![]() |
C. The Planning function - the operation planning reports.Date: 2015-10-07; view: 499. For a long time the role of accounting in business was confined to (1) reporting on past operations of a company and (2) revealing the extent to which past activities deviated from budgeted plans arid objectives developed by management. Gradually, however, managements came to ask accountants for help in planning and budgeting future activities of the company, and the third function of accounting came into being. The modern accountant now aids management in solving the most difficult of all management problems: deciding what to do in the future. As an example of the complexity of the planning function, not only must a dress manufacturer forecast the types of dresses the female members of our society will want next year and arrange to have them available at the time they are wanted, but he must also estimate how many of each type will be wanted in various sizes. Further, the firm's management must plan the most efficient way to produce the dresses in order to compete with other companies. Problems such as these require planning reports from accountants. One accounting function in the planning activity is the development of expense and revenue estimates of different plans. That is, after management has developed several proposals for future activities, an accountant should gather together estimates of expenses and revenues of each possible future activity. To illustrate, assume the production manager of the Cargo Company wants to expand production from 100,000 units to 150,000 units a year because he knows the cost per unit of production can be reduced by doing so, whereas the sales manager wants to expand production by only 10,000 units because he knows the advertising needed to sell 50,000 units will be very expensive and the sales price will have to be reduced from $ 10 per unit to $ 9 per unit. An accountant might investigate each proposal and present a planning report to the president of the company somewhat along the following lines:
|