budgetary control
use of budgets to control operations
what controls does this include?
comparing actual vs. planned
feedback
idea that some palnned objectives lose potential along the way
budgetary control involves:
- developing budget
- analyzing actual vs. budget
- corrective actions
- modifying future plans
when does budgetary control work best?
company has a formalized reporting system
reporting system includes
- identifying the name if the budget
- frequency of budget
- purpose of the budget
- recipient of the budget
static budget
does not modify or adjust data regardless of changes in activity durning the year
AT ONE LEVEL OF ACTIVITY
results of static budget
actual results are always compared with budget data at activity level used in developing the master plan
static budget appropriate when
actual level of activity closley approximates the master budget activity level
behavior of cost in responses to changes in activity is fixed
flexible budgets
projects budget data for various levels of activity
more useful cause adapts to changing operating conditions
comparsion of actual and planned at the actual level activity achieved
steps of flexible
1.) identify activity index and relevant range of activity
2.) identify variable cost, amd variable cost per unit
3.) identify fixed cost, budgeted amount for each cost
4.) prepare budget fir selected increments within a relevant range
activity index for manufactured overhead cost
activity index usually the same as index used in predetermined rate (direct labor or machine hours)
selling and admin expense activity index
usually sales or net sales
total budgeted cost equals
fixed cost + (total variable cost times activity level)
responsiblity accounting
accumulating and reporting cost on the basis of the manager who performs the day to day activity
responsibility accounting conditions
1.)cost and revunes can be directly associated with a specific level of management
2.) cost and revunes cam be controlled at the level they are associated
3.) data can be developed for evaluating managers effectiveness
where is responsibilty accounting especially valueable?
decenteralized company
decentralization
control of operations delegated to many managers throughout the organization
segment
identified area of responsibility in a decenteralized operation
respinsibility vs. budgeting
1.) distinction between controllable amd noncontrollable
2.) reports only emphasize or inclienintems cintrollable by individual manager
when is a cost considered controllable?
if manager has power to incur it within a given period of time
when is cost noncontrollable?
cost incurred nondirectly and allocated to a responsibility level
3 types of responsibility centers
1.) cost center
2.) profit center
3.) investment center
cost center
incurs cost and exoenses but dies nit directly generate revune
profit center
incurs cost and expenses but also generates revune
investment center
incurs cost and expenses, generates revunes, and has control over investment funds avaliable for use
cost centers responsibility reports
compare actual cintrollable cost with flexible budget data
ONLY CONTROLLABLE COST INCLUDED, and no distinction between fixed and variable
direct fixed cost or traceable cost
relate specifically to a responsibility center amd are incurred for the sole benefit of the center
indirect fixed cost or common cost
pertain to companys overall operating activites amd incurred for the benefit of more than one profit center
profit center responsibility report
controllable fixed cost deducted from contribution margin for controllable margin
noncontrollable fixed cost are not reported
controllable margin
best measure of managers performance in cintrolling revunes and cost
investment cinters primer measure
return in investment (roi)