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10 Flexible Budget
10 Flexible Budget
Performance Analysis
Chapter 10
McGraw-Hill/Irwin Slide 2
Characteristics of Flexible Budgets
Hmm! Comparing
static planning budgets
Planning budgets with actual costs
are prepared for is like comparing
a single, planned apples and oranges.
level of activity.
Performance
evaluation is difficult
when actual activity
differs from the
planned level of
activity.
McGraw-Hill/Irwin Slide 3
Characteristics of Flexible Budgets
Larry’s Budget
McGraw-Hill/Irwin Slide 5
Deficiencies of the Static Planning Budget
Larry’s Planning Budget
McGraw-Hill/Irwin Slide 6
Deficiencies of the Static Planning Budget
Larry’s Actual Results
McGraw-Hill/Irwin Slide 7
Deficiencies of the Static Planning Budget
Larry’s Actual Results Compared with the Planning Budget
McGraw-Hill/Irwin Slide 8
Deficiencies of the Static Planning Budget
Larry’s Actual Results Compared with the Planning Budget
F = Favorable variance that occurs when actual
revenue is greater than budgeted revenue.
McGraw-Hill/Irwin Slide 9
Deficiencies of the Static Planning Budget
Larry’s Actual Results Compared with the Planning Budget
McGraw-Hill/Irwin Slide 10
Deficiencies of the Static Planning Budget
McGraw-Hill/Irwin Slide 11
Deficiencies of the Static Planning Budget
McGraw-Hill/Irwin Slide 12
How a Flexible Budget Works
McGraw-Hill/Irwin Slide 13
How a Flexible Budget Works
Let’s prepare a
budget
for Larry’s Lawn
Service.
McGraw-Hill/Irwin Slide 14
Preparing a Flexible Budget
Larry’s Flexible Budget
McGraw-Hill/Irwin Slide 15
Quick Check
What should the total wages and salaries cost
be in a flexible budget for 600 lawns?
a. $18,000
b. $20,000.
c. $23,000.
d. $25,000.
McGraw-Hill/Irwin Slide 16
Quick Check
What should the be the
total
total
wages
wagesandand
salaries
salaries
cost
costinina aflexible
be flexiblebudget
budgetforfor600
600lawns?
lawns?
a. $18,000
b. $20,000.
c. $23,000.
d. $25,000.
McGraw-Hill/Irwin Slide 17
Learning Objective 2
McGraw-Hill/Irwin Slide 18
Activity Variances
Planning Flexible
budget revenues budget revenues
and expenses and expenses
McGraw-Hill/Irwin Slide 20
Activity Variances
Larry’s Flexible Budget Compared with the Planning Budget
McGraw-Hill/Irwin Slide 21
Activity Variances
Larry’s Flexible Budget Compared with the Planning Budget
Activity and revenue increase by 10 percent, but net operating income
increases by more than 10 percent due to the presence of fixed costs.
McGraw-Hill/Irwin Slide 22
Learning Objective 3
McGraw-Hill/Irwin Slide 23
Revenue and Spending Variances
McGraw-Hill/Irwin Slide 24
Revenue and Spending Variances
McGraw-Hill/Irwin Slide 25
Revenue and Spending Variances
Larry’s Flexible Budget Compared with the Actual Results
$1,750 favorable
revenue variance
McGraw-Hill/Irwin Slide 26
Revenue and Spending Variances
Larry’s Flexible Budget Compared with the Actual Results
Spending
variances
McGraw-Hill/Irwin Slide 27
Learning Objective 4
McGraw-Hill/Irwin Slide 28
A Performance Report Combining Activity
and Revenue and Spending Variances
McGraw-Hill/Irwin Slide 29
A Performance Report Combining Activity
and Revenue and Spending Variances
McGraw-Hill/Irwin Slide 30
A Performance Report Combining Activity
and Revenue and Spending Variances
McGraw-Hill/Irwin Slide 31
A Performance Report Combining Activity
and Revenue and Spending Variances
McGraw-Hill/Irwin Slide 32
Performance Reports in Non-Profit
Organizations
Universities
McGraw-Hill/Irwin Slide 33
Performance Reports in Cost Centers
McGraw-Hill/Irwin Slide 34
Learning Objective 5
McGraw-Hill/Irwin Slide 35
Flexible Budgets with Multiple Cost Drivers
McGraw-Hill/Irwin Slide 36
Flexible Budgets with Multiple Cost Drivers
McGraw-Hill/Irwin Slide 38
Learning Objective 6
McGraw-Hill/Irwin Slide 39
Some Common Errors
McGraw-Hill/Irwin Slide 41
Common Error 2: Assuming All Costs Are
Variable
Faulty Analysis that Assumes All budget Items Are Variable
McGraw-Hill/Irwin Slide 42
End of Chapter 10
McGraw-Hill/Irwin Slide 43