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Flexible Budgets and Variance Analysis

Static Budgets. A static budget is prepared for onlyone level of a given type of activity.. All actual results are compared with theoriginal budgeted amounts, even if salesvolume is more or less than originally planned.. Master Budget Variance: Sales. Actual$217,000. The variances of actual res

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Flexible Budgets and Variance Analysis

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    1. Flexible Budgets and Variance Analysis Chapter 8

    2. Static Budgets At 1 level of sales volume. At 1 level of sales volume.

    3. Master Budget Variance: Sales

    4. Master Budget Variance: Expenses

    5. Static Budget 2 difference causes for the variance2 difference causes for the variance

    6. Flexible Budget

    7. Flexible Budget Formulas Cost formulaeCost formulae

    8. Activity-Based Flexible Budget

    9. Evaluation of Financial Performance

    10. Evaluation of Financial Performance

    11. Evaluation of Financial Performance Flexible budget variance = the variances btw the flexible budget & the actual results Activity-level variances = the diffs btw the master budget amounts & the amounts in the flexible budgetFlexible budget variance = the variances btw the flexible budget & the actual results Activity-level variances = the diffs btw the master budget amounts & the amounts in the flexible budget

    12. Evaluation of Financial Performance

    13. Evaluation of Financial Performance

    14. Isolating the Causes of Variances

    15. Isolating the Causes of Variances

    16. Flexible-Budget Variances

    17. Sales-Activity Variances

    18. Sales-Activity Variances

    19. Setting Standards

    20. Perfection Standards...

    21. Currently Attainable Standards...

    22. Trade-Offs Among Variances E.g. favourable labour variances (because of less-skilled labour) v. unfavourable sales-activity variances (because of lack of customer satisfaction)E.g. favourable labour variances (because of less-skilled labour) v. unfavourable sales-activity variances (because of lack of customer satisfaction)

    23. When to Investigate Variances

    24. Comparison with Prior Periods

    25. Flexible-Budget Variance in Detail

    26. Variances from Material and Labour Standards

    27. Variances from Material and Labour Standards

    28. Variances from Material and Labour Standards

    29. Variances from Material and Labour Standards

    30. Variances from Material and Labour Standards

    31. Price and Usage Variances

    32. Price Variance Computations

    33. Usage Variance Computations

    34. Favourable or Unfavourable Variance?

    35. Direct Materials Flexible Budget Variance

    36. Direct Labour Flexible Budget Variance

    37. Interpretation of Price and Usage Variances Material price variances can work against JIT & TQM goals. Favourable variances when buying in large quantities & buying cheaper/low-quality material ? excessive material handling & increased defects Labour price/usage variances - lower-skilled workers, rush workers through critical tasks ? impair quality of products/servicesMaterial price variances can work against JIT & TQM goals. Favourable variances when buying in large quantities & buying cheaper/low-quality material ? excessive material handling & increased defects Labour price/usage variances - lower-skilled workers, rush workers through critical tasks ? impair quality of products/services

    38. Variable-Overhead Efficiency Variance

    39. Variable-Overhead Spending Variance

    40. Variable Overhead Example

    41. Variable Overhead Example

    42. Variable Overhead Example Efficiency => usage Spending => priceEfficiency => usage Spending => price

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