One of the control measures for any business is budgeting to ensure that operations run within the set limits and control measures are applied when necessary. Budgetary control involves the use of budgets in a business to control its operations. Budgets set out the forecasted revenue and costs of the company to allow for monitoring and control of the same. The management is able to extract information from the budgets on any variances between the set target amounts and the actual. The variance guides the management in monitoring any unexpected deviations from the target. A drastic increase in wages, for instance, will bring about a high variance in budgeted wages and actual wages.
Rise in Minimum Wage
Amazon announced an increase in minimum wages to $15 to all its US employees starting December. Wages are expenses to a company, therefor, an increase leads to decrease in net income if the revenue does not increase. This change in wages affects more than 350,000 part-time, temporary, and seasonal employees. The increase will also apply to those who already receive $15 per hour. The increase in wages will affect the company’s income for the period. According to CNBC , this increase also affected the company’s shares after the announcement (Salinas, 2018) .
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In terms of budgetary control, an increase in wages affect the set labor budget as well as the master budget. The actual wages will differ greatly from the budgeted wages due to the increase leading to a high labor variance. The management will have to take corrective actions to ensure that the increased labor costs do not affect the overall profit of the company (Kimmel, Weygandt, & Kieso, 2016) . The company may also have to alter their budget to take effect these changes. An increase in wages for over 350,000 employees is a huge increase.
References
Kimmel, P., Weygandt, J., & Kieso, D. (2016). Accounting: Tools for Business Decision Making (6th ed.). Hoboken: John Wiley & Sons.
Salinas, S. (2018, October 2). Tech: Amazon raises Minimum Wage to $15 for all US Employees . Retrieved from CNBC: https://www.cnbc.com/2018/10/02/amazon-raises-minimum-wage-to-15-for-all-us-employees.html
