Accounting

14. Selling costs are the costs necessary to market and distribute a product or service.

15. Fixed costs are expenses that are clearly related to production or manufacturing.

16. Cost centre is a unit of activity in an organization for which costs are calculated separately.

17. Variable costs do not change according to the production volume.

18. Breakeven point is the sales volume at which a company makes neither a profit nor a loss.

19. Rent represents direct fixed costs.

20. Target costing is a method of determining the cost of a product or service based on the price that customers are willing to pay.

 

9.5 Language practice

9.5.1  Match the English terms in the left-hand column with the    definition in the right-hand column.

 

1	Cost	A	A period of time in which all costs are variable.
2	Fixed cost	B	The market value, or agreed exchange value, that will purchase a definite quantity, weight, or other measure of a good or service.
3	Indirect costs	C	Information that can be used to evaluate or correct the steps being taken to implement a plan.
4	Administrative costs	D	A product-costing method that assigns all manufacturing costs to a product: direct materials, direct labor, variable overhead, and fixed overhead.
5	Long run	E	A detailed plan that outlines all sources and uses of cash.
6	Management by exception	F	All costs associated with the general administration of the organization that cannot be reasonably assigned to either marketing or production.
7	Break-even point	G	These are also known as Overhead Costs and are all those costs incurred in the organization which cannot objectively be allocated to specific output, e.g. rent, insurance, supervision etc.
8	Master budget	H	Departure from prescribed internal control. Often expressed as a rate at which the departure occurs.
9	Pricing	I	The cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organization. A cost is the monetary value of all economic resources used in production of a good or service.
10	Overhead	J	Locations or functions which are readily identifiable and against which costs can be charged.
11	Selling price	K	The point where total sales revenue equals total costs; the point of zero profits.
12	Marginal cost	L	Costs that, in total, are constant within the relevant range as the activity output varies.
13	Feedback	M	The collection of all area and activity budgets representing a firm's comprehensive plan of action.
14	Cost centre	N	The process of determining what a company will receive in exchange for its products.
15	Cash budget	O	All production costs other than direct materials and direct labor.
16	Deviation	P	The change in total cost that arises when the quantity produced changes by one unit.
17	Absorption costing	Q	Practice whereby only the information that indicates a significant deviation of actual results from the budgeted or planned results is brought to the management's notice.

 

9.5.2 Complete the following texts using the suitable words or phrases from the box.

 

 

 

Text 1

 

A	types of plan	E	identify
B	an annual basis	F	tactical objectives
C	long-term	G	performance and the progress
D	future	H	strategic objectives

                     

                       Long-Term and Short-Term Plans

       Good management involves not only reviewing past ____(1)____ of current work but also looking ahead to the ____(2)____ requirements of the business. A successful business is one which can ____(3)____ and anticipate market changes and plan accordingly. To do this the organization requires two ____(4)____, one long-term which sets out ____(5)____ of the firm, and one short-term which details the ____(6)____ for the coming financial period. Long-term plans are expressed in general terms and cover periods of at least five years. To achieve the ____(7)____ strategic objectives the business requires a series of tactical plans devised on ____(8)____. The detailed plan of action is usually referred to as the budget.

 

Text 2

 

A	budget	E	constantly
B	concentrate on	F	expected income
C	monetary terms	G	responsibility
D	budget plans	H	budgetary control

 

Budgetary Control

       A budget is a plan quantified in ____(1)____, prepared and agreed in advance, showing the ____(2)____ and expenditure over a given period of time. The main purpose of ____(3)____ is to plan and control the organization's activities. The ____(4)____ is a plan for action in the next financial period. It can be used to delegate ____(5)____ to departments and allow senior management to ____(6)____ investigating major deviations from the plan. Performance is ____(7)____ monitored against the ____(8)____ and feedback is an important part of the budgetary process.

 

9.5.3 Complete the text. Replace the Russian words and phrases by the English equivalents.

Planning

       Budgeting is a управленческая функция and not simply an учетная функция . Все уровни управления should be вовлечены на какой-либо стадии in the setting of the budget proposals. The overall ответственность за координирование and final publication бюджета will be the budget committee, but the budget should be подготовлен at departmental level. The budget officer (probably a management accountant) will collate the различные бюджеты into a мастер-бюджет. Торговая смета is the starting point для всех бюджетов as рыночный спрос is often the key or limiting factor. Этот бюджет является точкой отсчета for the other departmental budgets. Бюджет продвижения товара от производителя к производителю will include the затраты по достижению the planned sales level: sales staff required, комиссионные, транспорт, distribution costs and реклама. Бюджет производственных затрат will detail the производственная мощность and емкость складских помещений  required to achieve the agreed выход продукции. Бюджет административных расходов will include all expenses not covered by sales or production and  будет включать все другие накладные расходы, research and development costs etc. The master budget will then be translated into three parts: a 'кассовый бюджет', a 'profit and loss' budget and a прогнозируемый баланс. When adopted by the Board of Directors the master budget доводится до сведения to all departments. It становится планом for the forthcoming period.

