Question

In: Accounting

1. What are some of the issues around performance evaluations regarding costs & budgets? How do...

1. What are some of the issues around performance evaluations regarding costs & budgets? How do you address these issues?

2. What is the purpose for using standardized costs? How is it helpful (or is it helpful?) to managers?

Solutions

Expert Solution

A.some of the issues around performance evaluations regarding costs & budgets :

1.Since this budgeting method is goal-oriented, there is no qualitative evaluation. Also, it can be difficult to determine how well a specific department or team will be performing. What looks good on paper may not work in the real world.

2.In order for performance budgeting to work, a company must be willing to decentralize their accounting process. They must also decentralize their systematic reporting mechanisms. This usually doesn’t happen because it is seen as too big of a change, which means more red tape ends up being added to the mix instead of less.

3.The fact is that not every action a business takes has a definable metric. Sometimes you’ve got to take a risk and go where your gut is leading. Performance budgeting would discourage this process because there is no evidence or metric that can be measured to determine financial success. In many ways, this type of budgeting is more about maintaining the status quo instead of growing, so it may not always be the right choice to make.

4. performance budgeting may not work for long-term projects.

B.purpose for using standardized costs :

1.The main purpose of standard costs is to provide management with information on the day-to-day control of operations. Standard costs are predetermined costs to provide a basis for more effective control over costs. The standards costs provide an indication of the criterion by which something can be analyzed

2.company's managers can use budgets to see if the price increases ... in a way that will be useful for making operational decisions about your company.


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