds.

Revenues

Sales

Interest

Other

Costs

Mfg. costs

Commissions

Salaries

Other



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Investment Center

A segment whose

manager has control

over costs, revenues,and investments in

operating assets.

Corporate Headquarters



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Responsibility Centers

Salty SnacksProduct Manger

Bottling Plant

Manager

Warehouse

Manager

Distribution

Manager

BeveragesProduct Manager

ConfectionsProduct Manager

OperationsVice President

FinanceChief FInancial Officer

LegalGeneral Counsel

PersonnelVice President

Superior Foods Corporation

Corporate HeadquartersPresident and CEO

Cost

Centers

InvestmentCenters

Superior Foods Corporation provides an example of the

various kinds of responsibility centers that exist in an

organization.



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Salty Snacks

Product Manger

Bottling Plant

Manager

Warehouse

Manager

Distribution

Manager

Beverages

Product Manager

Confections

Product Manager





Superior Foods CorporationCorporate Headquarters

President and CEO



organization.

Profit

Centers



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Salty SnacksProduct Manger

Bottling Plant

Manager

Warehouse

Manager

Distribution

Manager

BeveragesProduct Manager

ConfectionsProduct Manager





Superior Foods Corporation

Corporate HeadquartersPresident and CEO

Cost

Centers



organization.



12-38

Learning Objective 1

Prepare a segmented

income statement using

the contribution margin

format, and explain thedifference between

traceable fixed costs and

common fixed costs.



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12-39 Decentralization and

Segment Reporting

Asegmentis any part

or activity of an

organization about

which a manager

seeks cost, revenue,

or profit data. A

segment can be . . .

Quick MartAn Individual Store

A Sales Territory

A Service Center



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Keys to Segmented Income Statements

There are two keys to building

segmented income statements:

A contribution format should be used

because it separates fixed from variable

costs and it enables the calculation of acontribution margin.

Traceable fixed costs should be separated

from common fixed costs to enable the

calculation of a segment margin.



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Identifying Traceable Fixed Costs

Traceable costsarise because of the existenceof a particular segment and would disappearover time if the segment itself disappeared.

No computer

division means . . .

No computer

division manager.



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Identifying Common Fixed Costs

Common costsarise because of the overall

operation of the company and would not

disappear if any particular segment were

eliminated.

No computerdivision but . . .

We still have acompany president.



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Segment Margin

Thesegment margin, which is computed bysubtracting the traceable fixed costs of a segmentfrom its contribution margin, is thebest gaugeof

the long-run profitability of a segment.

Time

Profits



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Traceable and Common Costs

Fixed

Costs

Traceable Common

Dont allocate

common costs to

segments.



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Levels of Segmented Statements

Lets look more closely at the Television

Divisions income statement.

Webber Inc. has two divisions.

Computer Division Television Division

Webber, Inc.



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Our approach to segment reporting uses the

contribution format.

Income Statement

Contribution Margin Format

Television Division

Sales 300,000$Variable COGS 120,000

Other variable costs 30,000

Total variable costs 150,000

Contribution margin 150,000

Traceable fixed costs 90,000

Division margin 60,000$

Cost of goods

sold consists of

variable

manufacturingcosts.

Fixed and

variable costs

are listed in

separate

sections.



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Segment marginis Televisions

contribution

to profits.

Our approach to segment reporting uses thecontribution format.

Income Statement

Contribution Margin Format

Television Division

Sales 300,000$

Variable COGS 120,000

Other variable costs 30,000

Total variable costs 150,000Contribution margin 150,000

Traceable fixed costs 90,000

Division margin 60,000$

Contribution margin

is computed by

taking sales minus

variable costs.



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Income Statement

Company Television Computer

Sales 500,000$ 300,000$ 200,000$

Variable costs 230,000 150,000 80,000

CM 270,000 150,000 120,000

Traceable FC 170,000 90,000 80,000

Division margin 100,000 60,000$ 40,000$

Common costs

Net operating

income



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Income Statement

Company Television Computer

Sales 500,000$ 300,000$ 200,000$

Variable costs 230,000 150,000 80,000

CM 270,000 150,000 120,000

Traceable FC 170,000 90,000 80,000

Division margin 100,000 60,000$ 40,000$

Common costs 25,000

Net operating

income 75,000$

Common costs should not

be allocated to thedivisions. These costswould remain even if one

of the divisions wereeliminated.


Transfer Pricing

Appendix 12A



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Key Concepts/Definitions

A transfer priceis the pricecharged when one segment of

a company provides goods or

services to another segment of

the company.

