Chapter 10 Notes

Chapter 10 Notes - Chapter 10: Budgetary Control and...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 10: Budgetary Control and Responsibility Accounting The Concept of Budgetary Control: A major function of management is to control operations Takes place by means of budget reports which compare actual results with planned objectives Provides management with feedback on operations Budget reports can be prepared as frequently as needed Analyze differences between actual and planned results and determines causes Involves the following activities: o Develop Budget o Analyze differences between actual and budget o Take corrective action o Modify future plans Works best when a company has a formalized reporting system which: o Identifies the name of the budget report (such as the sales budget or the manufacturing overhead budget) o States the frequency of the report (such as weekly or monthly) o Spe cifies the purpose of the report o Indicates recipient of the report Static Budget Reports: 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
When used in budgetary control, each budget included in the master budget is considered to be static A static budget is a projection of budget data at one level of activity Ignores data for different levels of activity Compares actual results with the budget data at the activity level used in the master budget Appropriate for evaluating a manager’s effectiveness in controlling costs when: Actual level of activity closely approximates the master budget activity level Behavior of the costs is fixed in response to changes in activity Appropriate for fixed costs Not appropriate for variable costs Flexible Budgets: Budgetary process more useful if it is adaptable to changes in operating conditions Projects budget data for various levels of activity Essentially, a series of static budgets at different activity levels Can be prepared for each type of budget in the master budget Budgeted variable amounts should increase proportionately with production Steps: o Identify the activity index and the relevant range of activity o Identify the variable costs and determine the budgeted variable cost per unit of activity for each cost o Identify the fixed costs and determine the budgeted amount for each cost o Prepare the budget for selected increments of activity within the relevant range 2
Background image of page 2
Flexible Budget Reports: Monthly comparisons of actual and budgeted manufacturing overhead costs A type of internal report Consists of two sections: Production data for a selected activity index, such as direct labor hours Cost data for variable and fixed costs Widely used in production and service departments to evaluate a manager’s performance in production control and cost control Management by Exception: Focus of top management’s review of a budget report: o differences between actual and planned results Able to focus on problem areas
Background image of page 3

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

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/10/2008 for the course AC 12 taught by Professor Caster during the Spring '08 term at Fairfield.

Page1 / 10

Chapter 10 Notes - Chapter 10: Budgetary Control and...

This preview shows document pages 1 - 4. Sign up to view the full document.

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