ACC 202: Final Project Part II
Southern New Hampshire University
A budget is “a financial plan that managers use to coordinate a business’s activities” (Nobles, Mattison, & Matsumura (2014) pg. 1316). In creating these budgets management will be able to decide if they should make or buy certain products. The initial budget process is the manager creating strategies. Goals that need set such as where do they want to expand, buy equipment, or become a valued competitor in a certain market.
Where budget and actual figures differ, is called a variance. A variance is the difference between an actual amount and a pre-determined standard amount or measure of amount of spread in a distribution. A variance could also be a cost variance, where actual costs may be different from the estimated standards for costs. Variances can be favorable or unfavorable.
A variance from standard cost is considered favorable if the actual cost is less than the standard or budgeted cost, If the workers who are creating the products are trained more efficiently it could result in less hours being used to finish the product. The initial budget process indicates the difference between the actual sales or actual amount and the budgeted sales due to the variances for materials, labor, and overhead.
The variances for materials, labor, and overhead impacted on the actual sales or figure of the company that should be needed to include in a budget variance performance report. The changes in the price and supply of materials, labor, and overhead create appropriate variance between original budget and actual sales. Short-term business decisions made by Peyton Approved will help decide if they should make or buy a certain product. Relevant and irrelevant costs are part of this decision making process. Relevant nonfinancial information is important
Make” or “Buy”
Make-or-Buy decision (also called the outsourcing decision) is a judgment made by management whether to make a component internally or buy it from the market. While making the decision, both qualitative and quantitate factors must be considered. Examples of the qualitative factors in make-or-buy decision are: control over quality of the component, reliability of suppliers, and impact of the decision on suppliers and customers. Ethical considerations of a decision and implications, the main ethical considerations related to make or buy is the environment aspects. The decision maker always considered the environment aspects that means the make or buy decision would not harm the environment and nature of the country.
Nonfinancial Performance Measures:
Choosing performance measures is a challenge. Performance measurement systems play a key role in developing strategy, evaluating the achievement of organizational objectives and compensating managers. They believed there were too much emphasis on financial measures such as earnings and accounting returns and little emphasis on drivers of value such as customer and employee satisfaction, innovation and quality. (Puttick, Esch ; Esch, 2008).
Inadequacies in financial performance measures have led to innovations ranging from non-financial indicators of “intangible assets” and “intellectual capital” to “balanced scorecards” of integrated financial and non-financial measures. This article discusses the advantages and disadvantages of non-financial performance measures and offers suggestions for implementation. (Puttick, Esch ; Esch, 2008). Although non-financial measures are increasingly important in decision-making and performance evaluation, the choice of measures must be linked to factors such as corporate strategy, value drivers, organizational objectives and the competitive environment. In addition, companies should remember that performance measurement choice is a dynamic process – measures may be appropriate today, but the system needs to be continually reassessed as strategies and competitive environments evolve.
Nobles, T. L., Mattison, B. L., Matsumura, E. M. (2014). Horngren’s financial and managerial accounting (4th ed.). Upper Saddle River, NJ: Pearson Education, Inc.
Puttick, G., D., V. E., & Kana, S. P. (2008). The principles and practice of auditing. Lansdowne: Juta.