Acc 556 Chapter 22 Homework - Budgetary Control And Cost Man

Acc 556 Chapter 22 Homework - Budgetary Control and Cost Management

Answer the following four questions: identify each statement as true or false with corrections if false; prepare a selling expense report comparing budgeted and actual amounts; create a responsibility report for a departmental overhead analysis; compute ROI for a division and assess proposed improvements. Explain your work or showing calculations where needed.

Paper For Above instruction

In modern managerial accounting, effective budgetary control plays a pivotal role in guiding organizational operations and strategic decision-making. Through detailed budget analysis, managers can evaluate performance, control costs, and align activities with the company’s objectives (Hilton & Platt, 2017). The following discussion addresses various aspects related to budgeting and cost management, as stipulated in the assignment questions.

Analysis of Budgetary Control Statements

First, let us evaluate the list of statements regarding budgetary control:

• Statement 1: Budget reports compare actual results with planned objectives—True. Budget reports serve as a performance benchmark, providing management with insights into deviations from the original plans (Drury, 2018).
• Statement 2: All budget reports are prepared on a weekly basis—False. The frequency of budget reports varies depending on management needs, often being monthly, quarterly, or semiannual, but not universally weekly (Horngren et al., 2019). A correction would be: "Budget reports are prepared periodically as needed, often monthly or quarterly."
• Statement 3: Management uses budget reports to analyze differences between actual and planned results and determine their causes—True. This process informs corrective actions or adjustments to future plans (Garrison et al., 2020).
• Statement 4: Analysis of budget reports may lead management to take corrective action or modify future plans—True.
• Statement 5: Budgetary control works best with an informal reporting system—False. Effective budgetary control relies on a formal and systematic approach for timely and accurate information flow (Shim & Siegel, 2012). Correction: "Budgetary control works best when supported by a formal reporting system."
• Statement 6: The primary recipients of the sales report are the sales manager and VP of production—Typically True. These managers use sales reports to monitor performance and inform strategy (Weygandt et al., 2018).
• Statement 7: The primary recipient of the scrap report is the production manager—Generally True.
• Statement 8: A static budget is a projection of budget data at one level of activity—True. Static budgets do not change with activity levels (Garrison et al., 2020).
• Statement 9: Top management’s reaction to unfavorable differences is unaffected by materiality—False. Materiality influences managerial reactions; insignificant variances may be ignored (Weygandt et al., 2018). Correction: "Top management’s reaction to unfavorable differences is influenced by the materiality of the difference."
• Statement 10: A static budget is inappropriate for evaluating cost control unless actual activity levels closely align with the static budget—True.

Sales Expense Budgeting and Analysis

The second question involves preparing a sales expense report comparing budgeted and actual expenses. The budgeted expenses are $30,000, $35,000, and $40,000 for January, February, and March, respectively. Actual expenses are slightly higher or lower: $31,200, $34,525, and $46,000.

For each month, the report compares budgeted versus actual expenses:

• January: Budget $30,000 | Actual $31,200 | Variance: $1,200 (Unfavorable)
• February: Budget $35,000 | Actual $34,525 | Variance: $475 (Favorable)
• March: Budget $40,000 | Actual $46,000 | Variance: $6,000 (Unfavorable)

YTD (Year-to-Date): Total Budget $105,000 | Total Actual $111,725 | Variance: $6,725 (Unfavorable). The report provides management with insights into expenses deviations and guides decisions, such as controlling costs or revising budgets (Weygandt et al., 2018).

The primary recipient of this report would be the cost control or management team. The purpose is to analyze variances and understand causes, such as increased activity or inefficiencies. The likely management response could include scrutinizing high-cost areas, implementing cost-saving measures, or adjusting future budgets (Garrison et al., 2020).

Responsibility Accounting and Cost Control

The third question involves preparing a responsibility report for the Mixing Department. Budgeted overheads include indirect labor ($12,000), property taxes ($1,000), indirect materials ($7,700), rent ($1,800), lubricants ($1,675), salaries ($10,000), maintenance ($3,500), and utilities ($5,000). Actual costs incurred are slightly higher or lower for each category.

The responsibility report calculates variances for controllable and uncontrollable costs:

The overall analysis suggests areas where costs exceeded expectations, such as indirect materials and utilities, indicating potential inefficiencies or unforeseen expenses. Management would investigate these variances and implement measures to control controllable costs, while monitoring uncontrollable costs like property taxes and rent (Shim & Siegel, 2012).

Return on Investment (ROI) Analysis

The final question involves analyzing the ROI of the West Division of Nieto Company, which reports sales of $3,000,000, variable costs of $1,980,000, controllable fixed costs of $600,000, and average operating assets of $5,000,000.

ROI is calculated as:

ROI = (Net Operating Income) / (Average Operating Assets)

Net operating income:

• Sales - Variable Costs - Controllable Fixed Costs = $3,000,000 - $1,980,000 - $600,000 = $420,000

Thus, the current ROI:

ROI = $420,000 / $5,000,000 = 0.084 or 8.4%

Proposed improvements include increasing sales by $320,000 with no change in contribution margin, reducing variable costs by $150,000, and reducing assets by 4%.

New sales: $3,320,000. New variable costs: $1,830,000. Fixed costs remain $600,000. New net operating income:

• $3,320,000 - $1,830,000 - $600,000 = $890,000

Job now, assets are reduced by 4%: new assets = $5,000,000 x 0.96 = $4,800,000.

New ROI:

$890,000 / $4,800,000 ≈ 0.1854 or 18.5%, significantly higher than initial 8.4%, indicating substantial improvement from proposed actions.

These analyses demonstrate how strategic decisions directly impact financial performance metrics such as ROI, guiding management in resource allocation and operational efficiency (Garrison et al., 2020).

Conclusion

Effective budgeting and control systems are fundamental to successful managerial performance. Accurate variance analysis, responsibility accounting, and ROI evaluations assist managers in decision-making, cost control, and strategic planning. The integrative approach to financial management detailed herein illustrates the importance of continuous analysis and improvement to meet organizational goals.

References

• Drury, C. (2018). Management and Cost Accounting. Cengage Learning.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2020). Management Accounting. McGraw-Hill Education.
• Hilton, R. W., & Platt, D. E. (2017). Managerial Accounting: Creating Value in a Dynamic Business Environment. McGraw-Hill Education.
• Horngren, C. T., Datar, S. M., Rajan, M. V., & Kostya, S. (2019). Cost Accounting: A Managerial Emphasis. Pearson.
• Shim, J. K., & Siegel, J. G. (2012). Budgeting and Financial Management for Nonprofit Organizations. John Wiley & Sons.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial & Managerial Accounting. Wiley.