Chapter 15 - Cost control. After reading this chapter, you should be able to answer the following questions: Why are all costs controllable by someone at some time, but in the short run some costs may be classified as noncontrollable? How does performance reporting facilitate the management-by-exception process? How can the operating results of segments of an organization be reported most meaningfully? . | 2008 The McGraw Hill Companies Inc. All Rights Reserved. 1 McGraw Hill Irwin Copyright 2014 by The McGraw Hill Companies Inc. All rights reserved. Chapter 15 Cost Control PowerPoint Authors Susan Coomer Galbreath . CPA Charles W. Caldwell . CMA Jon A. Booker . CPA CIA Cynthia J. Rooney . CPA McGraw Hill Irwin Copyright 2014 by The McGraw Hill Companies Inc. All rights reserved. 1-3 LO 2 Performance Report Characteristics Budget Actual Activity Amount Amount Variance Explanation Favorable Favorable Actual Actual revenues revenues gt gt Budgeted Budgeted revenues revenues Actual Actual costs costs Budgeted Budgeted costs costs McGraw Hill Irwin 15 3 2008 The McGraw Hill Companies Inc. All Rights Reserved. 1-4 LO 2 Performance Report Characteristics Responsibility Responsibility Reporting Reporting Amount Amount of of detail detail varies varies according according to to level level in in the the organization. organization. Management by exception Upper-level management does not receive operating detail unless activities are not performing according to plan. The vice president of operations receives summarized information from each store. 2008 The McGraw Hill Companies Inc. All Rights Reserved. McGraw Hill Irwin 15 4 1-5 LO 3 The Flexible Budget Show revenues and expenses that should have occurred at the actual activity. May be prepared for any activity level within the relevant range. Reveal variances due to effective cost control or lack of cost control. Improve performance evaluation. McGraw Hill Irwin 15 5 2008 The McGraw Hill Companies Inc. All Rights Reserved. 1-6 LO 3 The Flexible Budget To a budget for different activity levels we must know how costs behave with changes in activity levels. Total variable costs change in direct proportion to changes in activity. le i ab r Total fixed costs Va remain unchanged Fixed within the relevant range. McGraw Hill Irwin 15 6 2008 The McGraw Hill Companies Inc. All Rights Reserved. 1-7 LO 4 Standard Cost
