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CHAPTER 2 Flexible Budget and Performance Analysis
CHAPTER 2 Flexible Budget and Performance Analysis
Flexible
Managerial accounting 2
budget and
performance
analysis
Group 1
budget
and 2.3. Flexible budgets with multiple cost drivers
performance
analysis 2.4. Some common errors
BUDGET
FLEXIBLE
relevant range
Group 1
Flexible Budget Variances
Revenue
Activity &
Variances Spending
Variances
Planning
budget
revenue &
cost
Activity The
Variances difference
Flexible
budget
revenue &
cost
Planning budget
Standard Quantity
x
Standard Price
Activity
Variances
Flexible budget
Actual Quantity
x
Standard Price
Because the salon had 100 more
client-visits (higher activity)
difference
Spending
Variances Flexible
budget
revenue &
cost
Actual results
Cost
Centers
CHAPTER 2:
Flexible budget and performance analysis
2.3. Flexible
Managerial accounting 2
budgets with
multiple cost
drivers
Group 1
2.3. Flexible budgets with multiple cost drivers
2.3.
Flexibl
e More than one cost driver
budge may be needed to adequately
ts explain all of the costs in an
with
organization.
multi
ple
cost
driver
s
Rick’s
Hairstyling
Rick’s Hairstyling
2.3. Flexible budgets with multiple cost drivers
EXAMPLE
Our
The cost of electricity is even The cost is fixed
Clients
more complex.
A flexible budget
in which these changes The difference
have been made
The cost formulas based on more
Two cost drivers are listed than one cost driver are more
client-visits— q1 accurate than the cost formulas
hours of operation— q2 based on just one cost driver, the
variances will also be more
accurate.
E X H I B I T 9–5
2.3. Flexible budgets with multiple cost drivers
E X H I B I T 9–6
Revenue and Spending Variances from
Comparing the Flexible Budget to the
Actual Results
E X H I B I T 9–7
Performance Report Combining Activity
Variances with Revenue and Spending
Variances
CHAPTER 2:
Flexible budget and performance analysis
Managerial accounting 2
Group 1
CHAPTER 2: FLEXIBLE BUDGET
2.4
SOME COMMON
ERRORS
When static planning budget costs
FIXED COSTS
without any adjustment for the
VARIABLE
COSTS
have been inflated by the
increased (10%).
SOME COMMON ERRORS
EXHIBIT 9.9
FAULTY ANALYSIS COMPARING BUDGETED AMOUNTS TO ACTUAL AMOUNTS
SOME COMMON ERRORS
Actual results > Planning Budget
-> $ 120 U (UNFAVORBLE)
EXHIBIT 9.9
FAULTY ANALYSIS COMPARING BUDGETED AMOUNTS TO ACTUAL AMOUNTS
EXHIBIT 9-10
FAULTY ANALYSIS THAT ASSUMES ALL BUDGET ITEMS ARE VARIABLE
The rent is fixed in advance and does not depend
on the volume of business.
-> $31,350 is incorrect
-> The actual rent paid was exactly equal to the
budgeted rent
EXHIBIT 9-10
FAULTY ANALYSIS THAT ASSUMES ALL BUDGET ITEMS ARE VARIABLE
Multiple choice questions
costs.
Multiple choice questions
B. Variable overhead
only.
C. Fixed overhead only.
D. Direct labor costs as well as overhead
costs.
3. The volume variance is nonzero whenever:
MANAGERIAL ACCOUNTING 2