Budgeting is the most commonly used tool for planning and control. A budget forces managers to look ahead, to translate a company’s strategy into plans, to coordinate and communicate within the organization, and to provide a benchmark for evaluating the company’s performance. Managers strive to meet their budget targets, so budgeting often affects the behavior of a company’s personnel and the decisions they make. Chapter 6 describes budgeting systems.
At the end of a reporting period, managers compare the company’s actual results to its planned performance. The managers’ tasks are to understand why differences (called variances) between actual and planned performance arise and to use the information provided by these variances as feedback to promote learning and future improvement. Managers also use variances as well as nonfinancial measures, such as defect rates and customer satisfaction ratings, to control and evaluate the performance of various departments, divisions, and managers. Chapters 7 and 8 discuss variance analysis. Chapter 9 describes planning, control, and inventory-costing issues relating to capacity. Chapters 6, 7, 8, and 9 focus on the management accountant’s role in implementing strategy.