The company employs 35 lab technicians to work on the production of Fludex. This may consist of senior members of the organisation, e.
Responsibility versus controlling, i. Problems in budgeting Whilst budgets may be an essential part of any marketing activity they do have a number of disadvantages, particularly in perception terms.
The use of a flexible budget ensures that a firm is prepared to some extent to deal with the unexpected turn around in events, and able to better guard itself against losses arising from such scenarios. Flexible budgets are, as their names suggest variable and flexible depending on the variability in the results expected in the future.
Inter-departmental sales are often made using "transfer prices". One compound, called Fludex, is prepared using an elaborate distilling process. Departures from budget can then be investigated and the reasons for the differences can be divided into controllable and non-controllable factors.
Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and ideally each manager, to anticipate and give the organisation purpose and direction. Fixed budgets and flexible budgets are different from each other in terms of the complexity in preparation, and business scenario that is mostly suited for each.
Like all management tools, the chapter highlights the need for detailed information, if the technique is to be used to its fullest advantage. In organising and administering a budget system the following characteristics may apply: Every part of the organisation should be represented on the committee, so there should be a representative from sales, production, marketing and so on.
What is fixed budget? Any differences variances are made the responsibility of key individuals who can either exercise control action or revise the original budgets.
Advantages of budgeting and budgetary control There are a number of advantages to budgeting and budgetary control: Budget organisation and administration: During November, 3, good units of Fludex were produced. Chapter objectives This chapter is intended to provide: Explain the activity variances.
This is because financial control was covered in detail in chapters one and two. Key terms There are two types of control, namely budgetary and financial. The company expected to work 2, repair-hours in May, but actually worked 2, repair-hours. The chapter looks at the concept of responsibility centres, and the advantages and disadvantages of budgetary control.
This is often coupled with "empire building" in order to enhance the prestige of a department. A fixed budget is much easier to prepare than a flexible budget since it does not require constant revision, whereas flexible budgets are much more complex since the scenarios considered are greater in number.
A possible disadvantage of this form of budgeting is known to be the fact that they may be complicated to prepare, especially when the scenarios being considered are numerous in number, and complex in nature.
Tutorials for this Question. Structure of the chapter Of all business activities, budgeting is one of the most important and, therefore, requires detailed attention. One of the major concerns is to ensure that the budgeted and actual figures reflect the same activity level.
Fixed budgets are more suitable for businesses that operate in a less dynamic business environment, whereas flexible budget are best for firms that operate in a turbulent market. What relation can you see between this efficiency variance and the labor efficiency variance?
In addition, keeping track is easier with fixed budgets, since the budget will not vary from time to time.
Fixed budgets are simpler to prepare and less complicated. Prepare a flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November.
If this control process is to be valid and effective, it is important that the variances are calculated in a meaningful way.
It then goes on to look at the detail of budget construction and the use to which budgets can be put. A budget centre may encompass several cost centres. What is flexible budget? Compute the rate and efficiency variances.These unfavorable results have led to a decrease in the company’s net operating income.
However, this variance report does not indicate reasons why these res. Answer to Exercise Preparation of a flexible budget performance report L.O. P1 Daytec Company. CHAPTER 7 FLEXIBLE BUDGETS, DIRECT-COST VARIANCES, AND MANAGEMENT CONTROL Management by exception is the practice of concentrating on areas not operating as expected and giving.
The four-month budgets do not change with any identified activity level; thus, they are static budgets. c. While Thompson’s budget might first appear satisfactory, Thompson must earn The flexible budget is a superior budgeting approach in this situation since wages and utility costs vary with production.
Thus, the budget for. View Homework Help - Chapter 9 from ACCT at Tacoma Community College. Chapter 09 Flexible Budgets and Performance Analysis Chapter 9 Flexible Budgets and Performance Analysis Exercise ( Flexible Budgets ACC/ May 14, Write a paper of no more than 1, words in which you discuss flexible budgets.
Explain the relationship between fixed and variable costs used in a flexible budget.Download