Subject: Managerial Accounting
Q1. Read the following paragraph and write a response. If posible give an example with a references.
Limitation of Fixed Budget Performance Report (FBPR)
Fixed budget performance reports compares fixed budget with the actual results and variances are calculated for sales, direct materials, direct labor, overheads, expenses (both selling as well as general and administrative), and income. In the process, favorable and unfavorable variances are identified. But this process shows that, when the actual sales are more the the initial anticipated sales, the report shows that more expenses and overheads have incurred in account for additional sales. And the resultant variances are marked unfavorable. So, from the above, it is clear that fixed budget though sales and income have increased, would report the additional costs as unfavorable. But this is not appropriate because more sales is the target of organization and more production costs would be incurred in the process. So, fixed budget fails to provide a good comparison when actual sales are different from predicted sales (Wild & Shaw, 2016).
Q 2. Read the following paragraph and write a response. If posible give an example with a references.
From the managerial point of view, Variable Costing provides a greater number of information, besides offering greater agility in order to assist managers in decision making. Thus, this costing method has greater information power, since it treats the separate fixed costs as expenses, and there is no need for apportionment. Although this method is not accepted by the tax authorities, nothing prevents the company from adopting it for management purposes (MARTINS, 2008).