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Chapter 9 Notes for Final Exam

by: Dalia Szkolnik

Chapter 9 Notes for Final Exam ACC 212

Marketplace > University of Miami > ACC 212 > Chapter 9 Notes for Final Exam
Dalia Szkolnik
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About this Document

These notes cover flexible budgets and activity variances. It is a very short and simple chapter.
Managerial Accounting 212
Class Notes
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This 4 page Class Notes was uploaded by Dalia Szkolnik on Saturday March 26, 2016. The Class Notes belongs to ACC 212 at University of Miami taught by Quintana in Spring 2016. Since its upload, it has received 16 views.

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Date Created: 03/26/16
Chapter 9 Notes Flexible Budgets and Performance Analysis Performance analysis: • Analyze variances  raise questions  identify causes  take actions  conduct next period’s operations Static planning budgets • Prepared for a single, planned level of activity • Not suitable for evaluation how well costs are controlled Flexible budgets • Prepared for any activity level in the relevant range • Show costs that should’ve been incurred at the actual level of activity (“apples to apples” cost comparisons) • Helps managers control costs • We must know the total variable costs change in direct proportion to changes in activity and total fixed costs must remain unchanged within relevant range Activity variances • Differences between budget amounts (between flexible budget revenues/expenses and planning budget revenues/expenses) • Flexible – planning = variance o Positive value in revenue or net operating income is favorable o Positive value in expenses is unfavorable • Actual revenue – flexible budget revenue = revenue variance • Actual cost – flexible budget cost = spending variance Common errors • Never assume that all costs are variable • If it is assumed that all costs are fixed, the variances for variable and mixed costs will be incorrect • If is assumed that all costs are variable, the variances for fixed and mixed costs will be incorrect Example Given: Formula Revenue $16.50q Cost of material $6.25q Wages and salaries $10,400 Utilities $800+$.20q Rent $2,200 Miscellaneous $600+.80q 1. To prepare a static planning budget assuming that there are 1,800 units, you must find the total cost for each of the sections. • For the sections that don’t require a variable cost per unit, it means it is a fixed cost and that will not change if the number of units change • For example, multiply 16.50 by 1,800 to get the total revenue for that month. For utilities, multiply .20 by 1,800 and then add the fixed cost of 800. 2. To prepare a flexible budget, if 1,700 units were actually sold, do the same procedures as above. 3. Then, given the information below, prepare a flexible performance report. Revenue $27,920 Cost of material $11,110 Wages and salaries $10,130 Utilities $1080 Rent $2,200 Miscellaneous $2240 Answer: Planning Budget Budgeted units sold 1,800 Revenue $29,700 Cost of material $11,250 Wages and salaries $10,400 Utilities $1,160 Rent $2,200 Miscellaneous $2,040 Total expense $27,050 Net operating income $2,650 Flexible Budget Budgeted units sold 1,700 Revenue $28,050 Cost of material $10,625 Wages and salaries $10,400 Utilities $1,140 Rent $2,200 Miscellaneous $1,960 Total expense $26,325 Net operating income $1,725 Flexible budget performance report Actual Revenue Flexible Activity Planning Results (1) and budget (2) Variances Budget (3) Spending (2-3) variances (1-2) Budgeted 1700 1700 1800 units sold Revenue $27,920 130 U $28,050 1650 U $29,700 Cost of $11,110 485 U $10,625 625 F $11,250 material Wages and $10,130 270 F $10,400 0 $10,400 salaries Utilities $1080 60 F $1,140 20 F $1,160 Rent $2,200 0 $2,200 0 $2,200 Miscellaneous $2240 280 U $1,960 80 F $2,040 Total expense $26,760 435 U $26,325 725 F $27,050 Net Operating $1,160 565 U $1,725 925 U $2,650 Income ** U = unfavorable and F = favorable


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