 

9.5.4 Text for discussion.

a. Look up the dictionary or Unit 9 Glossary for the meaning and pronunciation of the following words and word-combinations and use them to discuss the problems outlined in the text.

Management by exception, the agreed budget, a deviation, an over-or-under-expenditure, variances, variance analysis, adverse, to highlight, remedial action, yardsticks, ratio analysis, economic variables, cost of money, original assumptions, in the framework.        

b. Briefly scan the text and outline the list of major points.

c. Read the text more carefully and comment on the following items:

-   the importance of control;

-   the main features of budgetary control;

-   the difference between the variance analysis and the ratio analysis;

-   the impact of critical economic variables on business.

 

Control

       Control is based on the concept of management by exception, i.e. the investigation of items which deviate from the agreed budget. This is done by comparing the actual costs with the budgeted costs to identify an over-or-under-expenditure. The differences are known as variances and their investigation as variance analysis.

       The financial period will be divided into several shorter periods for control purposes. These are normally monthly but can be shorter or longer as the case demands. Where actual costs are greater than budgeted costs the term unfavorable (or adverse) is used and if actual costs are below budget the variance is favorable. The aim of variance analysis is to highlight areas requiring immediate attention. Once a variance has been investigated and its cause identified, remedial action can be taken.

       The budget provides a series of yardsticks or standards against which performance can be measured. The actual performance can be evaluated with the use of ratio analysis. Unfortunately the economic world is full of variables, some of which will be critical to each firm's performance.  Critical variables might include inflation, the cost of money, market demand, cost of raw materials, etc. over which the firm may have little control. Evaluation, therefore, must be done in the context of the original assumptions and in the framework of what was possible under the given circumstances.

 

9.6 Render the passage in English using the English equivalents of the italicized phrases given in Russian. Express the main idea of the passage in one sentence.

   

       Учет затрат включает подсчет затрат на (calculating the costs of) различные товары и услуги, для того чтобы (so that)  менеджеры компании могли знать, какую цену устанавливать на (to charge for) определенные продукты и услуги и какие из них наиболее прибыльные. Прямые затраты -  это те (are those), которые можно прямо соотнести с (can be directly related to)  производством единиц продукции (units of a product). Их легко подсчитать. Примером могут быть производственные (manufacturing) материалы и зарплата производственных рабочих (manufacturing wages). Но существуют еще и  косвенные затраты или накладные расходы, которые нельзя прямо соотнести с производственным процессом или единицами продукции. Примером могут служить аренда или налог на собственность компании (rent or property taxes for the company), электричество для освещения и отопления (electricity for lighting and heating), техническое обеспечение (the maintenance department), заводская столовая (the factory canteen), зарплата менеджеров и т.д.

      Компании также различают (differentiate between) постоянные затраты и переменные затраты. Постоянные затраты не меняются в краткосрочном периоде, даже если уровень производства меняется (аренда и выплата процентов (interest payments)). Переменные затраты меняются пропорционально (in proportion to) объему (volume) производства (сырье и комплектующие части, сверхурочные (components, overtime payments)).

 

 Unit 9  Glossary

ABSORPTION COSTING: A product-costing method that assigns all manufacturing costs to a product: direct materials, direct labor, variable overhead, and fixed overhead.

 

ACTIVITY-BASED BUDGETING SYSTEM: In activity-based budgeting, the workload (demand) for each activity is estimated and the resources required to sustain this workload are established. 

ACTIVITY-BASED COSTING:  A cost assignment approach that first uses direct and driver tracing to assign costs to activities and then uses drivers to assign costs to cost objects.

 

ACTIVITY-BASED MANAGEMENT: A system-wide, integrated approach that focuses management's attention on activities with the objective of improving customer value and the profit achieved by providing this value. It includes driver analysis, activity analysis, and performance evaluation, and draws on activity-based costing as a major source of information.

 

ACTUAL COSTING:  An approach that assigns actual costs for direct materials, direct labor, and overhead to products.

 

ADMINISTRATIVE COSTS: All costs associated with the general administration of the organization that cannot be reasonably assigned to either marketing or production.

 

ALLOCATION: Assignment of indirect costs to cost objects. Distribution according to a plan. Depreciation, amortization, and depletion are methods to allocate costs to periods benefited.

 

APPLIED OVERHEAD:  Overhead assigned to production using predetermined rates.

BASE PERIOD: A prior period used to set the benchmark for measuring productivity changes.

 

BENCHMARKING: An approach that uses the best practices as the standard for evaluating activity performance.

 

BREAKEVEN POINT: The point where total sales revenue equals total costs; the point of zero profits.

