In break-even all the cost are fixed or variable. It is just from supply sides which for cost. It assumes that fixed costs are constant. Although this is true in the short run, an increase in the scale of production is likely to cause fixed costs to rise. It assumes average variable costs are constant per unit of output, at least in the range of likely quantities of sales.
1.2.1. Cost Volume Profit Analysis (i) Meaning CVP analysis studies the relationship between volume of sales, cost of production and profit. Under the method of analysis cost is divided into fixed cost and variable cost. A change in the cost affects the profit. CVP analysis helps in quantifying the change.
It guides managers at the time of actual implementation. Budgeting acts as a check in anticipating problems of the business and in implementing corrective measures to overcome them. (ii) Concept of Budgetary Control Meaning Budgetary control is the process by which budgets are prepared for the future period and are compared with the actual performance to observe thefor finding out variances, if any. The cComparison of between budgeted figures withand actual figures will help the management to find out variances and take corrective actions without any delay. Budgetary control system includes: • Preparation of Budgets • Co-ordination between the departments and establishing responsibilities • Comparison of actual performance with that of budget and acting upon results to achieve maximum profitability Definition of Budgetary Control “Budgetary Control is the process of, “Guiding and regulating activities with a view to attaining predetermined objectives, effectively and efficiently”.
Second is Variable costs these are cost that very in direct proportion to changes in the level of activity. If a factory shut down and stop production completely, no variable costs will be incurred. For example include direct materials, direct wages and direct expenses. Third is Semi variable these are costs that contain both fixed and variable costs elements, in other words, the costs are not perfectly fixed. Fourth is Stepped fixed costs these cost are fixed over the range of activity and then rises to a new level as activity change.
Variable costs are more or less constant per unit, but their total hesitates in direct ratio to the total mass of activity. The acquisition of equipment glorifies a fixed cost. As the mass of activity increases, the total cost of the equipment is disseminate over an increasing number of units. Therefore, the cost per unit falls less and less. On the other hand, illustrate variable costs.
The organization communicates with the outside parties concerning the matters which affect the roles of the internal controls. Control objectives 13. The organization normally selects and then improves the control activities which contribute to the modification of the risks to the accomplishment of the objectives to the satisfactory levels. 14. The organization chooses and improves the overall control activities over the technology in order to support the accomplishment of objectives.
Definitions Organizational control – this term consents with the management science, control is defined as a process through which managers direct attention, motivate, and encourage organization’s members to act in desirable ways that lead to achieve the organization's objectives (Jaeger and Baliga, 1985; Merchant, 1988; Ouchi, 1977, 1979; Snell, 1992). Control mechanisms – describe the components of organizational control (e.g., standards, policies, norms) that are applied in control processes. Some researchers suggest that control mechanisms are either formal or informal according to their position along the formality continuum (Anthony, 1952; Barnard, 1938; Blau and Scott, 1962; Makhija and Ganesh, 1997; Merchant, 1985). Others, like Sitkin
If absorption costing is adopted in the report , the fixed manufacturing included in the analysis in a product cost would lead to a big differences in setting product selling price compared to variable costing. Referring Exhibit 2, using product A51 as an example, the unit gross profit was £320 and the contribution margin is £275, the differences can up to £95. For division managers, the figure of manufacturing fixed overhead is useless, in other words, this will cause distortion in evaluating individual product performance such as supervisory salaries that result from the arbitrary allocation of common cost. Hence, when adopting variable costing, it is necessary for Owen to identify or decide which part of process manufacturing individual products should restructure, expanse or
A specific set up for the utilization of the organization’s resources in pursuit of the strategy A budget may be a set of interlinked plans that quantitatively describe AN entity\'s projected future operations. A budget is employed as a yardstick against that to live actual in operation results, for the allocation of funding, and as an idea for future operations. The budgeting method usually begins with a method designing session by senior management. The management team then applies the united strategic direction to a series of plans that roll up into a master budget. The plans embody a sales budget, production budget, direct materials budget, direct labor budget, producing overhead budget, sales and body budget, and stuck assets budget.
As a result, it is important to clearly allocate and communicate responsibilities for budget planning, coordination and development at the beginning of each process. As Periasamy (2010) noted, in larger-scale concern, budget officers can be assigned to line areas at different stages in the budget process. In small concerns, coordinating budget liaison through an appointed budget officer who acts as a single point of contact for all budget related queries helps to facilitate and coordinate the budgeting activity and to ensure that feedback is provided in a timely and consistent manner (Periasamy,