ACCT1021 Lecture Notes - Lecture 13: Direct Labor Cost, Task Analysis, Controllability
4 Apr 2017
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Document Summary
The forecasts involved in budgets become the internal yardsticks for judging future performance both for the organization and for managers. Who is responsible for executing the plan: managers are various levels. How does one ensure that managers execute the plan as originally intended: assigning responsibility, awarding decision rights, measure variations from the plan and link compensation to performance relative to the plan. Key issue: how do you analyze/interpret variations from the plan: this is a key control function. The difference between standard cost and actual cost is cost variation: comparison between standard and actual performance level. How do you set cost standards: analysis of historical data, task analysis, incorporate projected trends. Let"s say that ford"s net income and cash from operations comes in lower than forecasted. Ford"s analysis reveals that this is because the cost of raw material for production for ford was higher than the standard cost: in particular, the cost of aluminum used in a mustang.
