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Chapter 09: Flexible Budgets: Activity Variance
Chapter 09: Flexible Budgets: Activity Variance
Activity Variance:
Actual net income is unfavorable compared to the budget. What is not known
from looking at it is why the variances occurred. For example, were more
units sold? Was the selling price different than expected? Were costs higher?
Or was it all of the above? These are the kinds of questions management
needs answers to. In fact, an analysis of this budget report shows sales were
actually 17,500 pickup trucks instead of the 17,000 pickup trucks planned;
the average selling price was $14.80 per truck instead of the expected
$15.00 per truck; and the cost per truck was $11.25 as budgeted.
Sales. The original budget assumed 17,000 Pickup Trucks would be sold at
$15 each. To prepare the flexible budget, the units will change to 17,500
trucks, and the actual sales level and the selling price will remain the same.
The $262,500 is 17,500 trucks times $15 per truck. The variance that exists