Task Team of FUNdAMENTAL aCCOUNTING School of Business. Sun Yat-sen U Cash Budget Budgeted Budget Expected Income d Receipts Statemen Balance Disbursement Budgetary Control Capital Budgeting Capital budgeting analyzes alternative long-term investments and deciding which assets to acquire or sell. These decisions require careful analysis since: (1)The outcome is uncertain; (2) Large amounts of money are usually involved; (3)Investment involves a long-term commitment; (4) Any decision may be difficult or impossible to reverse Zero-based Budgeting Zero-based budgeting are prepared assuming no previous activities for the activities being planned. Managers must justify the amounts budgeted for each activity. It is popular among government and non-profit organizations Fixed Budget Fixed budgets are prepared for a single, predicted level of activity Performance evaluation is difficult when actual activity differs from the predicted level of activity For example: How much of the unfavourable cost variance is due to higher activity, and how much is due to poor cost control? To answer these questions, we must flex the budget to the actual level of activity Flexible (Variable) Budgets Flexible budgets are prepared after a period's activities are omplete. They show revenues and expenses that should have occurred at the actual level of activity. Flexible budgets reveal cost variances due to good cost control or lack of cost control which improve performance evaluation. Since flexible budgets prepare a budget for different activity levels, we must know how costs behave with changes in activity levels. Total variable costs change in direct proportion to hanges in activity; Total fixed costs remain unchanged within the relevant range Standard Costs and Variance Analysis Standard Costs Standard costs are preset costs for delivering a product or service under normal conditions, which are established through personnel, engineering and accounting studies using past experience. Standard costs are benchmarks used in evaluating performance, and are andard cost card Standard Quantity or Standard Price or Standard Cost factor Hours Rate CostTask Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University Budgetary Control Capital Budgeting Capital budgeting analyzes alternative long-term investments and deciding which assets to acquire or sell. These decisions require careful analysis since: (1) The outcome is uncertain; (2) Large amounts of money are usually involved; (3) Investment involves a long-term commitment; (4) Any decision may be difficult or impossible to reverse. Zero-based Budgeting Zero-based budgeting are prepared assuming no previous activities for the activities being planned. Managers must justify the amounts budgeted for each activity. It is popular among government and non-profit organizations. Fixed Budget Fixed budgets are prepared for a single, predicted level of activity. Performance evaluation is difficult when actual activity differs from the predicted level of activity. For example: How much of the unfavourable cost variance is due to higher activity, and how much is due to poor cost control? To answer these questions, we must flex the budget to the actual level of activity Flexible (Variable) Budgets Flexible budgets are prepared after a period’s activities are complete. They show revenues and expenses that should have occurred at the actual level of activity. Flexible budgets reveal cost variances due to good cost control or lack of cost control, which improve performance evaluation. Since flexible budgets prepare a budget for different activity levels, we must know how costs behave with changes in activity levels. Total variable costs change in direct proportion to changes in activity; Total fixed costs remain unchanged within the relevant range. Standard Costs and Variance Analysis Standard Costs Standard costs are preset costs for delivering a product or service under normal conditions, which are established through personnel, engineering, and accounting studies using past experience. Standard costs are benchmarks used in evaluating performance, and are often used in setting budgets. A standard cost card: Cost factor Standard Quantity or Hours Standard Price or Rate Standard Cost Cash Budget Expected Receipts and Disbursement s Budgeted Income Statemen t Budgete d Balance Sheet