Accounting system at Boeing

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Accounting system at Boeing

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Accounting system at Boeing Contract and Program costing :

Accounting system at Boeing Contract and Program costing

BOEING – WORLD’S LARGEST AEROSPACE & DEFENCE COMPANY :

BOEING – WORLD’S LARGEST AEROSPACE & DEFENCE COMPANY William Boeing : Established the Boeing in 1916 World’s first passenger plane. Carried 10 people and at a speed of 260km/hr.

PLAYING FIELD.. THREE MAJOR BUSINESS SEGMENT :

PLAYING FIELD.. THREE MAJOR BUSINESS SEGMENT The Commercial Airplane Military Aircraft & Missile System Space & Communication

Contract costing:

Contract costing A form of specific Job Costing Revenues : Fixed price and incentive based Contract R evenues Estimated on the basis of negotiated contract prices but modified by assumptions Contract Options Change Orders Incentives & Award Provision

PowerPoint Presentation:

Contract costing Contract Profits Based on estimated gross margin and cost of sales percentages Contract Costs Estimated on Historical Trends Business Base Economic Projections Factors affecting estimation Technical & Schedule Risk Sub-contractor Process Business Vol. Assumptions Asset Utilization Inflationary Treands

Program Accounting:

Program Accounting Features Extended version of Contract Accounting Smoothing of Cost & Revenue Best suited for Airline Industry Assumption of accurate Long-term forecasts Requires estimation of : 1) Accounting Quantity 2) Expected Selling Price

PowerPoint Presentation:

Disadvantages Program Accounting Vulnerable to Manipulation Judgmental Impossible to Audit Opaque Accounting System

ACCOUNTING QUANTITY:

ACCOUNTING QUANTITY What is Accounting Quantity? Review on a Quarterly Basis. Demand a major deciding factor. Example : 717 Boeing.

PowerPoint Presentation:

717 737 747 757 767 777 Cumulative firm orders (CFO) 2002 139 2012 1371 1050 931 597 Anticipated Orders 2002 0 29 49 67 3 Anticipated orders as a % of CFO 2002 0 2 5 7 1 Cumulative firm orders (CFO) 2001 123 1881 1351 1048 934 575 Anticipated Orders 2001 11 49 51 64 25 Anticipated orders as a % of CFO 2001 9 4 5 7 4 Cumulative firm orders (CFO) 2000 151 1722 1338 1042 899 557 Anticipated Orders 2000 48 12 7 49 43 Anticipated orders as a % of CFO 2000 32 1 1 5 8 Cumulative firm orders 717 737 747 757 767 777 2002 140 2000 1401 1100 1000 600 Addition 5 200 2001 135 1800 1401 1100 1000 600 Addition/Deletion (65) 150 50 50 50 2000 200 1650 1351 1050 950 600 The Estimates of Total Program Accounting Quantities and Changes

Graphical Representation:

Graphical Representation

Revenue and Cost Estimation:

Revenue and Cost Estimation The use of program accounting is the ability to estimate cost revenue for specific program accounting quantity. The influential factors including various types of costs. Boeing’s management regularly checked the estimating process and updated on quarterly basis. Many financial experts criticized the accuracy of estimating process of program accounting method.

Revenue and Cost Estimation..contd.:

Revenue and Cost Estimation..contd. Revenue –the price negotiated with the customer. Total program revenue includes all undelivered and unsold units. Cost estimate depend upon different influential factors. Learning curve effect. Deferred production cost.