Principles of Accounting globe

Your goals for this “evaluation” chapter are to learn about:

 

Chapter 22 provides insight into ways in which a business can evaluate performance. The chapter begins with an exploration of the concept of responsibility centers and management by exception. Consideration must be given to whether an operation is to be evaluated according to cost control, profit generation, or investment returns. Examples are used to show how reporting methods should align with the affixing of responsibility.

Previous chapters introduced budgets. This chapter extends those concepts by showing how flexible budgets can be adjusted for changes in business volume. This logic also gives rise to the concept of standard costs, which in turn allow for careful analysis of variances. Variances can be prepared for various facets of performance related to material, labor, and overhead.

In addition to financial performance measurement, many businesses assess other aspects of operations. These goals and outcomes are often expressed in the form of a balanced scorecard concept.