Standard Costing (3) Flashcards
What does the principle of controllability mean?
Managers of responsibility centres should only be held accountable for costs over which they have some influence
How is budgetary control based around/
A system of budget centres
What does each buidget centre have?
It’s own budget and a manager will be responsible for managing the budget centre and ensuring that the budget ismet
What is responsibility accounting?
A system of accounting that segragates revenue and costs into areas of personal responsibility to monitor and assess performance of each part of an organisation
What are controllable costs?
Items of expenditure which can be directly influenced by a given manager within a given time span
Where must care be taken in controllable costs?
To distinguish between controllable costs and uncontrollable costs in variance reporting
Importnace of controllable costs from a motivational point of view?
It can be demoralising for managers who feel that their performance is being judged on basis of something over which they have no influence
Importnace of controllable costs from a control point of view?
Control reports should ensure that information on costs is reported to the manager who is able to take action to control them
What does responsibility accounting attempt to do?
Associate costs, revenues, assets and liabilities with managers most capable of controlling them
Why are most variable costs within a dpeartment are thought to be controllable in short-term?
As managers can influence the efficienci with which resources are used, even if they cannot do anything to raise or lower price levels
What are committed fixed costs?
Costs arising from possession of plant, equipment, buildings and an administration department to support the long-term needs of the business
Are committed fixed costs non-controllable/
These costs (depreciation, rent, administration salaries) are largely non-controllable in short-term as they have been committed to by longer-term decisions affecting longer-term needs
When a company decides to cut production drastically for long-term committed fixed costs?
Long-term committed fixed costs will be reduced, but only after redundancy terms have been settled and assets sold
What are discretionary fixed costs?
Incurred as a reuslt of a top management decision, but could be raised or lowered at fairly short notice
Examples of discretionary fixed costs?
Advertising costs
Research and development costs
