BUDGETARY CONTROL & RESPONSIBILITY ACCOUNTING 25 Static budget reports Flexible budgets Responsibility accounting Responsibility centers
Static Budget Budget 2,800Total Patient Days Revenue ($100/day) $ 280,000 $ 33,600Food ($12/day) 176,200Salaries ($81,000+$34/day) 57,000Other Exp. ($57,000) $ 266,800 Total Expenses Expenses $ 13,200Net Income Actual 2,700 $ 275,400 Difference $ 4,600 U $ 32, ,800 59,200 $ 263,940 $ 11,460 $ 660 F 4,400 F 2,200 U $ 2,860 F $ 1,740 U
Flexible Budget Budget 2,700Total Patient Days Revenue ($100/day) $ 270,000 $ 32,400Food ($12/day) 172,800Salaries ($81,000+$34/day) 57,000Other Exp. ($57,000) $ 262,200 Total Expenses Expenses $ 7,800Net Income Actual 2,700 $ 275,400 Difference $ 5,400 F $ 32, ,800 59,200 $ 263,940 $ 11,460 $ 540 U 1,000 F 2,200 U $ 1,740 U $ 3,660 F
Responsibility Accounting Delegation of decision-making power. Managers have: authority to make decisions responsibility for meeting objectives Decentralization
Advantages of Centralization decisions are always made in best interest of firm division managers have better information to make decisions less monitoring of managers Advantages of Decentralization greater efficiency from centralized services managers value autonomy
cost center (expenses only) investment center (revenue, expenses, & assets) profit center (revenue and expenses) Total Revenue Total Expenses Net Income Actual $ 275, ,940 $ 11,460 Total Assets$180,000 Return on Investment (ROI): $11,460 $180,000 = 6.4% Responsibility Centers
France $ 75,400 71,600 $ 3,800 $ 2,400 22,900 (7,300) $ 18, % Revenue Operating exp Net income Assets Current assets Plant & equip Accum deprec. Total assets ROI Improve ROI by … Increasing revenue Decreasing expenses Decreasing assets ROI
Note: old equipment high ROI France $ 75,400 71,600 $ 3,800 $ 2,400 22,900 (7,300) $ 18, % Italy $ 42,500 40,100 $ 2,400 $ 1,500 18,700 (10,200) $ 10, % Revenue Operating exp Net income Assets Current assets Plant & equip Accum deprec. Total assets ROI Which branch is doing better? More total income. Higher return ROI