MGM222H5 Lecture Notes - Lecture 10: Budget, Controllability

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14 May 2018

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Overview

- Budgetary control

- Static budget

- Flexible budget

- Responsibility accounting

Budgetary control:

- Budgeted or forecasted amount -----------=------------ actual amount (comparing)

- Timely basis

- So that you take corrective action

- Types of budgets?

◼ Sales: meeting the target( top managers and sales managers)

◼ Labour: controlling their direct and indirect labours to keep their costs down (production

manager)

Static budget reports

- At one level of activity

- Always compares actual results with the budget data at the activity level used in the master

budget

- Ex) sales budget:

◼ Budgeted amount = 10,000 --------------- actual amount= 11,000 = 1,000 favourable

◼ Opposite: 1,000 unfavourable

- Limitations:

◼ Appropriate for fixed costs but not appropriate for VC

Flexible budget

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