Chapter 8
Performance reports
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
8-1
Performance reports
 Responsibility accounting:
A management accounting system that
encourages individuals to work together
towards the achievement of organisational
goals.
 Performance reports:
A yardstick which compares actual results
with the budget.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
8-2
Responsibility accounting
 Where each division, branch or other subunit is known as a responsibility centre, the
manager of which is accountable for the
performance of the sub-unit.
 Responsibility centers:




Cost centre
Revenue centre
Profit centre
Investment centre
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
8-3
 Performance reports show any variance that
may arise when actual figures are compared
with budget figures.
 Favourable variance (F) means that actual
income is >budgeted income or actual cost is
<budgeted cost.
 Unfavourable variance (U) means that
actual income is <budgeted income or actual
cost is >budgeted cost.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
8-4
 Significant variances (exceed an
acceptable limit) are investigated by the
manager of the organisational sub-unit.What
is considered significant varies from business
to business.
 Reasons for variances are numerous
but fall into two main groups:
1.
2.
are a result of external factors that
management have no control over, and
are a result of internal factors that
management maybe able to change.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
8-5
Objective of responsibility
accounting
 Management by exception means that an
appropriate person is notified when there is
a significant deviation from plan.
 Performance reports highlight the areas that
need attention.
 Major objective is to ensure that the set
targets are achieved at all costs, not trying
to find who is to blame.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
8-6