CHAPTER 10 BUDGETARY CONTROL AND RESPONSIBILITY ACCOUNTNG. Describe the concept of budgetary control. Evaluate the usefulness of static budget reports. Explain the development of flexible budgets and the usefulness of flexible budget reports.
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BUDGETARY CONTROL AND RESPONSIBILITY ACCOUNTNG
Study Objectives: Continued
Indicate the features of responsibility reports for cost centers.
Identify the content of responsibility reports for profit centers.
Explain the basis and formula used in evaluating performance in investment centers
Static budgets are best for fixed costs and expenses
for variable costs
Flexible budgets are static budgets at different activity levels
Static budget for the Forging Department at a 10,000unit level:
Demand increases – produce 12,000 units rather than 10,000
Budgeted amounts should increase
proportionately with production
New budget report (no change in fixed costs)
property taxes $5,000
* Total variable cost per unit X activity level
differences between actual and planned results
percentage difference from budget
controllable by the manager
Levels of responsibility for controlling costs
Whether the cost or revenue is controllable
at the level of responsibility with which
it is associated
Cost center: usually a production center or service department.
Profit center: individual departments of retail stores and branch offices of banks.
Investment center: subsidiary companies
$60,000 of indirect fixed costs are not controllable by manager not shown
All fixed costs are controllable by manager
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