The fundamental objective in

setting transfer prices is to

motivate managers to act in the

best interests of the overallcompany.



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Three Primary Approaches

There are three primary

approaches to setting

transfer prices:

1. Negotiated transfer prices;2. Transfers at the cost to the

selling division; and

3. Transfers at market price.



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12-53

Negotiated Transfer Prices

A negotiated transfer price results from discussionsbetween the selling and buying divisions.

Advantages of negotiated transfer prices:

1. They preserve the autonomy of the

divisions, which is consistent with

the spirit of decentralization.

2. The managers negotiating the

transfer price are likely to have much

better information about the potentialcosts and benefits of the transfer

than others in the company.

Upper limit is

determined by the

buying division.

Lower limit is

determined by the

selling division.

Range of Acceptable

Transfer Prices



12-54

Harris and LouderAn Example

Imperial Beverages:

Ginger beer production capactiy per month 10,000 barrels

Variable cost per barrel of ginger beer 8 per barrel

Fixed costs per month 70,000

Selling price of Imperial Beverages ginger beer

on the outside market 20 per barrel

Pizza Maven:

Purchase price of regular brand of ginger beer 18 per barrel

Monthly comsumption of ginger beer 2,000 barrels

Assume the information as shown with

respect to Imperial Beverages and Pizza

Maven (both companies are owned by Harris

and Louder).



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The selling divisions (Imperial Beverages) lowest acceptable transferprice is calculated as:

Variable cost Total contribution margin on lost sales

per unit Number of units transferredTransfer Price +

Transfer Price Cost of buying from outside supplier

The buying divisions (Pizza Maven) highest acceptable transfer price is

calculated as:

Lets calculate the lowest and highest acceptable

transfer prices under three scenarios.

Transfer Price Profit to be earned per unit sold (not including the transfer price)

If an outside supplier does not exist, the highest acceptable transfer price

is calculated as:



12-56


If Imperial Beverages has sufficient idle capacity(3,000 barrels) to satisfy

Pizza Mavens demands (2,000 barrels), without sacrificing sales to other

customers, then the lowest and highest possible transfer prices are

computed as follows:

0

2,000 = 8Transfer Price +8

Selling divisions lowest possible transfer price:

Transfer Price Cost of buying from outside supplier = 18Buying divisions highest possible transfer price:

Therefore, the range of acceptable

transfer price is 818.



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If Imperial Beverages has no idle capacity(0 barrels) and must sacrifice other

customer orders (2,000 barrels) to meet Pizza Mavens demands (2,000

barrels), then the lowest and highest possible transfer prices are computed

as follows:

( 20 - 8) 2,000

2,000= 20Transfer Price +8


Transfer Price Cost of buying from outside supplier = 18

Buying divisions highest possible transfer price:

Therefore, there is no range of

acceptable transfer prices.



12-58


If Imperial Beverages has some idle capacity(1,000 barrels) and must

sacrifice other customer orders (1,000 barrels) to meet Pizza Mavens

demands (2,000 barrels), then the lowest and highest possible transfer prices

are computed as follows:

Transfer Price Cost of buying from outside supplier = 18Buying divisions highest possible transfer price:

Therefore, the range of acceptable

transfer price is 1418.


( 20 - 8) 1,000

2,000 = 14Transfer Price

+8



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Transfers at the Cost to the Selling Division

Many companies set transfer prices at either

the variable cost or full (absorption) cost

incurred by the selling division.

Drawbacks of this approach include:

1. Using full cost as a transfer price

and can lead to suboptimization.

2. The selling division will never

show a profit on any internal

transfer.

3. Cost-based transfer prices do not

provide incentives to control

costs.



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Transfers at Market Price

A market price(i.e., the price charged for an

item on the open market) is often regarded as

the best approach to the transfer pricing

problem.

1. A market price approach works

best when the product or service

is sold in its present form to

outside customers and the

selling division has no idle

capacity.

2. A market price approach does

not work well when the selling

division has idle capacity.



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Divisional Autonomy and Sub optimization

The principles ofdecentralization suggest

that companies should

grant managers autonomy

to set transfer prices and

to decide whether to sell

internally or externally,

even if this may

occasionally result in

suboptimal decisions.

This way top management

allows subordinates to

control their own destiny.



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International Aspects of Transfer Pricing

Transfer Pricing

Objectives

DomesticGreater divisional autonomy

Greater motivation for managers

Better performance evaluation

Better goal congruence

InternationalLess taxes, duties, and tariffs

Less foreign exchange risks

Better competitive position

Better governmental relations



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End of Chapter 12


Short Cut Lecture (Dell's Conflicted Copy 2014-01-25)

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