Flexible Budgets And Variance Analysis Pdf

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flexible budgets and variance analysis pdf

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The previous chapter provided a comprehensive budget illustration using a static budget. The static budget is one that is developed for a single level of activity. It is very useful for planning and control purposes.

Variance Analysis and Flexible Budgeting

You don't have to be an accounting whiz to grasp the appeal of a flexible budget. Large and complex businesses gravitate to this type of spending plan because it calculates different levels of expenditures for costs that may vary. In this way, a flexible budget portends adaptability. And if you're unsure about revenues or need more time to calculate them, a flexible budget gives you time to craft a more reliable plan. As those numbers trickle in, a flexible budget can be a good way to evaluate the performance of managers who hold the line on expenses, too. You won't derive these benefits with a static budget, which remains unchanged even if projections end up deviating radically from reality. A flexible budget can handle that reality and better position a company for the challenges of the marketplace.

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Chapter 9 Standard costing, flexible budgeting and variance analysis. Priory Pegamoid Limited produces a range of parts for industrialweaving machines. Quayle Products plc manufactures waste disposal units. It may be assumed that all of itsoverheads are fixed in nature. Robertson Rix Limited is a manufacturing company. In January20X6 it budgeted for units of production, each of whichuses 2.

Quantitative methods in budgeting pp Cite as. A variance in accounting is the difference between two amounts one of which is the basic, standard, or reference amount and the other the comparable amount. Variance analysis is concerned with breaking down the difference between the two amounts into meaningful parts. Unable to display preview. Download preview PDF. Skip to main content.

Although the budget report shows variances, it does not explain the reasons for the variance. The budget report is used by management to identify the sales or expenses whose amounts are not what were expected so management can find out why the variances occurred. By understanding the variances, management can decide whether any action is needed. Favorable variances are usually positive amounts, and unfavorable variances are usually negative amounts. Actual net income is unfavorable compared to the budget.

Learning Objective 2: Develop a flexible budget proportionately increase variable costs; keep fixed costs the same and compute flexible-budget variances.

Chapter 9 Standard costing, flexible budgeting and variance analysis

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The Disadvantages of a Flexible Budget

Below are the available bulk discount rates for each individual item when you purchase a certain amount. Register as a Premium Educator at hbsp. Publication Date: October 26,

Flexible Budgets

A flexible budget is adjusted in accordance with ensuing changes in actual output or actual revenue and cost drivers. A flexible budget is calculated at the end of the period when the actual output is known. A static budget is developed at the start of the budget period based on the planned output level for the period.

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After completing this lesson, you are expected to be able to: ➢ To define static budget and flexible budget;. ➢ To explain fixed and variable components of costs​;.

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  1. Fructuoso A. 19.05.2021 at 05:55

    Flexible Budgets and their Preparation Although in a previous section, detailed discussion about budgets has been included, yet, a repetition of some of the issues of budgeting is considered essential.