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Limitation : the data are not modified or adjusted when there are changes
static budget is appropriate in evaluating a manager’s effectiveness in controlling costs
1.) the actual level of activity closely approximates the master budget
2.) The behavior of the costs in response to changes in activity is fixed
Therefore, static budget report is ....
appropriate for :fixed manufacturing costs Fixed selling and
not appropriate for: variable costs The Concept of Budgetary Control Budget Reports Comparing actual results
with planned objectives
by budget reports Providing Management with feedback on operations Analyzing any difference
between actual and
planned results and determines cause 1.Budget reports can be
prepared as frequently as needs. 2. Favorable Cost vs. Favorable Revenue
Budgert > Actual vs. Budget < Actual Natalie Wong Cherries Chung Jasmine Che Cherie Chuk Vicky Chan Different Types of Reports *Prepared Weekly
*Determine whether sale goals are being met
*Recipient: Top Management and sales manager Scrap *Prepared Weekly
*Control direct and indirect
Vice president of production
and production department managers *Prepared Daily
*Determine efficient use
Production Manager Labor *Prepared Monthly
*Control Overhead Costs
Department Manager *Prepared Monthly
*Control Selling Expense
Sales Manager *Prepared Monthly
income objectives and
*Recipient: Top Management Income
Statement Sales Dept.
expense Thank you for
your attention ! Q&A Enjoy you lunchtime ! Comment on the efficiency of the management in controlling manufacturing
Total Variable cfosts: favourable $1,430
total fixed costs: unfavorable $50
Total costs: favourable $1,380 (a)Prepare a monthly flexible manufacturing overhead budget for each increment of 2,000 direct labor hours over the relevant range for the year ending December 31, 2012 (b)Prepare a manufacturing overhead
budget report for January. When used in Bugetary control, each budget included in the master budget is considered to be static
Projection of budget data at one level of activity
Compare actual results with budget data
at the activity level that was used in
developing the master budget Uses and limitations of static Budget Report Flexible Budgets Budgetary process more useful if it is
adaptable to changes in operating conditions
Projects budget data for various levels
Can be prepared for each type of budget
in the master budget Why Flexible Budgets? Meaningless to compare actual variable costs
with budgeted variable costs if the production
units is different
Variable costs increase with production
If production increases, budget variable amount
(indirect materials) should increase proportionately. Developing the Flexible Budget 1. Identify the activity index and the relevant
range of activity.
2. Identify the variable costs and determine
the budgeted variable cost per unit of activity
for each cost.
3. Identify the fixed costs and determine the
budgeted amount for each cost.
4. Prepare the budget for selected increments
of activity within the relevant range. Developing the Flexible Budget Fixed costs + Variable Costs* = Total Budgeted Costs
*Total variable cost per unit activity x Activity level