1 Financial Perspective o how do we look to shareholders o ultimate goal of company is to generate income for its owners company strategy revolves around increasing the company s profits through increasing revenue controlling costs and increasing productivity o KPIs sales revenue growth sales margin gross margin capital turnover RI EPS 2 Customer Perspective o how to customers see us o customer satisfaction is a top priority for long term company success o Ex product price product quality sales service quality product s delivery time o KPIs avg customer satisfaction rating of market share increase in the of new customers of repeat customers rate of on time deliveries 3 Internal Business Perspective o at what business processes much we excel to satisfy customer and financial objectives o 3 factors innovation operations and post sales support o KPIs of new products developed new product development time defect rate manufacturing lead time yield rate of warranty claims received avg customer wait time for customer service avg repair time 4 Learning and Growth Perspective o can we continue to improve and create value o 3 factors employee capabilities information systems capabilities company s climate for action o KPIs hours of employee training employee satisfactions employee turnover of employees with access to real time data of employees suggestions implemented of employees involved in problem solving teams employee rating of communication and corporate culture DM Price Variance AQP AP SP DM Quantity Variance SP AQU SQA The favorable DM price variance might mean the Ring World purchased lower quality alloy at a lower price As a result the company had to use more alloy than the standard allows This accounts for the unfavorable quantity efficiency variance DL Rate Variance AH AR SR DL Efficiency Variance SR AH SHA The unfavorable DL rate variance might mean that Smith hired more qualified return preparers at a higher pay rate As a result the return preparers were able to use fewer hours than the standard allows This accounts for the favorable efficiency variance Cash Budget Beginning cash balance Cash collections from customers Cash available before financing Total cash payments Ending cash balance before financing Minimum cash balance desired Cash deficiency Direct Labor Budget Units to be produced DLH per unit Total DLH needed Cost per DLH Total Direct Labor Cost Standard Cost of Input Quantity Standard x Price Standard DM Price Variance AQP AP SP DM Quantity Variance SP AQU SQA Variable OH Efficiency Variance SR AH SHA 25hr x of changes DL Efficiency Variance SR AH SHA Variable OH Rate Variance AH AR SR DL Rate Variance AH AR SR Fixed MOH Budget Variance Actual Fixed OH Budgeted Fixed OH Fixed MOH Volume Variance Budgeted Fixed OH SHA x SR SQA standard per unit x actual units produced SHA standard per unit x actual units produced 1 The master budget indicated that Water Surf planned to sell 4 pools in April 2 The actual results indicate that Water Surf sold 5 pools in April 3 The flexible budget for performance reports is always based on the actual output for the month This is done so that managers can compare apples to apples meaning they can compare actual revenues and expenses to revenues and expenses they would expect to achieve given the same volume Therefore Water Surf s flexible budget is based on 5 pools 4 The budgeted sales price is 21 800 per pool 5 The budgeted variable cost is 12 400 per pool 6 As the name suggests the flexible budget variance is the difference between the flexible budget and the actual results Since the actual results and the flexible budget are based on the same volume of output this variance highlights unexpected revenues and expenses that are caused by factors other than volume 7 The volume variance is the difference between the master budget and the flexible budget The only difference between these two budgets is the volume of units on which they are based Therefore the volume variance is caused by differences between actual and expected volume Direct Materials Budget Quantity of DM needed for production Desired DM ending inventory Total Quantity of DM needed DM beginning inventory Quantity of DM to purchase Production Budget Units needed for sales Desired ending inventory Total Units needed Units in beginning inventory Units to produce st quantity actually processed x 25 of an hour variable OH st quantity x OH rate 50 Fixed OH st quantity x st fixed OH rate 16 6 Variable OH Rate Variance AH AR SR 671 120 638 000 33120 41400 8 AR if unfavorable incurred more variable MOH Variable OH Efficiency Variance SR AH SHA 25hr x actually processed cases Fixed MOH Budget Variance Actual Fixed OH Budgeted Fixed OH 638 000 627 000 11 000 U Fixed MOH Volume Variance Budgeted Fixed OH St Fixed OH cost St Fixed OH fixed OH allocated in production Payback Period Amount Invested Expected Annual Net Cash Flows o residual value does not affect payback period occurs at end of the year is not taken into account when calc payback period Payback Full years Amount to Complete Recovery in Next Year Projected Cash Inflow Next Year Amount to Complete 1mil earlier of 2 years Projected Cash second of 2 years Accounting Rate of Return Avg Annual Operating Income from Asset Initial Investment o Avg Income avg depr initial invest years o residual value causes depr exp to decrease op income increase o initial invest resid o new years o avg inflow annual depr o avg income initial invest R o R To find IRR investment cash inflows between 2 s Profitability Index Present Val of Net Cash Inflows Investment Order Type of Budget Sales Op Production Op D M Op Budgeted Income Op Cash Payments Fin Combined Cash Fin Budgeted Bal Fin ROI Op Income Total Assets x 100 Sales Margin Op Income Sales Cap Turnover Sales Total Assets ROI Sales Margin x Cap Turnover RI Op Income Total Assets x Target Rate of Return Cash Payments Budget Cash Pay DM Last Month Purch 1st x 45 Next Month Purch 2nd x 55 Cash Pay DL given Cash Pay MOH DL x 160 Cash Pay Op Exp 1st 2nd 3rd Cash Pay Taxes given Total Cash Pay