DESCRIBE RESPONSIBILITY ACCOUNTING
The process of measuring and reporting
operating data by areas of responsibility.
WHICH OF THE FOLLOWING STATEMENTS
RELATING TO A BUDGET IS NOT TRUE?
It is a detailed plan
It is a management tool
It provides many of the performance targets used
in responsibility accounting
It is prepared on a historical basis
It identifies certain financial and operating
DETAIL 4 DIFFERENT TYPES OF BUDGETS, AND
The revenue budget is a forecast because it is
based on projecting future sales. Managers must
take into consideration their competitors,
advertising budget, sales force effectiveness and
other relevant factors, and they must make an
estimate of sales volume. Then, based on
estimates of demand at various prices, managers
must select an appropriate sales price. The result
is the revenue budget.
Found in all units within a firm and in not-for-
profit and profit-making organisations alike.
Expense budgets list the primary activities
undertaken by a unit to achieve its goals and
allocate a dollar amount to each. Managers give
particular attention to those that remain
relatively unchanged regardless of volume. As
production drops, the variable expenses tend to
control themselves because they fall with volume.
Cash budgets are forecasts of how much cash the
organisation will have on hand and how much it
will need to meet expenses. This budget can
reveal potential shortages or the availability of
surplus cash for short-term investments.
CAPITAL EXPENDITURE BUDGETS
Investments in property, buildings and major
equipment are called capital expenditures. These
are typically substantial expenditures both in
terms of magnitude and duration. The magnitude
and duration of these investments can justify the
development of separate budgets for these
expenditures. Such capital expenditure budgets
allow management to forecast future capital
requirements, to keep on top of important capital
projects, and to ensure that adequate cash is
available to meet these expenditures as they
INFORMATION WOULD YOU REQUIRE TO PLAN
AND PREPARE A BUDGET FOR A NEW BUSINESS
what do we want to achieve?
how will we go about it?
what resources will we need?
how many people?
how much time?
what rates of pay?
what can go wrong and how can we plan for
Talk with managers, supervisors, customers,
Salaries and Wages
Casual Staff Costs
Other Contract & Consultants
Non Capitalised Equipment
Repairs & Maintenance
Other Direct Costs
The initial capital and the long-term
expenditures made to establish and maintain a
business or investment property.
A measure of cash inflow and outflow from the
business. Positive cash flow means more money
is coming into the business than is leaving it.
Negative cash flow is the converse.
Having income exactly equal to expenditure, thus
showing neither profit nor loss
The strategy of monitoring and offsetting various
risk factors in an business with the aim of
stabilising investment returns.
FINANCIAL REPORTING CYCLES RELEVANT
TO YOUR INDUSTRY
Work cover, etc
2 DIFFERENT CAPITAL INVESTMENT
Cash Flow Estimation Method
or Net Present Value
BENEFITS OF PARTICIPATIVE BUDGETING
The process of involving people throughout an
organization in the budgeting process.
increase of knowledge, etc
EFFECTIVELY IMPLEMENT THE BUDGET
INTO A TEAM ENVIRONMENT
Dissemination of information
Actioning as per action plan
TRADES PRACTICE ACT
The object of this Act is to enhance the welfare of
Australians through the promotion of competition
and fair trading and provision for consumer
The Trade Practices Act applies to just about
every aspect of a business—for example, selling,
advertising, retailing, and transactions with
other businesses or consumers. Understanding
the TPA reduces the risk of breaking the law and
may actually improve performance by giving
businesses a competitive edge. It can also
strengthen consumer trust in a company.
TRADES PRACTICE ACT
Heavy penalties can apply for breaches of the
Act. Most breaches of the Trade Practices Act are
unintentional and could have been avoided
through having a well structured TPA
compliance program. A TPA compliance program
is an important risk mitigation factor in any
business and can also reduce the penalty
associated with an unintentional breach of the
Financial probity is exploring the financial situation of a company or
person. It normally includes:
Ensuring that the fiscal and financial affairs are in good order, ethically
sound, and fully compliant with the law and with good accounting practice
Ensuring that any financial arrangements are on a sound footing, honest
and open, and causing no conflict of interest
Avoiding inappropriate financial gain or conflict of financial interest in
the pursuit of business
Understanding the business and managerial aspects of the business, such
as sources of income and expenditure, use of premises, marketing, and the
interpretation of accounts
Demonstrating truthfulness and honesty when completing documents
Ensuring that any research undertaken is done to the highest standards,
as approved by are search ethical committee.
Providing accurate, objective, honest and unbiased comments in
references and including relevant important information, which might
have a bearing on a colleague’s competence, performance, reliability or
Consider the following information:
As an accountant to a large production firm, John looks at a proposal to purchase a
$900,000 stamping machine to increase output. He determines the following
The new machine can do 100 more units per hour
The 4 workers currently doing the stamping can be replaced
The units will be higher quality because they are more uniform
John calculates the selling price of the 100 units per hour multiplied by the number
of production hours per month, plus adding the 3% that aren’t rejected due to the
increased quality of the machine output vs. manual stamping. He adds the monthly
wages of the workers that are no longer required and in the end you have a healthy
John then calculates the monthly cost of the machine by dividing the purchase price
by 12 months per year and divide that by 10 years the machine should last. The
manufacturer’s specs state the power consumption of the machine and John
calculates the cost of that as well. He subtracts the total cost figure from the total
benefit figure and this shows a healthy benefit calculated.
Consider the above example of cost benefit analysis. Do you think John has done a
good job in calculating the benefit of the machine? Has he used the information at
his disposal correctly?
John has made several errors. Firstly, by using the selling price
of the units he has introduced additional factors that will
complicate the analysis, especially the profit margin. The activity
based value of the units should be ascertained and used in his
John remembered to add the value of the increased quality by
factorising the rejection rate; however he should have reduced it a
little as even machines are not perfect.
When calculating the value of the employees in addition to their
wages, John has not included other costs such as benefits etc
which can add a lot also.
John should have also checked out the amortisation period – just
because the machine may last 10 years doesn’t mean the company
will keep it for 10 years