Budgetary Control Principles and Practices, Financial Data Recording and Storage Procedure, Relationship between Variance Analysis and Costing System Integrity

This article explains the principles and practices of budgetary control, the process and procedure for recording and storing financial data, and the relationship between variance analysis and costing system integrity. It discusses how budgetary control requires applying various accounting principles, how financial data is recorded in journal entries and ledger accounts, and how variance analysis helps management understand and control costs. The article emphasizes the importance of maintaining the integrity of the costing system to ensure accurate variance analysis.

Case study 4.2
Task 1
Management could gather cost data by identification and establishment of the system for
gathering operating data. This data can be recorded by using a systematically coded data. Such
data should be classified appropriately as per policies of the organization and must be accurate
and reliable.
Budget preparer could get cost data for the budget from all sections of the organization by asking
for cost information advice. In addition to gathering, cost data budget preparer should use the
proper structure for preparation of budgets.
Task 2
a. Revenue reduction due to fundraiser is the major contributor to the dollar variance. It is
occurred because of postponement of Gala night even 2002.
Working note
Budget Actual Variance
Revenue
Sales $ 10,000.00 $ 9,000.00 $ 1,000.00 10.00%
Dues $ 1,000.00 $ 800.00 $ 200.00 20.00%
Fund raiser $ 4,000.00 $ 2,000.00 $ 2,000.00 50.00%
total revenue $ 15,000.00 $ 11,800.00 $ 3,200.00 21.33%
Expenses
Cost of goods $ 4,000.00 $ 3,500.00 $ 500.00 12.50%
Pay roll $ 2,000.00 $ 2,100.00 $ 100.00 5.00%
Employees FICA $ 150.00 $ 160.00 $ 10.00 6.67%
Supplies $ 1,000.00 $ 940.00 $ 60.00 6.00%
Miscellaneous
expenses $ 100.00 $ 125.00 $ 25.00 25.00%
Total expenses $ 7,250.00 $ 6,825.00 $ 425.00 5.86%
Net income $ 7,750.00 $ 4,975.00 $ 2,775.00 35.81%
b. Calculation of percentage of the cost of supplies
Budget Actual
Supplies $ 1,000.00 $ 940.00
Total expenses $ 7,250.00 $ 6,825.00
Percentage of cost 13.79% 13.77%
c. Net income shows an unfavorable variance of 35.81%

Working note
Budget Actual Variance
Revenue $ 15,000.00 $ 11,800.00 $ 3,200.00 21.33%
Expenses $ 7,250.00 $ 6,825.00 $ 425.00 5.86%
Net income $ 7,750.00 $ 4,975.00 $ 2,775.00 35.81%
d. Actual payroll was higher because organization’s employees worked overtime hours for
cleaning the damages made by the unexpected typhoon.
e. Budget report
Sales Noncontrollable variance
Sales variance is unfavorable because of the closure of club during one week due
to the unexpected typhoon.
Dues Controllable variance
Dues are showing 20% unfavorable variance due to PCS of 15 members.
Fundraiser Noncontrollable variance
The fundraiser is showing 50% unfavorable variance. It is occurred because of
postponement of Gala night even 2002.
Cost of
goods sold
Noncontrollable variance
Cost of goods is showing 12.5% favorable variance. This is the reflection of ale
reduction. The sale reduced due to the closure of club during one week due to
unexpected typhoon
Task 3
Factory ledger accounts
Direct material control
Particulars Debit Credit
Balanc
e
Opening balance 5000 5000
Purchases on account 19000 24000
Cash purchases 2000 26000
Work in progress control 18000 8000
Factory overhead control 2000 6000
Direct labor control
Particulars Debit Credit
Balanc
e
Cash 37143 37143
Work in progress control 27143 10000
Factor overhead control 10000 0

Factory overhead control
Particulars Debit Credit
Balanc
e
Direct material control 2000 2000
Direct labor control 10000 12000
Depreciation 3600 15600
Insurance 600 16200
Rent 2800 19000
Work in progress control 19000 0
Work in progress control
Particulars Debit Credit
Balanc
e
Opening balance 15200 15200
Direct material control 18000 33200
Direct labor control 27143 60343
Factory overhead control 19000 79343
Finished goods control 62000 17343
Abnormal loss 6143 11200
Finished goods control
Particulars Debit Credit
Balanc
e
Opening balance 15000 15000
Work in progress control 62000 77000
Cost of goods sold 68000 9000
Manufacturing statement
Direct materials used 18000
Direct manufacturing labor 27143
Manufacturing overhead costs:
Indirect manufacturing labor 10000
Indirect material 2000
Depreciation - plant 3600
Factory insurance 600
Factory rent 2800
Total Manufacturing overhead costs 19000
Manufacturing costs incurring during the month 64143
Beginning work-in-progress inventory 15200

