Categorize each of the following activities as to which management responsibility it fulﬁlls: planning, directing, or controlling. Some activities may fulﬁll more than one responsibility. (Leave unused cells blank.)
a. Management conducts variance analysis by comparing budget to actual.
b. Management uses information on product costs to determine sales prices.
c. Management decides to increase sales growth by 10% next year.
d. To lower product costs, management moves production to Mexico.
Responsibility: Directing, Controlling
e. Management reviews hourly sales reports to determine the level of stafﬁng needed to service customers.
Planning involves setting goals and objectives for the company and determining how to achieve them. For example, one of Chipotle’s goals may be to generate more sales. One strategy to achieve this goal is to open more restaurants. For example, the company opened 183 new restaurants in 2012.1 Managerial accounting trans- lates these plans into budgets—the quantitative expression of a plan. Management analyzes the budgets before proceeding to determine whether its expansion plans make financial sense.
Directing means overseeing the company’s day-to-day operations. Management uses product cost reports, product sales information, and other managerial accounting reports to run daily business operations. Chipotle would use product sales data to determine which items on the menu are generating the most sales and then uses that information to adjust menus and marketing strategies.
Controlling means evaluating the results of business operations against the plan and making adjustments to keep the company pressing toward its goals. Chipotle would use performance reports to compare each restaurant’s actual performance against the budget and then would use that feedback to take corrective actions if needed. If actual costs are higher than planned, or actual sales are lower than planned, then management may revise its plans or adjust operations. Perhaps the newly opened restaurants are not generating as much income as budgeted. As a result, management may decide to increase local advertising to increase sales.
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