Document N° R101V8034

Syllabus

Course : Budgeting and Costs

Programs : Tri-Continental Master in Business Management V
Date : From October 11th to November 16th, 2018
Credits : 2.00
Professor : Eduardo Villa Luna
E-mail : evillal@pucp.pe
Telephone : (511) 626-7100

I. General Description

Administrative management consists of two important moments: that prior to the action that
corresponds to the time when decisions are made and translated into plans and budgets and
subsequent to the action, the evaluation of the decisions, and that which corresponds to
Control and translates into costs. This course deals with those two moments and how
managers obtain valid information for their management.

II. United Nations Development Program (UNDP)

Principles for a Responsible Management Education

As institutions of higher education involved in the development of current and future
managers, we declare our willingness to progress in the implementation, within our
institution, of the following Principles, starting with those that are more relevant to our
capacities and mission. We will report on progress to all our stakeholders and exchange
effective practices related to these principles with other academic institutions:

Principle 1: Purpose.
We will develop the capabilities of students to be future generators of sustainable value for
business and society at large and to work for an inclusive and sustainable global economy.

Principle 2: Values.
We will incorporate into our academic activities and curricula the values of global social
responsibility as portrayed in international initiatives such as the United Nations Global
Compact.

Principle 3: Method.
We will create educational frameworks, materials, processes and environments that enable
effective learning experiences for responsible leadership.
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Principle 4: Research.
We will engage in conceptual and empirical research that advances our understanding about
the role, dynamics, and impact of corporations in the creation of sustainable social,
environmental and economic value.

Principle 5: Partnership.
We will interact with managers of business corporations to extend our knowledge of their
challenges in meeting social and environmental responsibilities and to explore jointly
effective approaches to meeting these challenges.

Principle 6: Dialogue.
We will facilitate and support dialog and debate among educators, students, business,
government, consumers, media, civil society organizations and other interested groups and
stakeholders on critical issues related to global social responsibility and sustainability.
We understand that our own organizational practices should serve as example of the values
and attitudes we convey to our students.

CENTRUM Católica was one of the first 100 organizations to sign the United Nations Global
Compact's Principles for Responsible Management Education (PRME).

Sustainable Development Goals (SDG).

At the UN Sustainable Development Summit in 2015, the Member States approved the 2030
Agenda, https://goo.gl/GBT8vd () that includes a set of 17 Sustainable Development Goals
(SDGs) to eradicate poverty, protect the planet, and ensure prosperity. These are:
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III. Learning Objectives

Overall Objectives.
 Provide accounting and financial tools that enable making decisions and exercising
managerial control in an organization, as well as basic concepts of the control and
budgeting system, so that participants become familiar with its contents and are able
to perform the analysis and interpretation of information, the control and decision
making.
 Analyze the impact on the various stakeholders of the bad accounting practices
through the study of cases like Enron and World Finance, Bristol Meyers, etc.

Specific Objectives.
 Recognize the various types of costs and understand their purpose in decisions and
control.
 Identify the differences among cost, price and value and the importance of creating
value.
 Understand and relate the notions of cost-volume-profit and breakeven point.
 Recognize and evaluate uncertainties in decision-making and results.
 Recognize and properly apply costing by job order and by process.
 Recognize and differentiate the concepts of actual, normal and budgeted cost.
 Understand costing based on activities and on the client.
 Recognize basic concepts of budgets and relate the characteristics of the various
forms of budget variation with their impact on administrative control
 Identify and analyze the effects on income from inventory costing.
 Recognize the cost functions and analyze learning curves.
 Understand the meaning of relevance and analyze management behavior.
 Recognize and analyze pricing decisions and relate alternative approaches.
 Recognize and understand cost allocations and their limitations in analysis.
 Recognize and evaluate different administrative control systems.

IV. Competencies

The student will:

 Use conceptual thinking beyond the management of numbers.

 Make a proper economic analysis for management decision making.
 Understand the control function as a means of obtaining goals.
 Work as a team following individual preparation.
 Have oral and written management communication.
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V. Methodology

The participants are required to read the assigned readings in advance of each session in order
to achieve an active participation in class and a critical analysis of the course material.

The course methodology is highly participatory and it is goal-oriented. The grading will be
calculated as follows:

Contribution to the class.

The active participation of the students through critical commentaries on the readings, the
application of cases and exercises, and the discussion of their own experiences related to the
topics covered in class is encouraged throughout the course.

Tests.
The students will take tests related to the readings assigned to the course without prior notice.

Final exam.
The purpose of the test is to make a final review of the topics covered and assessment of each
student's knowledge on the subjects, both theoretical and practical.