Total manufacturing costs to account for 79343
Ending work-in-progress inventory 11200
Cost of goods manufactured 68143
Treading statement
Sales revenue 110000
Cost of goods sold:
Beginning finished goods inventory 15000
Cost of goods manufactured 68143
Goods available for sale 83143
Ending finished goods inventory 9000
Cost of goods sold 74143
Gross income 35857
Task 4
Inventory ledger card
Date Particulars In Out Balance
Unit
s
Rat
e cost
Unit
s
Rat
e cost
Unit
s
Rat
e cost
01-Jun Balance 240 6
144
0
05-Jun Purchase 160 5.5 880 240 6
144
0
160 5.5 880
10-Jun Issue Job 60 40 6 240 200 6
120
0
160 5.5 880
15-Jun Issue Job 61 200 6
120
0 140 5.5 770
20 5.5 110
20-Jun Purchase 260 6
156
0 140 5.5 770
260 6
156
0
22-Jun Issue Job 62 100 5.5 550 40 5.5 220
260 6
156
0

25-Jun Issue Job 63 40 5.5 220 100 6 600
160 6 960
29-Jun Return -10 6 -60 90 6 540
Journal entry or total issues
Date Particulars Debit Credit
30 June Work in progress control 3280
Direct material control 3280
(Material issue or various jobs)
Journal entry or purchase return
Date Particulars Debit Credit
29 June Accounts payable 60
Direct material control 60
(Goods returned to the supplier)
Task 5
Factory overhead recovery rate
Budgeted factory cost
Variable 95000
Fixed 190000
Total Budgeted factory cost 285000
Machine hours 19000
Factory overhead recovery rate 15
Calculation of Factory overhead overapplied
Actual factory cost
Variable 90000
Fixed 205000
Actual factory cost incurred 295000
Factory overhead recovery rate 15
Actual Machine hours 20000
Factory overhead applied 300000

Factory overhead overapplied 5000
Overhead spending and capacity variance
Spending variance
Actual hours* Factory overhead recovery rate - Actual factory cost incurred
=20000*15-295000 = 5000
Capacity variance
(Budgeted hours- actual hours)* Factory overhead recovery rate
(19000-20000)*15 = 15000
Short answers
Question 1
A computerized system able to record following information
 Actual and budgeted financial information
 Financial and nonfinancial plans
 Financial bills
 The report related to creditors and debtors
 Financial projections
 Audit reports and management reports
 Spreadsheet calculative reports
 Other information
Question 2
Legislations applied
 GST
 Pay As You Go
 Industrial relations
 Fringe Benefits Tax
 Workers Compensation Insurance
 Capital Gains Tax
 External requirements
 Audit
 Legal behavior
 Occupational Health and Safety

 Superannuation
 Other
Question 3
Manufacturing overhead includes all factory expenses except direct material expenses and direct
labor expenses. These expenses can be indirect labor, indirect material, factory rent, factory
insurance, depreciation o factory’s assets or other expenses.
Question 4
Business analyzes their performance by making calculations of net profit earned. This process
involves the financial record keeping. After the record keeping of financial information, the
analyst needs to make the calculation of the cost of goods sold, then operating, financing and
taxation related costs. Calculation o surplus of revenues over all these costs is known as profit.
Question 5
The leverage ratio is a ratio which determines the portion o assets financed from debts. It
measures the ability of organization in dealing with its outstanding debts. The leverage ratio is
calculated by dividing debts o the organization by the total assets o the organization.
Question 6
In budget preparation following questions should be incorporated
 Liquidity of business
 The expected growth of business
 Projections for the business projects
 Expected control expenditure
 Target performance
 Expected financial structure and projections for required changes
 Revenue and cost forecasting for operating activities
Question 7
Variances show the difference between the budgeted revenues & income and actual revenues &
income. This variance helps the management understand why the budgeted results could not
achieve the actual results. It helps the understanding controllable and noncontrollable variances.
In addition to this for controllable variances management could take corrective actions so that in
next period such variances could be minimized and organization could achieve budgeted results
in actual form.
Question 8

Variance analysis used for making corrective actions for a controllable variance, determining
bonus and penalties or different department managers and another responsible person for the
variances.
Written activity
Task 1
 Principle and practices of budgetary control
Introduction
Budgetary control refers to the process of controlling operating and other functional activities of
the organization by making budgets and tries to get that budget if actual reporting. This report is
prepared for analyzing the principles applied in budgetary control.
Explanation
In budgetary control and preparation of budgets, the organization needs to apply approximately
all principles which are applied in making actual results so that actual results can be compared to
the budgetary results.
In this process, a budget preparer mainly applies bookkeeping principles i.e. preparation of trial
balances and financial statements. In addition to this budget, the preparer should apply accrual
accounting principles. Accrual accounting principles require recording transactions on the basis o
actual cost incurred and revenue made in the period, not on the basis of the actual cost paid and
revenue received during the period. In budgetary control, it is applied by estimating the budgeted
cost and budgeted revenue on the accrual basis on the cash basis.
Conclusion
Hence it can be concluded that in preparation of budgets a budget preparer needs to apply
various policies and principles which are required to apply by the account during the accounting
of the actual results of the organization during the budgets period.
 Process and procedure for recording and storing financial data
Introduction
Financial data is the data related to the monetary transactions during the year or performing
various financial activities in the organization. Recording and sorting of this data require a
specified procedure. This report will explain that procedure.
Explanation

