Chapter 8 Flashcards
What is a flexible budget?
They show expected revenues and costs at a variety of volume levels
How are flexible budgets prepared?
Same per-unit standard amounts and fixed costs
Difference expected number of units sold
Crucial for the planning and performance evaluation
What are variances?
Difference between standard and actual amounts
Can be favourable or unfavourable
When is a variance favourable?
When actual sales exceed expected ones
When actual costs are less than standard
When is a variance unfavourable?
When actual sales are less than expected
When actual costs exceed standard
What is the sales volume variance?
Difference between the static budget and a flexible budget based on actual volume
How do you calculate the variable cost volume variances?
Difference between the static and flexible budget amounts
How does a manager perform effective performance evaluation?
Compare the actual results achieved to the flexible budget based on the actual volume of activity
Difference is called the flexible budget variance
How is HR connected to flexible budget variances?
Offers insight to the management efficiency
Favourable variance could mean purchasing agents are good negotiators, or paying low prices for inferior goods
What is the fixed cost spending variance?
Difference between actual fixed cost and the budgeted fixed costs
What is the accountability for fixed cost spending variances?
Fixed costs which are controllable must be analyzed
Uncontrollable fixed costs should be reported for oversight
If costs are not controllable in the short term - management should be aware since they can be controllable in the long term
How do you calculate the allocation rate?
Budgeted fixed costs/planned volume of activity
How do you calculate predetermined overhead rate?
Budgeted fixed costs from static budget/planned volume of activity
How do you calculate the applied fixed cost?
Predetermined overhead rate x actual volume of production
What is the fixed cost volume variance?
Difference between the applied fixed cost based on actual volume and budgeted fixed cost based on planned volume