Idadctyva

Archive for November, 2010

The main goal of alternative types of cost accounting is to provide the organization an realistic view of the cost of goods that it sells. Although Standard cost accounting offers this, it differs because it also focuses on performance measurement and management. standard costing provides a cost objective that Leadership is able to use to evaluate the performance of the firm and its’ processes.

Many companies which use standard cost accounting utilize it to manage by variance. This approach requires thorough variance analysis at all levels. The types of variances which are routinely measured are:

Purchase price Variance (PPV): Dependant upon the software program, PPV may have numerous components. Typically, it is the difference between the price on the Purchase Order (PO) and the standard cost of the item. The other most typical element of PPV is the difference between the invoice from the supplier and the PO.

Closed Work Order Variance (CWO): The CWO variance will be the difference between the standard cost associated with the item being produced and the actual costs charged to the work order. Depending on the system CWO variances might have numerous components, as well. Most computer systems that handle work orders will distinguish between the types of costs issued to the work order. These are typically Materials, Direct Labor, Factory Burden, and Outside Processing. Within Factory Burden, some systems also distinguish between Variance Burden, Fixed Burden and Material Burden.

Direct Labor Application Variance: The Direct Labor variance will be the difference between the actual Direct Labor incurred and the Direct Labor charged to work orders.

Factory Burden Application Variance: The Factory Burden variance will be the difference between the actual Factory Burden incurred and the Factory Burden charged to work orders. In most systems Factory Burden is split up into a number of sub-categories such as variable overhead, fixed overhead and material burden and each of the sub-categories need its’ own analysis to look for the drivers of the variances.

Management by Variance

Management by variance is the method of financial review in which the emphasis of the analysis is on the variances from budget and standard.

The flow of the review is driven by how the firm sees its’ products and markets. Among the most common classifications to go through during the review are product line/family/group, job, or location. For the sake of discussion, let’s assume that product line will be the logical group. For every product line, the person doing the anaysis will have to present production & sales data relating to the specific groups in addition to variance analysis tables much like those listed in the prior section.

Numbers, on the other hand, are nearly meaningless with no narrative to paint the picture behind the numbers. The person preparing the analysis must not only show the numbers, but examine the drivers of the variances, both positive and negative. This allows the business to plan and carry out modifications to offset ongoing drivers of negative variances or, maybe, to further capitalize on operational changes which have shown positive variances by rolling them out into other areas.

For example, utilizing the illustrations from the prior section, if the decrease from the standard 2 hour to produce a widget to the actual 1.75 hours was because of the purchase of newer, faster machines, then it quantifies the cost savings associated with the improvement that was put in place. On the other hand, the rise in materials usage could be because of training issues associated to employee turnover, or changes in materials to improve yield, quality or cost and is in need or rigorous analysis.

At the end of the review, all participants should be clear on where the financial statements stand, exactly what the drivers are (both positive and negative), and know all of the action items to be tackled at a later meeting.

For more information please visit Instant Controller

You may want to compare auto insurance companies before you decide on one, but where do you start? Yes, it’s quite difficult to make a decision. It has become so confusing nowadays, but if correct guidelines would be followed then it would become less harder.

Finding low-cost auto insurance rates in California has never been easier. Jumping from one company to another just to find out which one has a good rate definitely takes much effort. And being patient is just one of the main factors a buyer must possess in looking for best insurance company ratings. Become educated in the art of comparing insurance companies. Ratings must be observed painstakingly before committing with a certain insurer. This must be done to avoid such regrets in the future times. Auto insurance isn’t that easy to understand, as it is to decide on what is the best auto insurance policy to choose. This includes various factors that are advised to be considered properly.

No insurance companies are the same. They greatly vary on their respective offers. Some offer basic, with no excellent feature all while other insurance companies offer more coverage than you could imagine.

Local car insurance available in California:
Los Angeles, San Diego, San Jose, San Francisco, Long Beach, Fresno, Sacramento, Oakland, Santa Ana and Anaheim

Learn the tactics and what it takes to locate the cheapest rates when there are so many choices. Though the main goal here is to avail inexpensive auto insurance but the reputation and stability of the company must not be overlooked.

The users of accounting information include company owners, managers, investors, creditors, and government agencies. It is generally acknowledged that most financial reporting is “primarily externally oriented” and most of the users are non accountants who get frustrated trying to understand the statements. Since they are not part of the management team, they more or less are looking from the outside in.

Despite the many accounting associations from the Accounting Principles Board to the American Institute of Certified Public Accountants to the Financial Accounting Association that established the Financial Accounting Standards Board, there continues to be alternative ways of reporting which adds to the confusion and limitations of financial reporting.

