Planning and Control Models - Essay Example

The development of the budget requires the participation of many individuals who are made responsible for the control of their planned costs within a company.

The standard cost for planning and control:
The ever-increasing use of standard cost provides a necessary measure of what cost should be. These standard costs permit early preparations and presentation of short-run cost reports to operating management and summary statements to executive and middle management, highlighting the deviations from planned goals. Standard cost should ideally be an integral part of the budget in its preparation as well as its use as a control device.

Break-even analysis (a check on planning):
Cost accounting can assist management levels in planning and controlling duties by providing information via analytical tools that express more vividly and forcefully multidimensional aspects of managerial problems. Break-even analysis offers another method that permits management to judge the overall plan on a pragmatic and convenient base.

Comparison of budgets and standards:
The budget is one method of securing reliable and prompt information regarding the operation and control of an enterprise. When manufacturing is based on the standard for material labor and overhead, a strong team of possible control and reduction of costs is created. The principle difference between budgets and standard costs lies in their scope. The budget, as a statement of expected cost, acts as a guidepost that keeps the business on a charted course. Standards, on the other hand, do not tell what costs are expected to be, but rather what they will be if certain performances are achieved. A budget emphasizes the volume of business and the cost level which should be maintained if the firm is to operate as desired. Standard stress is the level to which costs should be reduced. If costs reach these levels the profits will be increased. Building budgets without the use of standard cost figures can never lead to a real budgetary control system. The shortcoming is recognized by adding the flexible budget as a refinement with the use of standard cost the preparation of budgets for any volume and mixture of products is more reliably and speedily accomplished, and a budget becomes a summary of standards for items of costs.