Final applied assignment.

This is a unifying assignment. The students must submit it on the date set by the professor.

VI. Evaluation System

The final grade will be based on a weighted average of the following:

Individual evaluations
Contribution to the class 25%
Tests 25%
Final Exam 25%

Group evaluations
Final applied assignment 25%

Total 100%
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VII. Detailed Contents

Session 1.
Cost – Value – Price and the Role of Accounting
 Conceptual differences among the concepts of Cost, Value and Price
 Profit. Creating value. Value of executives. The path to failure passes through
success
 The roles of the accountant and the manager
 Differences between financial accounting and accounting for managers
 Strategic Decisions
 Cost-benefit focus
Readings.
Quelch, J.A., & Kenny, D.. (1994). Extend Profits, Not Product Lines. Harvard Business
School No. 94509-PDF-ENG [Article]. Boston, MA: Harvard Business School
Publishing.
Session 2.
Introduction to the terms and purposes of costs
 Direct and indirect costs. Cost factors and management
 Total and unit costs. Variable and fixed. Average cost
 Costs of production and of the period. Classification of costs
Readings.
Marburger, D., & Peterson, R. (2013). What Matters and What Doesn’t: Relevant Revenues
and Costs. Harvard Business School No. BEP218-PDF-ENG [Chapter]. Boston,
MA: Harvard Business School Publishing.
Cases.
Vancil, R. F. (2013). Justin Anson Distillery. HBS No. 113122-PDF-ENG [Case]. Boston,
MA: Harvard Business School Publishing.
Session 3.
Relationship of Cost to Volume and Profit
 Breakeven point. Assumptions. Cost Planning
 Uncertainty and sensitivity analysis. Interrelationships among costs, volume and
profit
 Introduction to variable costing
 Effects of the mix of sales. Margin of contribution and gross margin.
Readings.
Harvard Business Review. (2004). Breakeven Analysis and Operating Leverage:
Understanding Cash Flow. Harvard Business School No. 5252BC-PDF-ENG
[Reading]. Boston, MA: Harvard Business School Publishing.
Gallo, A. (2017). Contribution Margin: What It Is, How to Calculate It, and Why You
Need It. Harvard Business School No. H03Y96-PDF-ENG [Web Article].
Boston, MA: Harvard Business School Publishing.
Cases.
Sarkar, R. (2000). Hollydazzle.com. HBS No. 100066-PDF-ENG [Case]. Boston, MA:
Harvard Business School Publishing.
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Session 4.
Decision and uncertainty
 How to deal with uncertainty. Probabilities. Expected value
 Good decisions and good results
Readings.
Hussey, R., & Ong, A. (2012). Managerial Decision Making. Harvard Business School
No. BEP215-PDF-ENG [Reading]. Boston, MA: Harvard Business School
Publishing.

Session 5.
Costing by work orders
 Fundamental concepts of costing systems
 Costing by orders and systems costing by processes
 Monitoring od direct costs
 Application of indirect costs to orders. Over- or under-assigned costs
 Actual, normal and budgeted costing
Readings.
Material prepared by the Professor
Cases.
Narayanan, V. G. & Cha, J. (1998). Colorscope, Inc. HBS No. 197040-PDF-ENG
[Case]. Boston, MA: Harvard Business School Publishing.
Session 6.
Activity-based costing
 Activity-based costing.
 Differences between traditional and activity-based costing.
 Cost hierarchies.
 The activity-based management.
Readings.
Kaplan, R.S. (2005). Activity Based Costing and Capacity. Harvard Business School
No. 105059-PDF-ENG [Reading]. Boston, MA: Harvard Business School
Publishing.
Cases.
Kaplan, R. S. (1998). Classic Pen Co.: Developing an ABC model. HBS No. 198117-
PDF-ENG [Case]. Boston, MA: Harvard Business School Publishing.

