Budget, Budgetary Control and Responsibility Accounting - FAQs

1] Describe the thought of budgetary control. 

Budgetary control includes (a) preparing periodic finances reports that compare actual results with planned aims, (b) analyzing the differences to find out their causes, (c) taking appropriate corrective action, and also (d) modifying future plans, if necessary.

[2] Evaluate the usefulness of static finances reports. 

Static budget reports are useful in evaluating the improvement toward planned sales and also profi t goals. Fortunately they are appropriate in assessing any manager’s effectiveness in managing costs when (a) actual activity closely approximates the master budget activity levels, and/or (b) the behavior from the costs in response to changes in activity is actually fi xed.

[3] Explain the advancement of fl exible budgets and also the usefulness of fl exible finances reports.

 Todevelop the fl exible budget it will be important to: (a) Identify the activity index and the relevant range of activity. (b) Identify the variable costs, and determine the budgeted adjustable cost per unit of activity per cost. (c) Identify the fi xed costs, and determine the budgeted amount per cost. (d) Prepare the afford selected increments of activity inside the relevant range. Flexible budget reports permit an evaluation of a manager’s effectiveness in controlling production and also costs.

[4] Describe the thought of responsibility accounting. 

Responsibility accounting involves building up and reporting revenues and costs by the individual manager who's the authority to make the day-to-day decisions regarding the items. The evaluation of a manager’s performance is based on the matters directly within the manager’s control. In responsibility accounting, it is needed to distinguish between controllable and also noncontrollable fi xed costs and to identify three types associated with responsibility centers: cost, profi testosterone levels, and investment.

[5] Indicate the top features of responsibility reports for charge centers.

 Responsibility reports for cost centers compare actual costs with fl exible finances data. The reports present only controllable costs, and no distinction is made concerning variable and fi xed prices.

[6] Identify the written content of responsibility reports for profi t centers.

 Liability reports show contribution margin, controllable fi xed prices, and controllable margin per profi t center.

[7] Explain the basis and formula used within evaluating performance in expenditure centers.

The primary basis for evaluating performance in investment centers is return on investment (ROI). The formula for computing ROI for expenditure centers is: Controllable margin ÷ Average operating assets.