Financial data needs to record by the bookkeeper in the form of journal entries. Journal entries
are the primary recording of the financial data. These journal entries posted to the various ledger
accounts. In ledger accounts, various journal entries regarding each transaction sorted for
calculation of closing accounts balances. Ater the ledger accounts a bookkeeper needs to prepare
trial balance for checking arithmetic accuracy and recording adjusting entries. The adjusted
account balance from the trial balance transferred to the financial statements for estimating the
financial position and performance.
Conclusion
The above discussion concludes that financial transactions record in journal entries and ledger
accounts. On the other hand, these are sorted in the trial balance, statements of financial position
and statement of financial performance.
 The relationship between variance analysis and costing system integrity
Introduction
The integrity of the system defines the function performed in such a manner so that such
performed by without impairing them and degraded the standard of that system. The variance
analysis is an analysis defined the cost required to be controlled. Variance analysis is related to
the costs system integrity.
Explanation
Variances show the difference between the budgeted revenues & income and actual revenues &
income. This variance helps the management understand why the budgeted results could not
achieve the actual results. It helps the understanding controllable and noncontrollable variances.
In addition to this for controllable variances management could take corrective actions so that in
next period such variances could be minimized and organization could achieve budgeted results
in actual form.
Variance analysis used for making corrective actions for a controllable variance, determining
bonus and penalties or different department managers and another responsible person for the
variances.
Cost system integrity means that costing function performance should be in a manner so that
such costing data should not impair and degraded the costing standards. Variance analysis helps
to active this integrity of the costing system.
Conclusion
Hence it can be concluded that variance analysis is related to the costs system integrity. In
addition to this variance analysis controlled the degradation of the costing data.

 Principles and practices of the budget preparation
Introduction
Budgetary control refers to the process of controlling operating and other functional activities of
the organization by making budgets and tries to get that budget if actual reporting. This report is
prepared for analyzing the principles applied in budgetary control.
Explanation
In budgetary control and preparation of budgets, the organization needs to apply approximately
all principles which are applied in making actual results so that actual results can be compared to
the budgetary results.
In this process, a budget preparer mainly applies bookkeeping principles i.e. preparation of trial
balances and financial statements. In addition to this budget, the preparer should apply accrual
accounting principles. Accrual accounting principles require recording transactions on the basis o
actual cost incurred and revenue made in the period, not on the basis of the actual cost paid and
revenue received during the period. In budgetary control, it is applied by estimating the budgeted
cost and budgeted revenue on the accrual basis on the cash basis.
In addition to this, some other acts which need to consider during budget preparation are,
 Timeline budget drafting
 The format of each budget
 Users of such budget
 The responsible person for budget preparation
Conclusion
Hence it can be concluded that in preparation of budgets a budget preparer needs to apply
various policies and principles which are required to apply by the account during the accounting
of the actual results of the organization during the budgets period.
 Key management information requirements
Introduction
Key management refers to the top management of the organization. Key management takes
various crucial decisions for the organization on the basis of information provided to them. The
information provides to the key management is very important. This discussion will explain the
requirements needs to adhere to the information provided to key management.
Explanation
The information provided to key management needs to adhere following requirements,

Complete: The information provided to the key management should be complete and should not
escape any relevant act regarding the performance and position of the organization.
Relevant: Key management personnel has various tasks related to the organization. Hence
information provides to them must be relevant for the purposes they asked for. It should not
include irrelevant information far away from the purpose o the information required.
Timely: The information is relevant for a specific time the lapse o that time information becomes
irrelevant or the decision-making purposes. Hence information provided to the key management
should be provided to them timely.
Accurate: Accurate is the crucial aspect of information. If key management provides with a
timely, complete and relevant information but not accurate information the results from decision
making may go in wrong directions. Hence the information should be accurate.
 Key features of organizational policies and procedures as they apply to costing system
Costing data recording and processing requires various stapes that starts with data collections,
continues with data input, data processing and ends with making output. The policies and
procedures need to adhere the internal control policies so that costing system could generate air
output. Somme policies which can apply to costing system are followed,
a. Input controls: The costing system should have some input controls. These controls
should ensure the accuracy, completeness, relevance, and validity of the input provided to
the costing system.
b. Processing control: The costing system should have some process controls. These
controls should ensure the accuracy, and validity of the process performed for the costing
system.
c. Output control: The costing system should have some output controls. These controls
should ensure the format, reports, and content of the output provided to the costing
system.
 Costing behavior patterns for the different cost elements of a product or service
In the costing system are three types of costs i.e. fixed costs, variable costs and mixed costs.
Fixed costs are the costs that remain same at each level of output this cost cannot change by the
change of the level of output. Per unit fixed costs goes reduce for per unit of output increased.
Variable costs are the costs that do not remain same at each level of output this cost change by
the change of the level of output. Per unit variable costs remain same for per unit of output
increased or decreased. Mixed costs are the costs which have features of each cost type i.e. fixed
as well as variable.