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Managerial Accounting Second Edition Weygandt / Kieso / Kimmel Prepared by: Ellen L. Sweatt Georgia Perimeter College ELS Budgetary Control and Responsibility Accounting Management Functions Planning Directing and Motivating Controlling Budgetary Control
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Ellen L. Sweatt
Georgia Perimeter College
A projection of budget data at one level of activity.
Barton Steel (Forging Department)Manufacturing Overhead Budget (Static) For the Year Ended December 31, 2002
Budgeted Production in units (steel ingots) 10,000
Indirect materials $ 250,000
Indirect labor 260,000 Utilities 190,000 Depreciation 280,000 Property taxes 70,000 Supervision 50,000 $1,100,000
A projection of budget data for various levels of activity.
Activity level Direct labor hours 8,000 9,000 10,000 11,000 12,000
Variable costs Indirect materials ($1.50) $12,000 $13,500 $15,000 $16,500 $18,000 Indirect labor ($2.00) 16,000 18,000 20,000 22,000 24,000 Utilities ($.50) 4,000 4,500 5,000 5,500 6,000 Total variable 32,000 36,000 40,000 44,000 48,000
Fixed costs Depreciation 15,000 15,000 15,000 15,000 15,000 Supervision 10,000 10,000 10,000 10,000 10,000 Property taxes 5,000 5,000 5,000 5,000 5,000 Total fixed 30,000 30,000 30,000 30,000 30,000
Total costs $62,000 $66,000 $70,000 $74,000 $78,000
Illustration 7-13Flexible Budget
Fox Manufacturing Company (Finishing Department)Flexible Monthly Manufacturing Overhead BudgetFor the Month Ended January 31, 2002
The review of budget reports by management focused entirely or primarily on differences between actual results and planned objectives.
Costs that a manager has the authority to incur within a given period of time.
Control of operations is delegated to many managers throughout the organization.
An area of responsibility in decentralized operations.
A part of management accounting that involves accumulating and reporting revenues and costs on the basis of the manager who has the authority to make the day-to-day decisions about the items.
Costs that relate specifically to a responsibility center and are incurred for the sole benefit of the center.
Costs that are incurred for the benefit of more than one profit center.
A responsibility center that incurs costs but does not directly generate revenues.
A responsibility center that incurs costs but also generates revenue.
A responsibility center that incurs costs, generates revenues, and has control over the investment funds available for use.
Mantel Manufacturing Company (Marine Division)
Responsibility Report For the Year Ended December 31, 2002
Difference Favorable F Budget Actual Unfavorable USales $1,200,000 $1,150,000 $50,000 U
Variable Costs Cost of goods sold 500,000 490,000 10,000 F Selling & administrative 160,000 156,000 4,000 F Total 660,000 646,000 14,000 FContribution margin 540,000 504,000 36,000 UControllable fixed costs Cost of goods sold 100,000 100,000 -0- Selling & administrative 80,000 80,000 -0- Total 180,000 180,000 -0-
Controllable margin$ 360,000 $ 324,000$36,000 UResponsibility Report
Contribution margin less controllable fixed costs=Controllable Margin.
The income that remains after subtracting from the controllable margin the minimum rate of return on a company’s operating assets.
A measure of management’s effectiveness in utilizing assets at its disposal in an investment center.