Professional Documents
Culture Documents
Master Budget and Flexible Budget - Example
Master Budget and Flexible Budget - Example
In this example, Table 1 provides all the basic information about the
standard costs and unit price, assumed in order to construct the master budget.
The origin of this information is usually the recent experience with
providers and expert knowledge of their own processes.
Pay special attention to the fact that some come in kg, others in hr (hours) and still
others come expressed in combined units, such as kg/unit. Here, the word "unit"
refers to one unit of the finished product.
TABLE 1. INPUT DATA FOR THE MASTER BUDGET
Units 11,800
Price 1 unit $ 68.00
Raw material 1.8 kg/unit $ 2.40
Direct labor 2 hr/unit $ 7.50
Indirect manfct 1 unit $ 2.80
Overhead $ 265,000
NOTATION
RA: ACTUAL COST PER KG =
RF: COST PER KG ACCORDING TO THE FLEXIBLE (OR MASTER) BUDGET
QA: ACTUAL QUANTITY IN KG USED IN PRODUCTION OF UNITS SOLD
QF: QUANTITY IN KG ACCORDING TO FLEXIBLE BUDGET =
DEFINITIONS
Spending variance = QA*(RA - RF)
Efficiency variance = RF*(QA - QF)
Total variance (material)
d gain understanding by reviewing how
$ 2.80
HE FLEXIBLE (OR MASTER) BUDGET = $ 2.40
IN PRODUCTION OF UNITS SOLD = 18,480
O FLEXIBLE BUDGET = 20,160
Comments:
$ 7,392.00 Material turned out to be more expensive than budgeted
($ 4,032.00) Manufacture used less material than budgeted
$ 3,360.00 Conclusion: overcosts were more significant than efficiency savings
why?
why?
fficiency savings