Accounting: Tools for Business Decision Making

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 21 Budgetary Control and Responsibility Accounting A. The Concept of Budgetary Control. 1. The use of budgets in controlling operations is known as budgetary control. Such control takes place by means of budget reports that compare actual results with planned objectives. 2. Budgetary control consists of: a. Preparing periodic budget reports that compare actual results with planned objectives. b. Analyzing the differences to determine their causes. c. Taking appropriate corrective action. d. Modifying future plans, if necessary. B. Static Budget Reports. Illustration 21-7, pg. 1018 1. A static budget is a projection of budget data at one level of activity ; data for different levels of activity are ignored. As a result, actual results are always compared with budget data at the activity level that was used in developing the master budget. 2. The static budget is appropriate in evaluating a manager’s effectiveness in controlling costs when: a. The actual level of activity closely approximates the master budget activity level, and/or b. The behavior of the costs in response to changes in activity is fixed. 3. A static budget report is appropriate for fixed manufacturing costs and fixed selling and administrative expenses. C. Flexible Budgets. Illustration 21-10, pg. 1019 1. A flexible budget projects budget data for various levels of activity . In essence, the flexible budget is a series of static budgets at different levels of activity.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2. To develop the flexible budget, it is necessary to: a. Identify the activity index and the relevant range of activity. b.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 01/31/2010.

Page1 / 5

Chapter%2021%20notes%20(Kimmel)[1] - Chapter 21 Budgetary...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online