Assessment 4: Using Cost Accounting Data to Evaluate Management Control Systems
Complete a five-part assessment in which you apply your knowledge of management control systems, prepare a comprehensive budget, apply your knowledge of performance measures, prepare a flexible budget and analyze variances, and use a balanced scorecard for performance evaluation.
Introduction
The master budget is the primary output of a comprehensive budgeting system that ties together all phases of the organization’s operations. It creates many separate budgets or schedules that are interdependent and are prepared sequentially—from the sales budget to an income statement.
While the master budget is prepared for a single level of activity, a flexible budget is prepared for a range of activities within which the organization operates. The purpose of a flexible budget is to compare a budget that responds to varying sets of conditions with the organization’s actual results.
In addition to master and flexible budgets, many business organizations use standards to help manage costs and profits. By definition, a standard is a benchmark performance level. For example, manufacturing companies set standards for the amount and price they are willing to pay for direct materials, and for the amount and rate paid for direct labor used in the conversion process. At the end of the accounting period, management personnel will compare the standards to actual results, using this information to plan for the next operating cycle.
Complete a five-part assessment in which you apply your knowledge of management control systems, prepare a comprehensive budget, apply your knowledge of performance measures, prepare a flexible budget and analyze variances, and use a balanced scorecard for performance evaluation.
Preparation
Use the Assessment 4 Template [XLSX] to complete the following five parts. Each part is a different tab in the template.
- Part 1: Answer questions about the incentive program at company XZ. Provide rationale for your response
- s in a few paragraphs.
- Part 2: Prepare a budgeted income statement and balance sheet for United Mobile Corporation.
- Part 3: Calculate divisional income, operating margin, ROI, and residual income for two divisions of Wellness Pharmaceuticals. Analyze the financial performance of the two divisions based on your review of their selected financial data.
- Part 4: Review sales revenue, manufacturing costs, and all other fixed costs to prepare a flexible budget for Oak Grove, Inc.
- Part 5: Prepare a cost variance analysis for the variable costs at Delmar Products.