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Line item determined by multiplying number of units

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line item determined by multiplying number of units by per unit variable cost.Activity index on horizontal, $ on vertical. Fixed costs remain the same across all activitylevels. Graph highlights 10,000 and 12,000 activity levels.Flexible budget report:Consists of production data for selected activity index (i.e.direct labour hours) and cost data for variable/fixed costs. Widely used inproduction/service departments to evaluate a manager’s performance in productioncontrol and cost control.Responsibility accounting:Involves accumulating and reporting costs on basis ofmanager who has authority toExample of Flexible Budget Reportmake day-to-day decisions aboutcost items. Manager’sperformance evaluated onmatters directly under manager’scontrol. May extend from lowestlevels of management to topstrata of management.Useful ateach level of management aslong as:1.Costs/revenues can bedirectly associated with specificlevel of managementresponsibility2.Costs/revenuescontrollable at level of responsibility with which they’re associated3.Budget data can be developed for evaluating manager’s effectiveness incontrolling costs/revenuesEspecially valuable in decentralized firm with control delegated to managers throughoutfirm. Key differences between responsibility accounting and budget reporting:1.Responsibility accounting distinguishes non/controllable costs/revenues; wherebudgeting focuses on fixed and variable2.Responsibility accounting reports only those items under manager’s specificcontrol; where budget reports all items for that department/productApplies to both not-for-profit (minimize cost of providing services) and profit entities(maximize net income).Segment:Area of responsibility in decentralized operations.Decentralization:When control of operations given to many managers throughout firm.All costs/revenues can be controlled.Someone at some level responsible for makingdecisions about each revenue/cost item. As one moves down levels of managementcontrol diminishes.
Controllable costs:Costs incurred directly by responsibility level and are controllableat that level.Noncontrollable costs:Costs indirectly incurred/allocated to responsibility level wheremanager has no decision over allocation.Purpose of departmental overhead cost report is to control overhead costs.Performance evaluation:Responsibility accounting needs it to be fully effective andv.v. Should1.Contain only data that are controllable by responsibility centre2.Provide accurate/reliable budget data against which to measure performance3.Highlight significant differences between actual results/budget goalsManagement by exception:Management’s review of budget focuses on anydifferences between actual/planned results (not where actual greater than planned).

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Term
Winter
Professor
T.HUTCHISON
Tags
Cost Accounting, Finished Goods

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