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Management Accounting: Concepts,
Techniques & Controversial Issues

Chapter 9 Exhibits

James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

Chapter 9 | MAAW's Textbook Table of Contents

Exhibit 9-1: Conceptual View of Financial Performance

Conceptual View of Financial Performance


Exhibit 9-2: Cost Defined in Terms of Cause and Effect
Type of cost Cause and Effect
or Cost Benefit Relationship
Cost Behavior Examples
Discretionary Relationships are difficult or impossible to
define.
Fixed, variable and mixed in the short run. Cost of administrative and support services such as employee training, advertising, sales promotion, legal advice, preventive maintenance, and research and development.
Engineered Relationships are relatively easy to define. Variable in the short run. Direct resources used in production activities such as direct materials and direct labor and many indirect resources such as electric power.
Committed Relationships can be estimated, but not defined precisely. Fixed in the short run. Cost of establishing and maintaining the readiness to conduct business, such as the cost associated with plant and equipment.


Exhibit 9-3: Budget Types and Characteristics
Type of
Budget
Characteristics of
the Technique
Type of Cost
Expenditure
Examples
Appropriation A maximum amount is established for certain expenditures based on management judgement. Discretionary costs. Employee training, advertising, sales promotion and research and development.
Flexible A static amount (a) is established for fixed costs and a variable rate (b) is determined per activity measure for variable costs,
i.e., Y = a + bX
The static amount (a) includes both discretionary and committed costs while the flexible part (b) includes engineered costs per X value. The static part: salaries, depreciation, property taxes and planned maintenance. The flexible part: direct material, direct labor and variable overhead. Also, some costs related to sales reps such as sales commissions and travel.
Capital Decisions concerning potential investments are made using discounted cash flow techniques. Committed costs. New plant and equipment.
Master A comprehensive plan is developed for all revenue and expenditures. Discretionary, engineered and committed costs. All revenue and expenditures for any company.


Supplementary Exhibit: Types of Appropriation Budgets
Type Basis of Budget Amount
Incremental Last year’s budget plus an increment.
Priority Incremental Last year’s budget plus an increment, but includes the manager’s priority of increases and possible decreases by activity.
Zero Based Manager must supply detailed justification for the entire budget each budget period. In practice few budgets were ever zero based. Eighty percent based is more common.

Exhibit 9-4: Diagram of a Master Budget

Diagram of a Master Budget

Supplementary Exhibit: Responsibility Accounting
Responsibility Centers Evaluation Method
Revenue Centers Sales
Cost Centers Cost
Profit Centers Profitability Measure
Investment Centers Return on Investment

Figure 9-1: Standard & Budgeted Fixed Overhead Compared

Standard and Budgeted Fixed Overhead Compared

Figure 9-2: Standard and Budgeted Total Overhead Compared

Standard and Budgeted Total Overhead Compared