Week 8- Flexible budgets and Activity based budgeting Flashcards
What is a financial planning and analysis (FP&A) system?
Helps managers assess the companys future and know if they are reaching their performance goals
what does a financila planning and analysis system include?
Planning
Measuring and recording results
evaluating performance
what is a budget?
A budget is a detailed plan, expressed in quantitive terms, that specifies how resources will be acquired and used during a given time
what is a master budget?
A budget that covers all of the companies departmental budgets in one.
what does the master budget include?
Sales budget • Production budget • Direct materials budget • Direct labour budget • Manufacturing overhead budget • Selling, general, and administrative budget • Cash budgets, including budgeted cash receipts and disbursement • Budgeted financial statements
why are budgets important?
1) planning
2) Facilitating comms and coordination
3) Allocating resources
4) evaluating performance
what is activity based budgeting?
the process of developing a master budget using information obtained from and activity based costing analysis
what is the difference in the sequence of activities between ABC and ABB?
th activities happen in reverse order
what is a flexible budget?
A detailed plan for contolling overhead and other costs which is prepared for different levels of activity within a firms range of capacity
what is a static budget?
Sets forth a plan for only one level of activity
What is an unfavourable variance?
when the budget is higher than the actual result (opposite for costs)
what is a favourable variance?
when the budget is lower than the actual result (opposite for costs)
What is the advantage of flexible budgeting?
what is participaive budgeting?allows a firm to determine the extent that a favourable variance is down too lower production activity or good cost control
what is the flexible budget formula?
Total budgeted overhead = (Budgeted variable cost per activity unit *Number of activity units) + Budgeted fixed overhead cost
Bascially TC=VC+FC
what does the flexible budget formula allow us to calculate?
to work out any overhead cost at any volume of activity with the businesses capacity
