UOPX ACC 206 - Chapter 22: The Master Budget and Responsibility Accounting
Course Acc 206-
Pages 7

Unformatted text preview:

2. Efficiency3. Price Fixing4. ManagementWeek 5 DQ’s - ACC206 - Principles of Accounting II Tutorial - Ashford UniversityRequired Readings1. Chapter 22: The Master Budget and Responsibility Accounting2. Chapter 23: Flexible Budgets and Standard CostsDiscussionsThe Master Budget and Responsibility Accounting. From Chapter 22, Ethical Issue 22-1.Ethical Issue 22-1(20 min.) This case centers on the ethics of padding the budget—andwhether the motivation for this action (personal gain oroperational efficiency) makes a difference. 1. What is the ethical issue?The new bookkeeper’s query about the 15% increase in thebudget requires the assistant manager/controller to considerthe ethics of padding the budget. The hotel manager expectsthe assistant manager/controller to inflate parts of the masterbudget. There are several ethical considerations involved inthis issue:Controller’s integrity and vs. Controller’s self-interest professional responsibilityand job protectionController’s loyalty and vs. Controller’s loyalty toresponsibility to companymanagerHotel’s operational vs. Fairness to company’seffectiveness other hotelsCLR comment on the above: the way the original exercise is written, there is no reason to think that Dunn has any doubts or second thoughts about the budget issue (with the possible exception of the ambiguous word “initially”). So thestatement above :“The new bookkeeper’s query requires themanager/controller to consider the ethics of padding the budget” does not follow from the facts of the case as presented.2. What are my options?Dunn’s alternatives include:a. Continue budgeting as in the past, i.e. adding additionalfunds to the labor and supplies budget.b. Discuss the matter with Murry to clarify his policy anddiscover whether company headquarters condones thepolicy. Dunn should also try to gauge Murry’s motivations forincreasing the budgeted amounts.c. If Murry provides an unsatisfactory response, Dunn couldcontact company headquarters.3. What are the possible consequences?Continue budgeting as before: This avoids a possibleconfrontation with Murry and the hotel will continue tooperate as before. However, Dunn’s integrity iscompromised. Dunn may rationalize this alternative if shedecides to observe how Murry uses the budgetary slack overthe next year. In effect, Dunn is waiting to gather moreinformation. However, if headquarters managers uncover theintentionally inflated budget, they may reject this year’sbudget.Discuss matter with Murry: Murry has already explained hisposition. He may not want to discuss it again, which couldstrain their working relationship. However, this would seemless likely if Murry really believes his actions are in the bestinterests of his hotel and the company, rather than to protecthis own bonus. The discussion should help clarify Dunn’sethical dilemma. If Murry believes he is acting in the bestinterests of the hotel and company, then Dunn can considerother ways of operating the hotel effectively without paddingthe budget. Murry might welcome such suggestions, whichwould enhance Dunn’s reputation.Contact company headquarters: Going over the manager’shead directly to company headquarters would damage therelationship between Murry and Dunn. Murry may even fireDunn. Dunn does not have enough information to take thisstep. If the company officially or unofficially accepts thislevel of slack, then approaching headquarters coulddamage Dunn’s reputation, especially since the companyhas approved the master budget in the past. At the most,Dunn could ask headquarters for information on thecompany’s budgeting policies.4. What should I do? Given the uncertainty over Murry’s motivation and thecompany’s position, students’ decisions will depend onthe information upon which they focus. Clearly, theassistant manager/controller should not simply ignore theissue, but she is not in a position to complain to companyheadquarters about the manager. A combination of thefirst and second alternatives would be a reasonablecourse of action.Flexible Budgets and Standard Costs. What are the benefits of standard costs and how do businesses set those standards?When compared to other costing methods, there are several decided advantages associated with standard costing. We’ll take a look at four major ones.The Chartered Institute of Management Accountants (CIMA) defines standard cost as the predetermined cost based on technical estimates for materials, labor, and overhead for a selected period; for a prescribed set of working conditions. Standard costing pre-determines all costs, compares them with actual costs, and analyzes the reasons for variance. The management then either takes steps to eliminate the variance, or revise standard costs based on new realities.The standard costing methodology offers many advantages, and many companies prefer this costing method over others methods such as process costing, or historical costing. Here we look at 4 advantages of standard costing.One of the direct advantages of standard costing lies in cost control. Comparing standard costs with actual costs pinpoint areas where costs have gone out of control, allowing management to take remedial actions. The variance provides management with a fixed quantifiable target when undertaking such remedial actions.The emphasis on variations from standard costs promotes cost consciousness and a culture of thrift and efficiency-orientation across the board, helping organizations control costs.Standard costing also provides management with a measure of the latest developments such as rising prices, allowing revision of selling prices or making process adjustments.2. EfficiencyStandard costing indirectly contributes to process efficiency. Fixing standard costs requires a detailed study of different aspects of the business and its processes. For instance, determining manufacturing expenses requires a time and motion study, and determining standard inventory costs mandates of study of material control processes. Very often, such studies bring to light various inefficiencies and defects, providing managers with a ready opportunity to correct such mistakes and promote efficiency.The


View Full Document

UOPX ACC 206 - Chapter 22: The Master Budget and Responsibility Accounting

Course: Acc 206-
Pages: 7
Download Chapter 22: The Master Budget and Responsibility Accounting
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Chapter 22: The Master Budget and Responsibility Accounting and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Chapter 22: The Master Budget and Responsibility Accounting 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?