Learning ObjectivesAfter studying this chapter, you should be able to:1 Describe the concept of budgetary control.2 Evaluate the usefulness of static budget reports.3Explain the development of flexible budgets and the usefulness of flexible budget reports.4 Describe the concept of responsibility accounting.5 Indicate the features of responsibility reports for cost centers.6Identify the content of responsibility reports for profit centers.7 Explain the basis and formula used in evaluating performance in investment centers.Feature Story The Navigator The NavigatorChapter 24Budgetary Control and Responsibility AccountingTurning Trash Into TreasureVancouver teenager Brian Scudamore needed to raise money to pay his way through college. With $700 and a strong desire to do it on his own, he established a junk removal company. Fifteen years later, 1-800-GOT-JUNK? had 113 franchise partners across Canada and the United States, and projected revenues of more than $60 million.“It was a high-school business project that was out of control,” says Cameron Herold, vice president of operations.While the exponential growth of 1-800-GOT-JUNK? may seem unwieldy (at one point it had five consecutive years of 100-percent compounded growth), it has in fact involved sound financial planning, budgeting, and cash management. The company only spends money it has; it has no outside investors or debt.Managing this growth involves forecasting everything by creating a “painted picture” of what the company will look like in three years. The company knows its staffing plans, training requirements, and overhead and office space needs well in advance. “That filters back to our budgeting process,” Mr. Herold says. “Well sit down and say, If this is where were going, what are all the components of that? . . . Then we 1180Scan Learning ObjectivesRead Feature StoryScan PreviewRead Text and answer p. 1190 p. 1192 p. 1203 p. 1207Work Comprehensive p. 1207Review Summary of Learning ObjectivesAnswer Self-Test QuestionsComplete AssignmentsGo to WileyPLUS for practice and tutorialsDO IT! DO IT! c24BudgetaryControlAndResponsibilityAccounting.indd Page 1180 10/20/11 8:30 AM user-F409c24BudgetaryControlAndResponsibilityAccounting.indd Page 1180 10/20/11 8:30 AM user-F409/Users/user-F409/Desktop/Users/user-F409/Desktopbring it back to zero and say, Whats it going to cost us? Where does it fit into the budget?”Key to the companys growth management was the introduc-tion of franchising. “We chose franchising because our fran-chise partners would actually finance our growth,” Mr. Herold says. In addition to the initial franchise fee, franchisees pay the head office 8 percent of their sales, plus another 7 percent to run the centralized call center.While the company has used franchising to manage growth, a frugal approach to day-to-day costs has also been integral to its budgeting success. “Were always looking for ways to cut costs,” Mr. Herold says. This includes establishing strategic relationships with the local coffee shop, doing regular cost analyses of office equipment and changing suppliers when needed, and buying office furniture in bulk from liquidators at 10 cents on the dollar. “All those little things start to really add up,” he says.Watch the Tribeca Grand video in WileyPLUS to learn more about budgeting in the real world.1181 The NavigatorIn contrast to Chapter 23, we now consider how budgets are used by management to control operations. In the Feature Story on 1-800-GOT-JUNK?, we saw that management uses the budget to adapt to the business environment. This chapter focuses on two aspects of management control: (1) budgetary control and (2) responsibility accounting.The content and organization of Chapter 24 are as follows.Preview of Chapter 24 The Navigator Examples Uses and limitations Why flexible budgets? Development Case study Reports Controllable vs. noncontrollable Performance evaluation Reporting system Cost centers Profit centers Investment centersStatic Budget ReportsFlexible BudgetsResponsibility AccountingTypes of Responsibility Centers Budget reports Control activities Reporting systemsBUDGETARY CONTROL AND RESPONSIBILITY ACCOUNTINGBudgetary Controlc24BudgetaryControlAndResponsibilityAccounting.indd Page 1181 10/20/11 8:32 AM user-F409c24BudgetaryControlAndResponsibilityAccounting.indd Page 1181 10/20/11 8:32 AM user-F409/Users/user-F409/Desktop/Users/user-F409/Desktop1182 24 Budgetary Control and Responsibility AccountingOne of managements functions is to control company operations. Control con- sists of the steps taken by management to see that planned objectives are met. We now ask: How do budgets contribute to control of operations? The use of budgets in controlling operations is known as budgetary control. Such control takes place by means of budget reports that compare actual results with planned objectives. The use o