lecture recording on 27 February 2025 at 11.05.41 AM

Chapter 1: Introduction to Lean Production and Joint Product Costing

• Lean Production

  • Goal: Produce just enough to sell, minimizing leftover inventory.

  • Year 1: Operating income remains the same for initial assessment.

  • Year 2 and 3:

    • Anticipation of selling 50,000 units each year based on prior sales.

    • Year 2: Only 40,000 sold, leading to an excess of 10,000 units, affecting production in Year 3.

    • Year 3 linked to Year 2's leftover, limiting production to anticipated sales.

    • Ideal Scenario: Produce and sell one-to-one, avoiding excess inventory.

• Joint Product Costing

  • Challenge: Allocating costs for products derived from a single raw material batch.

  • Distinction:

    • Costs differentiate after the split-off point.

    • Must allocate the total joint product cost among products A, B, and C.

  • Example:

    • Manufacturer produces 200 units of A, 500 of B, and 300 of C.

    • A and C require further processing post-split-off.

  • Total Joint Product Cost: $60,000.

Chapter 2: Cost Plus Product and Allocation Methods

• Net Realizable Value Method (NRV)

  • Formula: Sales Price - Costs to determine net realizable value.

  • Allocate joint cost based on percentage of NRV for A and C only after processing identified.

  • Calculation of net realizable value per product incorporating sales price and processing costs.

• Physical Method

  • Alternative to NRV, based on physical measures (units manufactured).

  • Allocation determined by manufactured units contributing to total joint costs.

• Byproduct Method

  • Focuses on joint products as main revenue sources.

  • Byproducts have minimal value, assessed to bring net realizable value to zero before calculating for main products A and B.

  • Similar allocation process for NRV and physical methods, excluding byproduct value.

Chapter 3: Budgeting and Management Processes

• Budgeting Roles:

  • Planning: Facilitates effective communication within teams.

  • Resource Allocation: Helps identify areas for cost reduction and prioritization.

  • Control: Monitoring performance against budgets aids decision-making.

  • Incentives: Effective budgeting provides motivations for management and employees.

• Human Factors in Budgeting:

  • Upper management's commitment to the budget enhances its credibility.

  • Avoiding pressuring employees about budget shortfalls to foster honest reporting.

  • Setting achievable targets encourages performance alignment with budgeted expectations.

  • Responsibility Accounting: Evaluation based on factors within individual control.

Chapter 4: Production Budgeting Considerations

• Desired Ending Inventory:

  • Consistently set to a percentage of following month’s sales.

  • Example: If 30,000 units are desired ending for June, May's production adjusted accordingly.

• Production Calculations:

  • Calculate production requirements considering existing inventory while planning for future sales.

  • Material inventory strategies based on monthly production needs impact overall budget coordination.

Chapter 5: Materials Requirement and Budgeting

• Materials Requirement Planning:

  • Assess production needs and desired ending inventory for effective material budgeting.

  • Material costs based on production units determine expenditure forecasts.

• Direct Labor Budget:

  • Aligns labor hours with production needs, ensuring minimum hours are compensated in coordination with budgeted hours.

  • Hourly wage determined alongside guaranteed hours per agreement.

Chapter 6: Overhead and Variable Costs

• Overhead Budgeting:

  • Fixed and variable overhead costs calculated based on expected production levels.

  • Cash disbursements for expenses distributed across the production requirement timeline to effectively manage liquidity.

Chapter 7: Conclusion and Future Budgeting Strategies

• Adjustments and Changes in Budgeting:

  • Utilize software tools like Excel for efficient calculation and adjustments in budgetary figures.

  • Emphasize adjustments’ seamless integration to maintain accuracy and minimize errors during financial assessments.

• Preparation for Exam:

  • Engage in prior learning material to solidify understanding of budgeting and costing methodologies.