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Performance Evaluation
Chapter 15
McGrawHill/Irwin Copyright © 2012 by The McGrawHill Companies, Inc. All rights reserved.
15-2
Learning Objectives 1. Describe the concept of decentralization.
2. Distinguish between flexible and static budgets.
3. Classify variances as being favorable or unfavorable.
4. Compute and interpret sales and variable cost volume variances.
5. Compute and interpret flexible budget variances.
6. Evaluate investment opportunities using the return on investment technique.
7. Evaluate investment opportunities using the residual income technique.
15-3
Responsibility Accounting
An accounting system that provides information . . .
Relating to the responsibilities of
To evaluate managers on
individual managers. controllable items.
15-4
Preparing Flexible Budgets
The master budget, sometimes called a static budget, is based solely on the planned volume of activity. Flexible budgets differ from static budgets in that they show expected revenues and costs at a variety of volume levels.
15-5
Static and Flexible Budgets
From the standard cost information, Melrose prepares the following static and flexible budgets.
18,000 × $80 = $1,440,000
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