Session 7.
Master budget and responsibility-based accounting
 Master budget. Features, advantages and types of budgets
 Coordination and communication. Management and administration support
 Kaizen Budget
 Accounting by area of responsibility. Responsibility and controllability
 Human aspects in budgeting.
Reading.
Kaplan, R., & Norton, D. (2008). Plan Operations: Sales Forecasts, Resource Capacity,
and Dynamic Budgets. Harvard Business School No. 7689BC-PDF-ENG [Reading].
Boston, MA: Harvard Business School Publishing.
Cases.
Simons, R. L. & Walker, R. (2000). Walker and Company: Profit plan decisions. HBS No.
197084-PDF-ENG [Case]. Boston, MA: Harvard Business School Publishing.
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Session 8.
Flexible budgets, variations and administrative control
 Gaps and variations in performance. Static and flexible budgets
 Flexible budgets with and without standard costs. Changes in price and efficiency
 Comparison between standards and budgeted amounts. "Benchmarking and their
use in the administration of cost
Cases.
Bruns, W. J., Hertenstein, J. H., & Liu, K. (2012). Danshui Plant No. 2. HBS Brief Cases
No. 913525-PDF-ENG [HBS Brief Cases]. Boston, MA: Harvard Business School
Publishing.
Session 9.
Costing inventories
 Variable costing and absorption costing. Differences in profit by applying one
system or another. Role of various concepts of the denominator level absorption
costing.
Readings.
Young, D.W. (2014). Note on Absorption and Variable Costing. Harvard Business School
No. TCG323-PDF-ENG [Note]. Boston, MA: Harvard Business School Publishing.
Cases.
Cooper, R. & Ittner, C. D. (1990). Micro devices division. HBS No. 191073-PDF-ENG
[Case]. Boston, MA: Harvard Business School Publishing.

Session 10.
Behavior of costs
 Cost Functions. Assumptions. Approaches to cost estimation. Evaluation and
selection of functions. Hierarchy of costs. Learning model.
Reading.
Bruns, W.J. (1997). Understanding Costs for Management Decisions. Harvard Business
School No. 197117-PDF-ENG [Note]. Boston, MA: Harvard Business School
Publishing.

Session 11.
Relevance of Costs
 Information and decision process. Meaning of relevance. Opportunity cost.
 Customer Profitability. Irrelevance of previous costs. Behavior of the
administrators
Cases.
Bruns, W. J. (2003). Prestige Telephone Co. HBS No. 197097-PDF-ENG [Case]. Boston,
MA: Harvard Business School Publishing.

Session 12.
Price Determination
 Major influences on prices. Short- and long-term prices. Categories of costs by
product
 Low prices added cost
 Target cost for target prices. Product Lifecycle
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Readings.
Harvard Business Review. (2005). Pricing It Right: Strategies, Applications, and Pitfalls.
Harvard Business School No. 2629BC-PDF-ENG [Reading]. Boston, MA: Harvard
Business School Publishing.
Cases.
Cooper, R. (1994). Nissan Motor Co. Ltd.: Target costing system. HBS No. 194040-PDF-
ENG [Case]. Boston, MA: Harvard Business School Publishing.
Kaplan, R. S. (1993). Analog Devices Inc.: The half-life system. HBS No. 190061-PDF-
ENG [Case]. Boston, MA: Harvard Business School Publishing.

Session 13.
Strategic profitability analysis
 Identification of the strategy used. Key aspects of reengineering
 The control panel. Engineering costs and discretionary costs
 Unused capacity
Cases.
Kaplan, R. S. (1995). Pillsbury: Customer driven reengineering. HBS No. 195144-
PDF-ENG [Case]. Boston, MA: Harvard Business School Publishing.

Session 14.
Cost Allocation
 Cost allocation terminology
 Purposes of Cost Allocation
 Criteria to guide decisions on monitoring and cost allocation
 Cost allocation among departments
 Allocation of common costs
Cases.
Kaplan, R. S. (2003). Wilkerson Co. HBS No. 101092-PDF-ENG [Case]. Boston,
MA: Harvard Business School Publishing.

Session 15.
Management Control
 Management Control Systems
 Benefits and costs of decentralization
 Transfer price and its negotiation
Cases.
Hall, B. J. & Madigan, C. (2001). Airtex Aviation. HBS No. 800269-PDF-ENG
[Case]. Boston, MA: Harvard Business School Publishing.

