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UNT ACCT 2020 - Comparing Flexible Budgets to Actual Results
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I. Flexible BudgetsII. VariancesIII. Application of ConceptsIV. Flexible BudgetsV. ExamplesACCT 2020 1st Edition Lecture 16Outline of Last Lecture I. BudgetingII. Cash BudgetingOutline of Current LectureI. Flexible BudgetsII. VariancesIII. Application of ConceptsIV. Flexible BudgetsV. ExamplesCurrent LectureI. Flexible Budgets- All previously discussed budgets are based on single level of activities, what if we are able to see more or less than we thought we would? Because the budget is based on one level of activity, it is difficult to measure performance. Were we able to control costs? Were we able to sell at the proper price? Because of this, we prepare a flexible budget that can be prepared at any level at the relevant range assuming fixed costs stay the same. - The flexible budget shows us the scenario for many levels of activity. Shows the costs at the actual level of activity to what it should have been given the level of activity. If we sell 1200 units, what are our costs? Because we are comparing apples to apples, we can measure costs more accurately. These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best Used as a supplement to your own notes, not as a substitute.- The steps are to compare the planned budget with the actual results. We can’t compare the variable costs due to the increased level of activities. Each variance is labeled with either an F (favorable) or U (unfavorable). Anything that relates positively to revenue or net income is Favorable; anything that negatively detracts from revenue or net income isUnfavorable. - Really what we want to know if how much of the variances are due to activity and how much of the variances are due to not being able to control the cost. We want to have variances that measure these differences. In order to prepare a flexible budget, we have to change variable cost s for new level of activity. II. Variances- Compare the Planning Budget to the Flexible budget to see the variances due to activity. In the example they increase by more than 10% due to the fixed costs. When we compare the flexible budget the actual results we can see the revenue variances in changes in revenue, and expense variances are spending variances. Spending variances compared with the other variances show us our actual costs. III. Application of Concepts- Non-profit organizations do this type of analysis. They will have more than revenue, but have donations, endowments, and pretty much all cash inflows. We also have some departments that have no revenue r net operating income variances. We can do flexiblebudgets for these but without revenue lines.- Flexible budgets with multiple cost drivers just use different equation. IV. Flexible Budgets- DO NOT assume that all costs are variable or all costs are fixed. In most companies this will be a bad assumption. If you assume that all costs are variable, then you would ignore the lack of direct proportion of these costs. V. Examples- Exercise 7o Assuming that all costs are variable (All increasing by 4%) would be incorrect because some are fixed and do not change with the level of activity.- Exercise 3o Revenue Variance: 800 Uo Spending Variance: Packing and Supplies: 170 U Oyster-Bed Maint: 140 FWages/ Sales: 410 UShipping: 270 FUtilities: 90 FOther: 520 UNet Operating Income: 1,400 Unfavorable


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UNT ACCT 2020 - Comparing Flexible Budgets to Actual Results

Type: Lecture Note
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