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Managerial Accounting: Importance of Price and Volume

1. Why is it important to investigate both price (rate) and volume (efficiency) variances when rewarding employees for satisfactory work when performance evaluations are based on meeting budgets?

2. What are some qualitative considerations that might be helpful in employee performance evaluations?

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EMPLOYEE PERFORMANCE EVALUATION AND BUDGET VARIANCES

PRICE AND VOLUME: DETERMINANTS OF EMPLOYEE PERFORMANCE

A budget is a company's planned revenues and expenses. Preparing a budget means determining in advance expected sales an estimated price. Hence, the company determines in advance how it will price its products and services, considering several factors such as that of competitors, related expenditures, and the pricing strategy or scheme utilized by the company.

Given the intended price in which the product will be offered, the company determines in advance how the target buyers react in terms of their volume of purchases. The estimated price and the corresponding volume of demand will comprise the company's revenues which are a part of the budget.

Aside from the price and volume (or the revenue as a whole), part of the budget is an estimate of the related ...

Solution Summary

This solution discusses three basic functions of the budget, evaluating the performance of employees in relation to meeting budgets, and 5 qualitative considerations to be taken in to account when rating employees. This solution is 550 words with two references.

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