Budgetary control

Budgetary control is the process during which actual results are ascertained and compared with budgeted figures (variance analysis). The found differences are called variances (or deviations) and are usually further analyzed.  A remedial action can be taken based on this analysis. The correctiv

Direct labor cost variance

Direct labor cost variance can be split into:   Direct labor rate variance Calculation:  actual total direct labor costs - (total actual labor hours worked  x  budgeted labor hour rate) Interpretation: calculates the portion of labor costs variance driven by the changed la

Variable production overheads variance

Variable production overheads variance is calculated similarly as direct labor cost variance. Only variable production overhead per labor hour must be calculated instead of labor rate.   Example Budget: 10 labor hours per €10/hour are necessary to produce a unit; produced output is 1 00

Budgeting and forecasting techniques

Techniques used for forecasting/budgeting can be differentiated into: subjective / qualitative – e.g. consensus of a working group, brainstorming meetings, customer surveys etc. objective / quantitative - mathematical or statistical approach applied to past results from which future trend

Simple moving average

Moving average is very simple method used to predict future based on the past results.  It works well if there are no seasonal or cyclical elements included in the past data. It is calculated as an average of defined number ongoing periods.   Příklad   Calculation of 3-mo

Profit center

Profit center is responsibility center, for which expenses and incomes (i.e. not investments) are specifically collected and analyzed. The objective of this type of responsibility center is profit maximization. Profit center can for example be a project, entire factory or shop as these objects have

Variance analysis

The purpose of variance analysis is to ascertain the quantitative deviation between budgeted, forecasted or otherwise estimated figures and accounting actuals and analyze this deviation into bigger detail. It is a valuable control mechanism.   Factors to consider when deciding whether it is w

Direct material cost variance

Direct material cost variance can be split into:   Direct material price variance Calculation:  actual total material costs - (actual quantity of total material used x budgeted price per unit of material used) Interpretation:  calculates the portion of variance driven by the ch

Fixed production overheads variance

In absorption costing, the total variance in fixed production overheads is equal to the amount of unabsorbed overheads, i.e.   total actual overheads – overheads absorbed to products = total actual overheads – (budgeted overheads per unit of production quantity * actual production

Time series

Time series represent a sequence of data for several time periods (hour, days, weeks, months, year). Independent variable is always time (axis x).  Time series is used to predict future and it has several components: trend – represent long-term movement;  can be developed by regre

Responsibility center

Responsibility center is an object for which costs/revenues/capital expenditures are specifically collected and analyzed. Each responsibility center is usually managed and controlled by a separate manager. The entity is often internally split into various types of responsibility centers for the pu

Cost center

Cost center is responsibility center, for which expenses (i.e. not revenues or investments) are specifically collected and analyzed. Cost center objective is minimization of costs.  Cost centers usually manufacture goods or provide services for the rest of the entity as these objects incur cost

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