1. BUDGETARY CONTROL & RESPONSIBILITY ACCOUNTING 25  Static budget reports  Flexible budgets  Responsibility accounting  Responsibility centers

2. 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 $ 32,940 171,800 59,200 $ 263,940 $ 11,460 $ 660 F 4,400 F 2,200 U $ 2,860 F $ 1,740 U

3. 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 $ 32,940 171,800 59,200 $ 263,940 $ 11,460 $ 540 U 1,000 F 2,200 U $ 1,740 U $ 3,660 F

4. Responsibility Accounting Delegation of decision-making power. Managers have: authority to make decisions responsibility for meeting objectives Decentralization

5. 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

6.  cost center (expenses only)  investment center (revenue, expenses, & assets)  profit center (revenue and expenses) Total Revenue Total Expenses Net Income Actual $ 275,400 263,940 $ 11,460 Total Assets$180,000 Return on Investment (ROI): $11,460 $180,000 = 6.4% Responsibility Centers

7. France $ 75,400 71,600 $ 3,800 $ 2,400 22,900 (7,300) $ 18,000 21.1% 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

8. Note: old equipment high ROI France $ 75,400 71,600 $ 3,800 $ 2,400 22,900 (7,300) $ 18,000 21.1% Italy $ 42,500 40,100 $ 2,400 $ 1,500 18,700 (10,200) $ 10,000 24.0% 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