481. The activity rates computed in activity-based costing can provide valuable clues concerning where there is waste and opportunity for improvement.482. If some products are undercosted and some are overcosted, the errors tend to offset each other when the product costs are added together.483. For all of these reasons, most companies confine their ABC efforts to special studies for management, and they do not attempt to integrate activity-based costing into their formal cost accounting systems.484. It is a fact of human nature that changes in organizations, particularly those that alter the rules of the game, inevitably face resistance.485. If activity-based costing is viewed as an accounting initiative that does not have the full support of top management, it is doomed to failure.486. Activity-based costing data can easily be misinterpreted and must be used with care when used in making decisions.487. Consequently, an organization involved in activity-based costing should have two cost systems—one for internal use and one for preparing external reports.488. This results in overcosting high volume products and undercosting low-volume products and can lead to mistakes when making decisions.489. Activity-based costing is concerned with overhead—both manufacturing overhead and selling and administrative overhead. The accounting for direct labor and direct materials is usually the same under traditional and ABC costing methods.490. While the ABC system is almost certainly more accurate, managers should nevertheless exercise caution before making decisions based on the ABC data.491. Once the budget is established, actual spending is compared to the budget to make sure the plan is being followed.492. Control involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change.493. It may be difficult to accurately forecast sales and other data much beyond a year, but even rough estimates can be invaluable in uncovering potential problems and opportunities that would otherwise be overlooked.494. Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above.495. A manager who is not able to meet a budget thathas been imposed from above can always say that the budget was unrealistic and impossible to meet.496. Self-imposed budgeting has two important limitations. First, lower-level managers may make suboptimal budgeting recommendations if they lack the broad strategic perspective possessed by top managers.497. Admittedly, a self-imposed budgeting system may lack sufficient strategic direction and lower-level managers may be tempted to build slack into their budgets.498. Rather than being used as a weapon, the budget should be used as a positive instrument to assist in establishing goals, measuring operating results, and isolating areas that need attention.499. The sales budget is based on the company’s sales forecast, which may require the use of sophisticated mathematical models and statistical tools that are beyond the scope of this course.500. The budgeted income statement provides an estimate of net income for the budget period and it relies on information from the sales budget, ending finished goods inventory budget, selling and administrative expense budget, and the cash budget.
