Chapter 11 - get Report is appropriate for evaluating a...

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dget Report is appropriate for evaluating a manager’s performance in cost control. Budgetary Control and Responsibility Accounting Budgetary Control (READ) 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. The budget reports provide management with feedback on operations. Budgetary control involves: a. Developing budgets. b. Analyzing the differences between actual and budgeted results. c. Taking corrective action. d. Modifying future plans, if necessary. Budgetary control works best when a company has a formalized reporting system. The system should: a.Identify the name of the budget report such as the sales budget or the manufacturing overhead budget. b. State the frequency of the report such as weekly or monthly. c.Specify the purpose of the report. d. Indicate the primary recipient(s) of the report. Static Budget Reports (READ) A static budget does not modify or adjust data regardless of changes in activity during the year. Accordingly, actual results are always compared with the budget data at the activity level used in developing the master budget. A 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 behaviour of the costs in response to changes in activity is fixed. 27cb76a157613379dc120f0eb97ebc34f4c4a64c 1
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Flexible Budgets (READ) A flexible budget projects budget data for various levels of activity. The flexible budget recognizes that the budgetary process is more useful if it can be adapted to change operating conditions. This type of budget permits a comparison of actual and planned results at the level of activity actually achieved. To develop the flexible budget, the following steps are taken: a.Identify the activity index and the relevant range of activity. b. Identify the variable costs, and determine the budgeted variable cost per unit of activity for each cost. c.Identify the fixed costs, and determine the budgeted amount for each cost.
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This note was uploaded on 03/31/2010 for the course COMM COMM 305 taught by Professor Hilal during the Spring '09 term at Concordia Canada.

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Chapter 11 - get Report is appropriate for evaluating a...

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