Page 104 - Accounting Best Practices

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5–7 Create a Summarized Budget Model for Use by Upper Management 93
possibly with the relationships varying over the course of the budgeted period, as
more work methods are implemented.
Thus, identifying step-costing change points is necessary to understand
when new costs will be added to a budget, but one must also account for alter-
ations in the relationship between the underlying activity measures that cause the
step-costs to occur.
Cost: Installation time:

5–6 BUDGET BY GROUPS OF STAFF POSITIONS

The payroll portion of the budget model can be an excessively long one because
every person in the company is listed on it. In particular, many accountants have
difficulty avoiding a complete listing of all people who are not categorized as
direct labor. As a result, this portion of the budget becomes an unwieldy cluster of
information, requiring a long time to read, as well as a considerable amount of
updating work to keep track of everyone’s pay levels.
A simple best practice is to summarize these positions by title, ensuring that
there are far fewer line items, so the budget becomes much easier to update and
review. To do so, one must summarize the pay levels of everyone with the same job
title and post the average pay rate in the model. For those people who object that
they can no longer determine who is summarized into which category, one can
either issue a separate list that identifies the title of each person in the company or
else insert the initials of all the people with each job title next to the summary-level
description in the budget (a difficult proposition when there are many people with
the same title!). The only real problem is in those companies where there is no
record of the job titles of employees. In this case, it may be sufficient to summarize
all payroll for each department into a single line item in the budget, with an average
pay rate for the entire group; this approach completely avoids the problem of deter-
mining pay by title. Any of these variations will result in a simplified payroll sec-
tion of the budget, while still retaining a high degree of accuracy.
Cost: Installation time:

5–7 CREATE A SUMMARIZED BUDGET MODEL FOR USE
BY UPPER MANAGEMENT

The full budget model used by the accounting staff is a large one, with separate
pages for the balance sheet, income statement, cash flow, capital expenditures,
and each department, not to mention additional subsets of this information for
each subsidiary. The full budget for a small company should run about 20 pages,
while one for a multilocation corporation can easily run into the hundreds of