ch25 - CHAPTER 25 Budgetary Control and Responsibility...

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CHAPTER 25 Budgetary Control and Responsibility Accounting ANSWERS TO QUESTIONS 0 1. (a) Budgetary control is the use of budgets in controlling operations. (b) The steps in budgetary control are: (1) Develop the planned objectives (budget). (2) Determine differences between actual and planned results from periodic budget reports. (3) Analyze differences. (4) Take corrective action. (5) Modify future plans, if necessary. 0 2. Purpos e Name of Report Frequency Primary Recipient(s) Scrap Departmental overhead costs Income statement Daily Monthly Monthly and Quarterly Production manager Department manager Top management 0 3. The budget report for the second quarter can include year-to-date information as well as data for the second quarter. 0 4. There is no justification for Don's concern. The sales budget is derived from the sales forecast, and it represents management's best estimate of sales. Thus, it is a useful basis for evaluating sales performance. 0 5. A static budget is an appropriate basis for evaluating a manager's effectiveness in controlling costs when: (1) The actual level of activity closely approximates the master budget activity level and/or (2) The behavior of the costs in response to changes in activity is fixed. 0 6. Yes, this is true. A flexible budget is a series of static budgets at different levels of activity. 0 7. The performance is unfavorable. The budgeted indirect labor cost in the static budget is $1.40 per direct labor hour ($56,000 ¸ 40,000). At 45,000 direct labor hours, budgeted costs are $63,000. Thus, indirect labor is $3,000 over budget ($66,000 – $63,000).
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0 8. The performance is favorable. Factory insurance is a fixed cost. At 50,000 direct labor hours, the budgeted cost is still $6,500. Thus, factory insurance is $300 under budget ($6,500 – $6,200). 0 9. The steps in preparing a flexible budget are: (1) Identify the activity index and the relevant range of activity. (2) Identify the variable costs and determine the budgeted variable cost per unit of activity for each cost. (3) Identify the fixed costs and determine the budgeted amount for each cost. (4) Prepare a budget for selected increments of activity within the relevant range. 10. The Alou Company can say that total budgeted costs are $25,000 fixed plus $6 per direct labor hour [($85,000 – $25,000) ¸ 10,000]. 11. (a) At 9,000 hours, total budgeted costs are $58,000 [$40,000 + ($2.00 X 9,000)]. (b) At 12,345 hours, total budgeted costs are $64,690 [$40,000 + ($2.00 X 12,345)]. 12. Management by exception means that top management's review of a budget report is directed either entirely or primarily to differences between actual results and planned objectives. The criteria for identifying exceptions are materiality and the controllability of the item. 13. Responsibility accounting is a method of controlling operations that involves the accumulation and reporting of costs (and revenues, where relevant) on the basis of the individual manager who has the authority to make the day-to-day decisions about the items.
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This note was uploaded on 03/13/2012 for the course ACCOUNTING 100 taught by Professor Boyle during the Fall '11 term at Seton Hill.

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ch25 - CHAPTER 25 Budgetary Control and Responsibility...

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