ACCT 2102 1st Edition Lecture 29 Outline of Last Lecture I Decentralized Operations II Responsibility Centers III Performance Reports Outline of Current Lecture IV Performance Report Example V Flexible vs Static Budgets VI Flexible Budget Report Current Lecture Performance Evaluation Part II Chapter 10 Spent first half of class explaining information on Budget Project which will be due December 3 rd in class All information and templates regarding the budgeting project are all posted on eLC New IV Performance Reports example Actual Flexible Budget Direct Materials 26 925 25 000 Direct Labor 14 235 15 000 Indirect Labor 29 275 26 000 Utilities 13 170 12 000 Depreciation 15 500 15 500 Repairs and Maintenance 6 315 7 500 Total 105 420 101 000 Variance Variance 1 925 U 7 70 U 765 F 5 10 F 3 275 U 12 60 U 1 170 U 9 75 U 0 0 00 1 185 F 15 80 F U unfavorable F favorable Variance Variance Budget What type of responsibility center is represented by the above data Cost 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 Which items should be investigated if management s materiality threshold is 3 100 or 11 Indirect Labor Repairs and Maintenance Should only unfavorable variances be investigated No we investigate both if they are material meaning they fall outside the threshold Could a fixed cost such as depreciation have a variance Yes FC not changing in total is only from a planning perceptive not actual Example Sold a piece of equipment you didn t expect to sell V Flexible Budgets vs Static Budgets for Performance Evaluation We worked with a Static Budget in Chapter 9 a budget prepared for a single level of activity Also called Master Budget Managers can gain better insight when evaluating performance by using a Flexible Budget a budget prepared for a different level of volume than what was originally anticipated o The budget managers would have prepared if they could have anticipated the exact sales volume for the period Master budget variance o Difference between the master budget and actual results o Apple to orange comparison not very important Flexible budget variance o Difference between flexible budget and actual results o Apple to apple comparison very important o Price rate variance o Quantity Efficiency variance This will be discussed more thoroughly in Chapter 11 Volume variance o Difference between master budget and flexible budget o It is the difference that exists because you sold more or less than expected VI Interpreting a Flexible Budget Performance Report Actual Results Flexible Budget Variance Flexible Budget Volume Variance Master Budget Output 6 6 5 Sales Revenue 102 000 108 000 90 000 Variable Expenses 57 000 60 000 50 000 Fixed Expenses 21 000 25 000 25 000 How to find flexible budget column 90 000 5 x 6 actual output 108 000 50 000 5 x 6 actual output 60 000 FC remain the same What type of responsibility center is being used Either profit or investment How many units of output did the company anticipate selling 5 Why is the Flexible Budget based on an output of 6 Because that is what we sold The flexible budget is populated for your actual activity level Determine the budgeted unit Sales Price and budgeted unit Variable Cost o SP 90 000 5 18 000 o VC 50 000 5 10 000 Why are the Fixed Expenses the same in the Flexible Budget and Master Budget columns FC in total do not change between budgets from a planning perspective Complete the report and provide a reasonable explanation for variances greater than 5 000 Will get to this on Friday
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