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Introduction

In the previous lesson, you prepared a master budget for a manufacturer; this master budget contained a number of variables that needed to be estimated. The most important variable estimated was sales volume. This lesson addresses what will happen if you make a mistake in estimating sales volume. You will compare the actual results of operations to the amounts estimated in your budgets, analyzing the difference between actual and budgeted amounts. Finally, this lesson will look at how large organizations manage companies through decentralization.

Lesson Objectives

After completing this lesson, you should be able to do the following things:

• Prepare static and flexible budgets.
• Prepare flexible budget performance reports.
• Identify the various standards used in budgeting.
• Calculate and analyze the variances for direct materials, direct labor, and variable factory overhead.
• Explain why companies use responsibility accounting.
• Use responsibility reports to evaluate cost, revenue, and profit centers.
• Calculate return on investment and residual income for an investment center.

Lesson Readings and Activities

By the end of this lesson, make sure you have completed the readings and activities found in the Lesson 14 Course Schedule.