Session 16.
Final Exam

VIII. References

Students are expected to use the library and online data bases to read documents related to the
course subjects. This will allow them to acquire more knowledge about the studied contents.
All the listed papers and/or books are useful; however, these are not mandatory. These
materials complement the learning process.
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Reading.
Bruns, W.J. (1997). Understanding Costs for Management Decisions. Harvard Business
School No. 197117-PDF-ENG [Note]. Boston, MA: Harvard Business School
Publishing.
Gallo, A. (2017). Contribution Margin: What It Is, How to Calculate It, and Why You Need
It. Harvard Business School No. H03Y96-PDF-ENG [Web Article]. Boston, MA:
Harvard Business School Publishing.
Harvard Business Review. (2004). Breakeven Analysis and Operating Leverage:
Understanding Cash Flow. Harvard Business School No. 5252BC-PDF-ENG
[Reading]. Boston, MA: Harvard Business School Publishing.
Harvard Business Review. (2005). Pricing It Right: Strategies, Applications, and Pitfalls.
Harvard Business School No. 2629BC-PDF-ENG [Reading]. Boston, MA: Harvard
Business School Publishing.
Hussey, R., & Ong, A. (2012). Managerial Decision Making. Harvard Business School No.
BEP215-PDF-ENG [Reading]. Boston, MA: Harvard Business School Publishing.
Kaplan, R., & Norton, D. (2008). Plan Operations: Sales Forecasts, Resource Capacity, and
Dynamic Budgets. Harvard Business School No. 7689BC-PDF-ENG [Reading].
Boston, MA: Harvard Business School Publishing.
Kaplan, R.S. (2005). Activity Based Costing and Capacity. Harvard Business School No.
105059-PDF-ENG [Reading]. Boston, MA: Harvard Business School Publishing.
Marburger, D., & Peterson, R. (2013). What Matters and What Doesn’t: Relevant Revenues
and Costs. Harvard Business School No. BEP218-PDF-ENG [Chapter]. Boston, MA:
Harvard Business School Publishing.
Quelch, J.A., & Kenny, D.. (1994). Extend Profits, Not Product Lines. Harvard Business
School No. 94509-PDF-ENG [Article]. Boston, MA: Harvard Business School
Publishing.
Young, D.W. (2014). Note on Absorption and Variable Costing. Harvard Business School
No. TCG323-PDF-ENG [Note]. Boston, MA: Harvard Business School Publishing.

Cases.
Bruns, W. J. (2003). Prestige Telephone Co. HBS No. 197097-PDF-ENG [Case]. Boston,
MA: Harvard Business School Publishing.
Bruns, W. J., Hertenstein, J. H., & Liu, K. (2012). Danshui Plant No. 2. HBS Brief Cases No.
913525-PDF-ENG [HBS Brief Cases]. Boston, MA: Harvard Business School
Publishing.
Cooper, R. & Ittner, C. D. (1990). Micro devices division. HBS No. 191073-PDF-ENG
[Case]. Boston, MA: Harvard Business School Publishing.
Cooper, R. (1994). Nissan Motor Co. Ltd.: Target costing system. HBS No. 194040-PDF-
ENG [Case]. Boston, MA: Harvard Business School Publishing.
Hall, B. J. & Madigan, C. (2001). Airtex Aviation. HBS No. 800269-PDF-ENG [Case].
Boston, MA: Harvard Business School Publishing.
Kaplan, R. S. (1993). Analog Devices Inc.: The half-life system. HBS No. 190061-PDF-ENG
[Case]. Boston, MA: Harvard Business School Publishing.
Kaplan, R. S. (1995). Pillsbury: Customer driven reengineering. HBS No. 195144-PDF-ENG
[Case]. Boston, MA: Harvard Business School Publishing.
Kaplan, R. S. (1998). Classic Pen Co.: Developing an ABC model. HBS No. 198117-PDF-
ENG [Case]. Boston, MA: Harvard Business School Publishing.
Narayanan, V. G. & Cha, J. (1998). Colorscope, Inc. HBS No. 197040-PDF-ENG [Case].
Boston, MA: Harvard Business School Publishing.
 10

Sarkar, R. (2000). Hollydazzle.com. HBS No. 100066-PDF-ENG [Case]. Boston, MA:

Harvard Business School Publishing.
Simons, R. L. & Walker, R. (2000). Walker and Company: Profit plan decisions. HBS No.
197084-PDF-ENG [Case]. Boston, MA: Harvard Business School Publishing.
Vancil, R. F. (2013). Justin Anson Distillery. HBS No. 113122-PDF-ENG [Case]. Boston,
MA: Harvard Business School Publishing.

IX. Professor

DEGREES AND CERTIFICATIONS

Professor Villa is Master in Business Administration, School of Graduate Business

Administration, ESAN, Peru. Bachelor in Agronomy, National Agrarian University, Peru.

PROFESSIONAL EXPERIENCE

He has extensive experience in administrative and financial areas of banking. He has been
Manager of Administration and Finance of former Banco Industrial for four years;
Accountant General Banco de Credito for eight years and two years as General Manager of
Banco de Credito del Peru and Financial Credit; founder of the leasing company America
Director; Leasing and Founding Director and Financial Advisor CMR, now Banco Falabella
Peru; Director and General Manager of the company Casagrande SAA He has experience in
agribusiness management company for 20 years.

CURRENT POSITION

He is currently a consultant of various institutions and the business sector in the Academic
Area Professor of Finance, Accounting and Economics at CENTRUM Catolica Graduate
Business School.

AWARDS

Recognition of Academic Excellence in Master Programs 2015 TP and TPC