managerial accounting?

Question

Joe paparazzi has just purchased the film studio of a movie company in comedies.He found that the company did not try to estimate the cost of making a movie.Instead ,it just gave the producer a budget and told him/her to make a movie.Mr. Paparazi desires to establish a formal cost estimation system.
What are some of the potential problems that may be encountered in changing from a budget to a cost estimattion movie-making system?

Answer 1

A budget is a quantified, planned course of action over a definitive time period. It is an attempt to estimate inputs and the costs of inputs along with associated outputs and revenues from outputs. Creating a budget is important because it :
* Forces an organization to carefully consider the expected demand for its products and services and the resources required to meet that demand
* Translates the organization's higher priorities into the appropriate resources required to achieve those priorities
* Highlights potential problems in sufficient time to take corrective actions
* Creates a baseline against which actual results can be compared.

Cost Estimation is the process of predetermining costs of goods or services. The costs are determined in advance of production and precede the operations. Estimated costs are definitely the future costs and are based on teh average of the past actual costs adjusted for future anticipated changes in future. Cost estimates are used in the preparation of the budgets. It helps in evaulating performance. It is used in preparing projected financial statements. Cost estimates may serve as targets in controlling the costs.

I think the question uses the term budget in a very loose sense cos a true budget does require cost estimation. Looks like what the studio did was give the producer an amt it can afford and told him to go make a movie. Strictly speaking this is not a budget in the a/cg sense. If this were the case it wouldn't be fair to the producer as he has nothing to compare his expenditure with. He just has to make sure the amt he's been given will not run out before the movie is completed. It's very much touch and go. Under the proposed new system, everyone in the production chain (costumes dept, special effects dept, etc) should supply their estimates and the cost a/ctant will come up with an estimate of how much the movie will cost. If the co. can't afford that, then the process begins where you decide what has to go, maybe an expensive prop or some special effects scene. So this is very interractive in that everyone involved in the movie gives his input and later has to live by what he has estimated. This accountability is important. Estimating is easier if you're using experienced ppl. Someone who's never made a movie before will be hard-pressed to give you any sort of estimate, not to talk of a good one. It would also involve out-sourcing or best-sourcing and calling for tenders, etc.

Answer 2

Potential problems is that they are the same thing... budget you have a set amount of dollars set aside for that certain expense... cost estimation is using a dollar amount at the time before the expense is completed... Cost does go up you didn't budget correctly in cost estimation... so that would be the biggest down fall... if you don't get the right cost you could be paying more down the road...