Recognizing and Reporting Methods:

FIFO vs. LIFO:

FIFO and LIFO are two of the major methods of reporting transactions. Because these are alternative methods left to the discretion of the entities, two similar companies in the same industry could report the same transactions for similar goods and arrive at two separate conclusions. The FIFO method assumes that earliest goods purchased are the first to be sold. The LIFO method assumes that the latest goods purchased are the first to be sold “as a result the first cost assigned to ending inventory are the costs of the beginning inventory.” So goods purchased in September can be included in a prior month’s cost of goods sold. This method, though acceptable alters final reporting for better or for worse.

ACCRUAL vs. CASH:

Under current generally accepted accounting principles, financial accounting is backward looking. By reporting past transactions that rely on accrual accounting to conform to the matching principle, financial statements do not account for how much of the outstanding debit accrued under accounts receivable will actually be collected. This could mislead non accountants into over estimating assets in the immediate period after the release of a report because the adjustments due to non collection are done much later. In this scenario, a report released at the end of the year may project that a firm has $10,000.00 in accounts receivable. That projects $10,000.00 more in the asset column of the firm. This may give a more positive outlook when in actuality the firm may end up recouping only $3,000.00 of its account receivable. An investor attracted to the company on the basis of its strong outlook may be disappointed to find out later that in trying to collect on the accounts receivable only one-third was actually obtained. This weakness was the reason of the now defunct cash basis versus the current accrual basis. In the cash basis accounting, revenue or expenses were recorded when actual units of measurement (money) exchanged hands.

SUBJECTIVE vs. OBJECTIVE REPORTING:

A greater existing flaw in financial accounting is the subjective latitude given to accountants preparing financial statements to use their “professional” judgment. This flaw gives some accountants the latitude to manipulate reports as we witnessed in the Enron debacle of 2001. Business transactions between entities, people or business, are concrete events that are recorded. In the Unites States for example, the unit for measuring these events is the dollar. As a result, there should be no basis subjective judgment when reporting an empirical event or transaction. It is odd that different accountants should reach different acceptable conclusions for the same event. This creates room for more questions and further skepticism from the public. As a quantifiable unit of measurement, a dollar amount should always be the same no matter how it is reported.

LESSONS FROM OTHER DISCIPLINES: ECONOMICS

The above mentioned flaws do not exhaust the list of limitations of financial statements which among others include quantitative versus qualitative values in reporting; the principle of cost which does not reflect current market value after an asset is purchased; and the inability to compare firms in the same industry because of different reporting methods for example Coke and Pepsi.

Economists have their share of inconsistencies, most of them over the future effects of policy. Financial reporting however is backward looking. It reports events that already took place. But when it comes to measuring quantitative values, the kind accountants handle in reporting, economists have a more unified angle from which to measure transactions. For example, in computing the price elasticity of demand which measures the responsiveness of quantity demanded to a change in price, economists realized that the price elasticity going from point A to point B was not the same with going from point B to point A, a mathematical approach. So they developed the midpoint method for measuring elasticity which gives the same answer regardless of the direction of change.

Pets are considered a part of the lives of their owners, who treat them as companions and best friends. Like humans, pets too are susceptible to illness and diseases that demand expert medical attention. Therefore, it is advisable for the pet owners to update themselves about the ailments that their pet can come across and the expenses related to the treatment involved. A pet can come into harm’s way by various ways, including bee stings, allergic reactions, swallowing a foreign object, and breaking a bone. These situations require expert veterinary attention and may cost the owners more than their estimated cost. Pet health insurance takes care of all such unexpected medical expenses related to the pet and provides the pet owner peace of mind.

Pet health insurance covers unexpected illnesses and accidents as well as routine care expenses. There are many different pet health insurance plans available in the market that can be designed to provide complete or minimum coverage. A complete coverage plan will typically cover accidental injuries, emergencies, and illnesses along with office visits, prescriptions, diagnostic tests, x-rays, and lab fees. It is also possible for pet owners to choose options to cover vaccination and routine care.

Most of the pet health insurance providers allow the pet owners to take their pets to any licensed veterinarian or specialist worldwide. They require the pet owners to agree to a deductible that pet owners have to pay from their end when they file for a claim. The insurance company also considers a pre-existing condition, which means any illness, accident or injury that has been contracted or appeared prior to the effective date of the policy. In such a case, the pet health insurance provider requires a copy medical history of the pet, including all lab reports. However, ordinarily pet health insurance providers do not require the pet owner to submit a medical history of their pets prior to enrollment.