P1 Exam Dumps : Management Accounting

The budget acts as a variable mechanism, with actual results being compared with budget.

Budgeting forces an organization’s management to look ahead and set performance targets.

The budget provides an external benchmark against which performance against which performance can be evaluated.

The budget ensures actions of different parts of the organization are coordinated are reconciled otherwise managers take actions for the benefit of their own part of organization that may not benefit the organization as a whole.

Another benefit of budgeting is to set targets to motivate managers and optimize their performance.

The budget is a useful device of influencing an operator’s thoughts and motivating operators to perform in line with the organization’s marketing budget.

It provides a standard which managers may be motivated to achieve. It can also encourage inefficiency and conflict between managers particularly if the budget is imposed from above, whereby it may act as a threat rather than as a challenge.

The total fixed overhead cost variance in an absorption costing system is the amount of fixed overhead that has been under- or over-absorbed in the period.

The total fixed overhead variance is made up of the fixed overhead expenditure variance, the fixed overhead efficiency variance and the fixed overhead capacity variance.

The fixed overhead volume variance can be split into the fixed overhead efficiency variance and the fixed overhead capacity variance.

The total fixed overhead cost variance in an absorption costing system is the difference between budgeted fixed overhead and actual fixed overhead incurred.

In a marginal costing operating statement reconciling budgeted contribution to actual profit only the fixed overhead expenditure variance and the fixed overhead volume variance are shown.

It avoids the complacency inherent in the traditional incremental approach where it is assumed that future activities will be very similar to current ones.

It discourages a questioning approach by focusing attention not only on the cost of the activity but on the benefits it provides. The charity managers will not articulate the benefits encouraging them to think clearly about the activities.

Preparation of the decision packages will normally require the environment of many employees. This environment may produce useful ideas and promote job satisfaction.

The creation of decision packages and their subsequent ranking by top management is very time consuming and costly. The charity will need to assess whether the benefits of the system outweigh the costs involved.

In an organization like a charity, the decision packages are not very disparate and difficult t compare.

In applying traditional budgeting, ‘activities’ may result in functional departments rather than cross functional activities and thus distract attention from the real cost-reduction issues.