comprehensive budget
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.
Instructions
Assessment 4 Part 1: Management Control Systems and Incentives
Answer questions about the incentive program at company XZ. Provide rationale for your responses.
Part 1 Scenario
XZ is a Fortune 100 diversified conglomerate with operations in many industries around the world. Top management focuses on the annual earnings in evaluating the performance of division managers. Each year is a new challenge for division managers.
The incentive plan includes an annual bonus that ranges from 7 to 20 percent of division managers’ salaries. There is an element of relative performance evaluation in that annual earnings targets are based on how well companies in the same industry are performing. Once the target is set, it is not changed during the year.
Failure to meet a division’s targeted earnings has serious consequences for the division manager. The manager can lose some or all of the potential bonus and will find their job in jeopardy. Missing a target two years in a row generally means that the manager will be replaced.
Complete the following:
What incentives does this plan give to division managers?
Is this a good plan? Would you want to be a division manager in this company? Why or why not?
Assessment 4 Part 2: Comprehensive Budget Plan
Prepared a budgeted income statement and balance sheet for United Mobile Corporation.
Part 2 Scenario
United Mobile Corporation appeared to be experiencing a good year. First quarter sales were one-third ahead of last year and the sales department predicted that this rate would continue throughout the year. The controller asked Megan Casey, a summer accounting intern, to draft a forecast for the year and analyze the differences from last year’s results. She based the forecast on first quarter results plus the expected production costs for the remainder of the year. She worked with production, sales, and other department heads to get the necessary information. The results of these efforts follow:
United Mobile Corporation: Expected Account Balances for December 31, Year 2
Item
Value
Value
Cash
$5,280