 

BREAK EVEN ANALYSIS: It is used to determine how much sales volume your business needs to start making a profit. The breakeven analysis is especially useful when you're developing a pricing strategy, either as part of a marketing plan or a business plan. To conduct a breakeven analysis, use this formula: Fixed Costs divided by (Revenue per unit - Variable costs per unit)

 

BUDGET COMMITTEE: A committee responsible for setting budgetary policies and goals, reviewing and approving the budget, and resolving any differences that may arise in the budgetary process. 
 
BUDGET DIRECTOR: The individual responsible for coordinating and directing the overall budgeting process.

 

BUDGETS: Plans of action expressed in financial terms. 

CAPITAL BUDGETING: The process of making capital investment decisions. 

CASH BUDGET: A detailed plan that outlines all sources and uses of cash. 

CERTIFIED GENERAL ACCOUNTANT (CGA): An accountant who holds the CGA designation after satisfying the examination and practice requirements. CGAs are found both in public practice and in private- and public-sector organizations.

 

CERTIFIED MANAGEMENT ACCOUNTANT (CMA): An accountant who holds the CMA designation after satisfying the entrance examination, the professional program, and experience requirements. CMAs are found primarily in private- and public-sector organizations. 
 
CONTINUOUS BUDGET: A moving 12-month budget with a future month added as the current month expires.

 

CONTRIBUTION MARGIN: Sales revenue minus total variable cost or price minus unit variable cost. It is the marginal profit per unit sale. It is a useful quantity in carrying out various calculations, and can be used as a measure of operating leverage. Typically, high contribution margins are prevalent in the labor-intensive tertiary sector while low contribution margins are prevalent in the capital-intensive industrial sector. 

CONTROL: The process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance has deviated significantly from planned performance. 
 
CONTROL ACTIVITIES: Activities performed by an organization to prevent or detect poor quality (because poor quality may exist). 
 
CONTROL COSTS: Costs incurred from performing control activities. 
 
CONTROLLER: The chief accounting officer, who supervises all accounting departments and activities.

 

COST: The cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organization. A cost is the monetary value of all economic resources used in production of a good or service.

 

COST ACCOUNTING: information is designed for managers. Since managers are taking decisions only for their own organization, there is no need for the information to be comparable to similar information from other organizations. Instead, the important criterion is that the information must be relevant for decisions that managers operating in a particular environment of business including strategy make. Cost accounting information is commonly used in financial accounting information, but first we are concentrating in its use by managers to take decisions. The accountants who handle the cost accounting information generate add value by providing good information to managers who are taking decisions. Among the better decisions, the better performance of your organization, regardless if it is a manufacturing company, a bank, a non-profit organization, a government agency, a school club or even a business school. The cost-accounting system is the result of decisions made by managers of an organization and the environment in which they make them.

  
COST ASSIGNMENT: The process of associating the costs, once measured, with the units produced.

 

COST CENTRE: A responsibility centre in which a manager is responsible only for costs. Locations or functions which are readily identifiable and against which costs can be charged.

 

COST MEASUREMENT: The act of determining the dollar amounts of direct materials, direct labor, and overhead used in production. 
 
COST OF GOODS MANUFACTURED: The total cost of goods completed during the current period. 

 

COST OF GOODS SOLD: The cost of direct materials, direct labor, and overhead attached to the units sold.

 

COST OF GOODS SOLD BUDGET:  The estimated costs for the units sold.

 

COST UNIT:  The actual product or service being produced, e.g. in car manufacture the vehicle would be the cost unit whereas for a car-hire firm it may be the rental-mile.

 

DECISION MAKING: The process of choosing among competing alternatives. It can be regarded as the mental processes (cognitive process) resulting in the selection of a course of action among several alternative scenarios. Every decision making process produces a final choice. Cost factors help in the assessment of alternative courses of action which face the business in the future, including expansion plans.

 

DEVIATION: Departure from prescribed internal control. Often expressed as a rate at which the departure occurs.

  
DIRECT COSTS: Costs that can be easily and accurately traced to a cost object. These are costs which can be directly identified with the item or service being produced such as raw materials and labor specific to the task, e.g. the cotton cloth used in making a shirt and the machinist's time to cut and sew it.

 

DIRECT FIXED EXPENSES: Fixed costs that are directly traceable to a given segment and, consequently, disappear if the segment is eliminated. 
 
DIRECT LABOUR: Labor that is traceable to the goods or services being produced.

 

DIRECT LABOUR BUDGET: A budget showing the total direct labor hours needed and the associated cost for the number of units in the production budget.

 

DIRECT MATERIALS: Materials that are traceable to the goods or services being produced.

 

DIRECT MATERIALS PURCHASES BUDGET: A budget that outlines the expected usage of materials for production and purchases of the direct materials required.

 

DIRECT METHOD: A method that allocates service costs directly to producing departments. This method ignores any interactions that may exist among support departments.

 

EXPENSES:  Expired costs.  

FAVOURABLE VARIANCES: (F) Variances produced whenever the actual amounts are less than the budgeted or standard allowances. 
 
FEEDBACK:        Information that can be used to evaluate or correct the steps being taken to implement a plan.