Very often, managers are called upon to make decisions “by the numbers.” In this Assignment, you will sort through a budget report from a fictitious organization in order to make decisions about productivity levels.

This assignment will have two parts one doing excel and the other word document

Part 1: Prepare a performance report using spreadsheet software, such as Excel. 

Part 2: For the next section of this Assignment, please utilize a word processing software (such as Word) to complete the following:

• Write a short memo to your supervisor explaining your findings and your recommendations.
• In your memo, as part of your recommendations, take a position on the following: Do all the variances in this example need to be examined? Why or why not?

IN the attachment shows briefly sources for help.

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WMBA 6050: Accounting for Management Decision Making
Week 2 Weekly Briefing

Welcome to Week 2! In Week 1, you were introduced to accounting as the language of
business. You looked at various annual reports and compared the contents. You
noticed that some items occurred in every annual report. These were the Management
Discussions and Analysis (MD&A), the four basic financial statements, the report of the
independent auditors, and the notes to the financial statements. You began to build an
accounting vocabulary, learned the interrelationship between the four basic financial
statements, discussed fraud issues, and studied the difference between financial
accounting and managerial accounting.

In Week 2, you will continue to build your accounting vocabulary as you study the
budgeting aspect of management accounting.

This week:

In terms of the specific Learning Objectives, you will:

• Analyze the influence of financial and managerial accounting on decision making

• Evaluate forecasts, strategic plans, and budgets on organizations

• Analyze stakeholder involvement in budgeting processes

• Prepare performance reports

• Analyze performance report results

• Evaluate variances

In terms of the course-level Learning Outcomes, you will:

• Evaluate various accounting measures and their relevance to a wide range of
stakeholders

• Analyze various types of budgets, strategic planning, and forecasting

• Employ managerial accounting approaches and information to make effective
decisions

• Demonstrate effective communication skills to present accounting information to
stakeholders

• Assess managerial accounting tools and their usefulness to organizational
leaders

• Apply accounting principles ethically and appropriately to personal and
professional contexts

Budgets

A budget is defined as “the formal expression of plans, goals, and objectives of
management that covers all aspects of operations for a designated time period.” (Shim,
Siegel, & Shim, 2012) It can be as simple as a handwritten piece of paper for a small

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one-person company that lists the anticipated revenues for the month followed by the
expected bills that must be paid, or it can be elaborate computer-based financial
modeling software. Listed below are some commonly used budgeting software
products. There are pros and cons to different types of software and each organization
needs to find a product that fits its needs.

• Advisory Board Company. (2013). ActiveStrategy [Computer software].
Retrieved from www.activestrategy.com

• Centage. (2014). Budget Maestro [Computer software]. Retrieved from
http://centage.com/Products/Budget-Maestro-Overview.asp

• Host Analytics. (2014). Host Budget [Computer software]. Retrieved from
www.hostanalytics.com

• Microsoft Dynamics. (2014). FRx Software [Computer software]. Retrieved from
www.microsoft.com/en-us/dynamics/products/frx.aspx

• SAP. (n.d.). Retrieved from www.sap.com

• SAS Institute. (n.d.). Retrieved from www.sas.com

A budget has many benefits. It requires management to formalize goals and define
objectives. It is an early warning system for potential problems, facilities the
coordination of activities within the organization, keeps management apprised of the
overall operations of the organization, and helps to motivate employees to meet the
goals set in the budget (Weygandt, Kimmel, & Kieso, 2010).

Budgets do have a downside. They are time consuming to prepare, may not use
realistic data, may encourage “playing the system,” and can cause rifts between
departments instead of encouraging sharing of resources (Zimmerman, 2020). If
managers’ pay is based partially on meeting budget goals, there is a strong incentive to
distort budgets so they are easier to achieve. If managers know their budgets will be cut
if they do not spend their entire allocation (budget lapsing), they may decide to spend
the money on unnecessary purchases to preserve the budget amounts for the next
budget cycle.

Even though there are many benefits to properly prepared budgets, they cannot exist in
a vacuum. They require the existence of predictive ability; clear channels of
communication, authority, and responsibility; accurate, reliable, and timely financial
information; and support from all levels of the organization. (Shim, et al., 2012)

Strategic Plans, Budgets, and Forecasts

Some people confuse, strategic plans, budgets, and forecasts, but they are not the
same. The strategic plan is the vision set by upper management for a period of time
which is usually not less than three years and may span up to 10 years. It sets broad
goals to be achieved during the designated time frame (Schiff, 2008).

For example, the strategic plan might call for revenues to increase 5% per year and
expenses to decrease by 7% per year. There are usually no details given as to how

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these results will be achieved. The plan is intended to show investors, board members,
and other levels of management, the future direction of the organization.

The budget gives the details as to how the goals outlined in the strategic plan are to be
achieved. It will have input from many levels within the organization, and will give line by
line details of expected revenues and expenses that are aligned with the goals defined
in the strategic plan. No matter how much care is taken to develop accurate budgets, as
the actual numbers come in, there will be differences. Revenues may be less than
predicted and expenses may be higher. It is possible that revenues will be greater than
expected and the related expenses will also be higher.

At this point, forecasts come into play. They use the actual numbers to more accurately
predict where the organization is headed. Forecasts do not change the budget, but
rather enhance its usefulness as they allow managers to make determinations based on
current data. For example, if a department has a monthly budget of $50,000, and has
spent $30,000 by the 15th of the month, some decisions will have to be made regarding
expenditures for the rest of the month. The forecast data fall between the high-level
strategic plan and the very detailed budgets (Schiff, 2008).

