ACC 202 Chapter 9
ACC 202 Chapter 9 ACC 202
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This 0 page Class Notes was uploaded by Marissa Sarlls on Sunday January 10, 2016. The Class Notes belongs to ACC 202 at University of Kentucky taught by Jana Wilhelm in Spring 2016. Since its upload, it has received 15 views. For similar materials see Managerial Accounting (202, Wilhelm) in Accounting at University of Kentucky.
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Date Created: 01/10/16
Chapter 9 Flexible Budgets and Performance Analys Variance Analysis Cycle pg 393 Exhibit 91 Prepare performance report in accounting of ce which highlight variances Analyze variances Raise questions Identify root causes Take actions Conduct next period s operations Management by exception is often used in conjunction with this cycle 0 It s a management system that compares actual results to a budget so that signi cant deviations can be agged as exceptions and investigated further Flexible Budgets Planning budget prepared before the period begins and is valid for only the planned level of activity o If activity is higher than expected variable costs should be higher than expected 0 Flexible budget an estimate of what revenues and costs should have been given the actual level of activity for the period 0 Takes into account how changes in activity affect cost 0 Actual costs are compared to what the costs should have been for the actual level of activity during the period rather than to the static planning budget 0 Enables managers to isolate the various causes of the differences between budgeted and actual costs 0 Differences planning uses the term revenue instead of sales 0 How exible budget works 0 Recognizes that a budget can be adjusted to show what costs should be for the actual level of activity Flexible Budget Variances 0 Activity variance the difference between a revenue or cost item in the exible budget and the same item in the static planning budget An activity variance is due solely to the difference between the actual level of activity used in the exible budget and the level of activity assumed in the planning budget 0 Flexible budget based on the actual level of activity for the period is compared to the planning budget from the beginning of the period planning shows at budgeted level of activity 0 Because of the existence of xed costs NOI does not change in proportion to changes in the level of activity There is a leverage effect The percentage changes in NOI are ordinarily larger than the percentage increases in activity 0 Revenue amp Spending Variance 0 Revenue variance the difference between the actual total revenue and what the total revenue should have been given the actual level of activity for the pe od lf actual revenue exceeds what the revenue should have been the variance is labeled favorable Revenue variance is favorable if the average selling price is greater than expected 0 Spending variance the difference between the actual amount of the cost and how much a cost should have been given the actual level of activity P P BP NE If the actual cost is greater than what the cost should have been the variance is labeled unfavorable if less it s favorable 0 Performance Report Combining Activity Revenue and Spending o 1 Actual results 1 2 Revenue amp Spending variances 2 Flexible budget 2 3 Activity variances 3 Planning budget For nonpro t organizations they receive more outside funding than just sales which means that like costs the revenue in governmental and nonpro t organizations may consist of both xed and variable elements 0 Performance reports for organizations that do not have any source of outside revenue revenue does not appear on reportmanagers are responsible for costs but not revenues so they are often called cost centers Flexible Budgets with Multiple Cost Drivers 0 Because the cost formulas based on more than one cost driver are more accurate than the cost formulas based on just one cost driver the variances will also be more accurate Some Common Errors 0 Most common errors in preparing performance reports are to implicitly assume that all costs are xed or to implicitly assume that all costs are variable 0 Comparing actual costs to static planning budget costs only makes sense if the cost is xed 0 Another common error when comparing budgets to actual results is to assume that all costs are variable OOOOO
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