Comparison of Actual Operations with Budget
Date: 2015-10-07; view: 463.
Alpha Company
| Budget | Actual | Variations | |
| Sales – 10.000 units…….. | $ 110,000 | $ 100, 000 | $ 10,000 Unfavourable |
| Expenses: | |||
| Cost of Merchandise | |||
| Sold – 10.000 units …….. | $ 65,000 | $ 60,000 | $ 5,000 Favourable |
| Delivery Expenses ……… | 7,000 | 5,000 | 2,000 Favourable |
| Wages and Salaries…… | 20,000 | 31,000 | 11,000 Unfavourable |
| Rent …………………….. | 6,000 | 6,000 | |
| Miscellaneous…………… | 3,000 | 2,000 | 1,000 Favourable |
| Total Expenses | $ 101,000 | $104,000 | $ 3,000 Unfavourable |
| Income (loss) for the year | $ 9,000 | $ (4,000) | $ 13,000 Unfavourable |
Other Appraisal Reports. Appraisal reports provide management with information on the degree of success or failure of various activities, products, people, equipment, and other aspects of business operations. To prepare these reports the accountant must select a normal standard of good performance and using data collected in the accounting record, compare actual costs and revenues with this standard to reveal the efficiency with which the objectives are attained.
Effective reporting on the activities of a company requires a great number and variety of accounting reports, including comparisons of actual results with results of other companies, results of engineering studies on desirable performance, and others. Underlying all these reports is an effort to disclose variation of actual expenses and revenues from the standard and thus indicate to management where corrective action is needed.
The usefulness of variations reporting depends on the existence of a reliable and accurate standard of good performance. Unless the standard is accurate, a variation of actual from the standard is of limited use. The establishment of appropriate standards or budgets requires careful planning.
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