What is the objective of the organization?
2. Advantages of Budgeting
Promotes coordination and communication (need to coordinate with each other, departments, to create budget. Need to focus on one goal.)
Provides performance criteria (that you need to achieve)
3. Knight Company has found that 30%
What’s your expectation? Sale’s budget
How much cash do I have during certain month?
4. Budget development
Who is going to be responsible for the budget? Everyone in the org is somewhat responsible for the budget as they would be involved in the day-to-day activities one way or another.
5. Master Budget
What’s organization goals?
6. Budgeting Styles
7. Budget Fames
- Managers have been known to play … in which they attempt to manipulate info and targets to achieve as high as bonus as possible
8. Standard Costs
9. Managing by Exception:
Cost variance analysis enables managers to focus attention on items
Should you look at negative variance or? Both are important, over-budget and under-budget
Look at unfavorable items that stick out, but should look at favorable items as well b/c you might overlook something that you could improve.
Break down to price and quantity
Need to figure out both what went right and wrong
10. Investigating causes
11. Direct Cost Variance Analysis
Actual cost is bigger than original budget so it’s unfavorable.
The difference between Flexible Budget Cost and Original Budget is the Units, so it’s called Volume variance
13. What is more important?
A. Labor efficiency
B. Labor effectiveness (focus on customer – less errors, reject rate)
Focus on Effectiveness first, then efficiency, but need to have a good combination of both efficiency and effectiveness. No point producing a lot of goods but many defects.
14. Elimination of Direct Labor Variance Reporting
Continue to monitor is better
15. Take home message
Traditional budgeting and std cost systems can play a useful role.
It’s important to recognize the limitations and develop improved systems.
Need to use a combination of it.
1. Costs/Limitations of Decentralization
2. Should plant managers be evaluated as cost centers or profit centers?
- Plant manager should be evaluated for cost centers
Sales is related to effectiveness
- However, if their delivery influence sales, then they would also be evaluated for profit centers
3. Survey of Chief Financial Officers
- Plants pursuing cost leadership strategy are more likely to be cost center
5. Non-Financial Performance Measures
- Customer satisfaction will be affected before the impact of managerial actions is observed in sales revenue or profit.
- Operating measures such as customer waiting time provide immediate