penditures are a function of the corporate treasurer’s overall cash controls, which are
not related to the capital budgeting process per se. We will therefore concern our-
selves with budget appropriations only as they pertain to the real “control” aspects of
capital budgeting.
(b) Status Report Illustration: Fixed Exchange Rates. Exhibit 25.6 illustrates a year-
end status report, based upon the capital budget shown in Exhibit 25.3. At that stage,
we determined that the exchange rate would be PC 1 = LC 2. In quarterly perfor-
mance reporting, appropriations against the budget would use the same exchange
rate. For the full year, both the manufacturing and marketing budgets were underap-
propriated in terms of PC and budget-based LC, while the transportation budget was
overappropriated (presumably, the necessary approvals had been obtained, and ap-
propriations were, therefore, in line with expectations as far as the region, division,
and parent company were concerned). Normal expectations are that budgets, in total,
will not be overappropriated.
From the affiliate’s point of view, shown as “Memo: Local Analysis” in Exhibit
25.6, the situation was different; while directionally manufacturing and transporta-
tion appropriations reflected the same indications as in the report to the region, mar-
keting overappropriated its budget, a situation which was probably reported to the re-
gion as being due to a weakening of the LC currency. Internal company control
procedures usually specify whose approval is required to authorize such local com-
pany overappropriations; up to a certain level, no higher-level authorization may be
25.6 CONTROLLING THE CAPITAL BUDGET 25 • 9AFFILIATE B
Capital Budget Status Report
Appropriations
Year Ended December 31, 20X0
PC LC (Budget Basis)
Actual Budget Variance Actual Budget VarianceManufacturing 2,750 3,000 250 5,500 6,000 500
Marketing 4,750 5,000 250 9,500 10,000 500
Transportation _2,250 __2,000 (250) __4,500 __4,000 (500)____
Total 9,750__ 10,000____ ____ (^250) __19,500__ 20,000____ ____ 500
Memo: Local Analysis
LC
Actual Budget Variance
Manufacturing 5,700 6,000 300
Marketing 10,400 10,000 (400)
Transportation __4,800 __4,000 (800)
Total 20,900____ 20,000____ (900)____
Note:The actual exchange rate used in the local analysis is PC 1 = LC 2.2.
Exhibit 25.6. Capital Budget Status Report: Appropriations.