5 Flashcards
What is the difference between a static budget and a flexible budget?
A static budget is prepared for a single level of activity and does not change with actual output. A flexible budget adjusts budgeted revenues and costs based on the actual level of output, providing more accurate variance analysis.
How is a flexible budget developed?
Step 1: Determine budgeted selling price, budgeted variable cost per unit and budgeted fixed cost.
Step 2: Determine the actual quantity of output
Step 3: Determine the flexible budget for revenues based on budgeted selling price and actual quantity of output.
Step 4: Determine the flexible budget for costs based on budgeted variable costs per output unit, actual quantity of output and the budgeted fixed costs.
What are flexible-budget and sales-volume variances?
The flexible-budget variance arises because the actual selling price, variable costs per unit, quantities and fixed costs differ from the budgeted amount.
The sales-volume variance is the difference between the static budget for the number of units expected to be sold and the flexible budget for the number of units that were actually sold.
The only difference between the static budget and the flexible budget is the output level upon which the budget is based.
What is price variance, and how is it calculated?
Price variance measures the difference between actual and budgeted input prices:
PriceVariance
=
(ActualPrice −BudgetedPrice) × ActualQuantityofInputs
PriceVariance (ActualPrice−BudgetedPrice)
What is efficiency variance, and how is it calculated?
Efficiency variance measures the difference between actual and budgeted quantities of inputs used:
EfficiencyVariance
=(ActualQuantity−BudgetedQuantityAllowed)×BudgetedPrice
EfficiencyVariance=(ActualQuantity−BudgetedQuantityAllowed)×BudgetedPrice.
How can continuous improvement be integrated into variance analysis?
Continuous improvement involves setting progressively lower cost targets. Variance analysis then evaluates performance against these targets.
How is variance analysis performed in activity-based costing systems?
ABC systems allocate costs based on activities and their cost drivers. Variances are calculated for activity-based inputs.
What is benchmarking, and how is it used in variance analysis?
Benchmarking compares an organization’s performance against the best practices in the industry or similar organizations. It identifies gaps in performance and sets improvement targets.