Performance Reports

Once actual data are received, a performance report can be prepared. A fictional
company, the Teddy Bear Toy Company, will be used in the following paragraphs to
illustrate how you can read and interpret data to prepare a meaningful performance
report.

Teddy Bear Toys is a small company dedicated to making stuffed teddy bears out of
various materials such as flannel, fake fur, and suede. The operations manager has
prepared a report on data from the production department. Based on the report, she
wants to let the production department manager know that if this situation is not fixed
quickly, she will be looking to hold you accountable. Here is the report that you are
given.

Teddy Bear Toy Company

Manufacturing Overhead Static Budget Report

For the Month Ended June 20XX

Budget Actual
Variance

(U or F)

Number of teddy bears produced 25,000 30,000 5,000F

Costs:

Indirect labor $ 65,000 $ 78,000 $13,000U

Supplies $ 62,500 $ 73,750 $11,250U

Utilities $ 47,500 $ 56,250 $ 8,750U
$175,000 $208,000 $33,000U

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You take a look at the report, and at first glance, you think, “She is right. That manager
is not doing the job. He is not controlling costs.” As you think about the report, you
realize that the budget called for 25,000 teddy bears to be produced, but in actuality,
30,000 bears were produced. Of course, there will be more costs! You decide to
prepare a flexible budget at the 30,000 unit level of activity.

First, determine budgeted costs per bear by dividing the budgeted amount for each cost
by the budget level of production.

Indirect labor: $65,000/25,000 bears = $2.60 per bear.
Supplies: $62,500/25,000 bears = $2.50 per bear.
Utilities: $47,500/25,000 bears = $1.90 per bear.

Next, multiply the per bear amount for each cost by the actual number of bears
produced.

Indirect labor: $2.60 per bear x 30,000 bears = $78,000
Supplies: $2.50 per bear x 30,000 bears = $75,000
Utilities: $1.90 per bear x 30,000 bears = $57,000

Finally, prepare a performance report for manufacturing overhead for the production
department.

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Teddy Bear Toy Company

Performance Report—Production Department

For the Month ended June 20XX

I II III IV V

Static

Budget Actual
Variance

(II–I)

Flexible
Budget

(at 30,000)
Variance

(II–IV)

Manufacturing Overhead
Costs

Indirect labor $ 65,000 $ 78,000 $ 13,000 U $ 78,000 $ –

Supplies

$ 62,500 $ 73,750 $ 11,250

U

$ 75,000 $ 1,250

F

Utilities

$ 47,500 $ 56,250 $ 8,750

U

$ 57,000 $ 750

F

Total $175,000 $208,000 $ 33,000

U $ 210,000 $ 2,000

F

The manager of the production department is doing a great job of controlling costs.
When a flexible budget is used, it is easy to see that the costs are below what is
budgeted for a production of 30,000 teddy bears. You need to explain to the operations
manager that she should gauge performance against the actual level of activity, not
against the static budget numbers. In addition, the production department manager
should be complimented for staying within the budget for the actual level of activity.

In summary, this week you added the following terms to your accounting vocabulary:
budgets, strategic plans, forecasting, static budgets, and flexible budgets. You also
learned how to change a static budget into a flexible budget in order to compare actual
costs incurred to budgeted costs at the same level of activity. When budgets are
prepared carefully and used properly, they can help managers make educated
decisions that will help guide the organization toward its goals.

References

Advisory Board Company. (2013). ActiveStrategy [Computer software]. Retrieved from

www.activestrategy.com

Centage. (2014). Budget Maestro [Computer software]. Retrieved from

http://centage.com/Products/Budget-Maestro-Overview.asp

Host Analytics. (2014). Host Budget [Computer software]. Retrieved from

www.hostanalytics.com

Microsoft Dynamics. (2014). FRx Software [Computer software]. Retrieved from

www.microsoft.com/en-us/dynamics/products/frx.aspx

SAP. (n.d.). Retrieved from www.sap.com

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SAS Institute. (n.d.). Retrieved from www.sas.com

Schiff, C. S. (2008, August). Requirements for budgeting, planning and forecasting. DM
Review, (18)8, 26–27.

Shim, J. K, Siegel, J. G., & Shim, A. I. (2012) Budgeting basics and beyond (4th ed.).

Hoboken, NJ: John Wiley & Sons.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2010) Managerial accounting: Tools for

decision making (5th ed.). Hoboken, NJ: John Wiley & Sons.

Zimmerman, J. (2020). Accounting for decision making and control (10th ed.). McGraw-

Hill.

Student uses MS Excel to prepare a performance report. The performance report. Calculations are accurate and results are correct.

Business memo format is used with a heading that includes: to, from, date, and subject. Proper title is used for the recipient, and subject line is specific and concise. This section is followed by three parts; an opening which defines the context and the task, a summary discussion, and a closing. There are no errors.

Student prepares a brief, succinct, and clear memo which explains his/her findings and recommendations and includes specific details from the performance report.

As part of the recommendation, student addresses whether all of the variances in this example need to be examined, and why or why, by answering with in-depth details and examples detailing his/her reasoning in a clear and compelling manner.

Writing exhibits strong evidence of thoughtful critical analysis and thinking; careful examination is made of assumptions and possible biases, with detailed supporting rationale. Writing synthesizes the classroom experiences and content; analyzes patterns or connections between theory and practice; and draws logical conclusions based on well-reasoned arguments. New questions are presented based on synthesis of ideas and input.

Student demonstrates full adherence to scholarly or credible reference requirements and adheres to APA style with respect to source attribution and references. There are no APA errors.