4. Budgeting - Variance Analysis

Question 1

Static Budget

Answer 1

Provides an overall picture of whether the planned results were achieved:

AQ x AP - SQ x SP

Level 1 = quantity refers to the volume of outputs, and price refers to the price of input for one unit of output.

Question 2

Flexible Budget

Answer 2

This breaks down the variance above into either price variance (cost) or volume variance (quantity) - Level 2

(AP - SP) x AQ

Sales Volume Variance
(AQ-SQ) x SP

This shows the difference between the actual results and the flexible amount

Question 3

Rate Variance

Answer 3

(AP - SP) x AQ

Note: Quantity refers to the quantity of input x the actual volume of sales/production.

The difference is that for AQ in the flexible budget, we are using actual outputs, but for level 3, we are using the number of inputs purchased or used in production to achieve that production

Question 4

Efficiency Variance

Answer 4

(AQ - SQ) x SP

Note: SQ refers to the budgeted quantity of inputs for the actual volume of sales/production.

Question 5

Sales revenue variances

Answer 5

Because static budget sales revenue includes both effects of quantity and selling prices, we can break it down.