Chapter 24: Budgetary Control – Flashcards

- the use of budgets in controlling operations - compare budget reports - actual to planned - and determines causes - provides management with feedback

1) Develop budget 2) Analyze differences between planned and actual 3) Take corrective action 4) Modify future plans

The company has a formalized reporting system

Projection of budgeted data at one level of activity - does not change - Used to evaluate a manager's effectiveness - Appropriate for fixed costs - not variable

Projection of budgeted data for various levels of activity - money moves

1) Identify activity index and relevant range 2) Identify variable costs and determine the budgeted variable cost per unit of activity for each cost 3) Identify fixed costs and determine budgeted amount for each cost 4) Prepare budget for selected increments of activity within the relevant range

Internal report of monthly comparisons of actual and budgeted manufacturing overhead costs - evaluates manager's performance

1) Production data - selected activity index 2) Cost data - fixed and variable costs

Fixed costs + variable costs

Accumulating and reporting costs (and revenues) on the basis of the manager who has the authority to make day-to-day decisions about the items

1) Cost and revenue can be directly associated with the specific level of management responsibility 2) Cost and revenue can be controlled by employees 3) Budget data can be developed for evaluating the manager's effectiveness in controlling the costs and revenues

Controls department costs

Controls division costs

Controls company costs

Many people are responsible and have control of operations

1) Distinguishes between controllable and uncontrollable costs 2) Includes only controllable costs

Both profit and not-for-profit companies

Cost manager has control over

Costs incurred indirectly

Preparation of a report for each level of responsibility - starts with the lowest level of management and moves up

1) Cost centers 2) Profit centers 3) Investment centers

Incurs cost but does not generate revenue

Incurs costs and generates revenue

Incurs costs, generates revenues, and has investment funds available for use

Relate specifically to one responsibility center - Incurred for the sole benefit of the center - Called traceable costs since they can be traced directly to one center - Most are controllable

Pertains to a company's overall operating activities - Incurred for the benefit of more than one profit center - Called common costs because they apply to more than one center - Most are not controllable

Budgeted and actual controllable revenues and costs

CM - Controllable FC

Primary basis for evaluating the performance of a manager of an investment center

CM / Average operating assets