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UGA ACCT 2102 - Performance Evaluation, Part II (Chapter 10)
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ACCT 2102 1st Edition Lecture 29 Outline of Last LectureI. Decentralized OperationsII. Responsibility CentersIII. Performance ReportsOutline of Current Lecture:IV. Performance Report ExampleV. Flexible vs. Static BudgetsVI. Flexible Budget ReportCurrent Lecture: Performance Evaluation, Part II (Chapter 10)Spent first half of class explaining information on Budget Project, which will be due December 3rd inclass. All information and templates regarding the budgeting project are all posted on eLC New.IV. Performance Reports . . . exampleActual Flexible Budget $ Variance % VarianceDirect Materials $26,925 $25,000$1,925 U 7.70% UDirect Labor 14,235 15,000$765 F 5.10% FIndirect Labor 29,275 26,000$3,275 U 12.60% UUtilities 13,170 12,000$1,170 U 9.75% UDepreciation 15,500 15,500$0 0.00%Repairs and Maintenance 6,315 7,500$1,185 F 15.80% FTotal $105,420 $101,000*U = unfavorable*F = favorable% Variance = $VarianceBudgetWhat type of responsibility center is represented by the above data? CostThese 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 froma planning perceptive, not actual. Example: Sold a piece of equipment you didn’t expect to sell.V. Flexible Budgets vs. Static Budgets for Performance EvaluationWe 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 . . . abudget 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 varianceo Difference between the master budget and actual resultso Apple to orange comparison—not very important- Flexible budget varianceo Difference between flexible budget and actual resultso Apple to apple comparison—very importanto Price/rate varianceo Quantity/Efficiency varianceThis will be discussed more thoroughly in Chapter 11.- Volume varianceo Difference between master budget and flexible budgeto It is the difference that exists because you sold more or less than expected.VI. Interpreting a Flexible Budget Performance Report . . .Actual ResultsFlexible Budget VarianceFlexible BudgetVolume VarianceMaster BudgetOutput 6 6 5Sales Revenue $102,000 $108,000 $90,000Variable Expenses$57,000 $60,000 $50,000Fixed Expenses $21,000 $25,000 $25,000How to find flexible budget column:($90,000/5) x 6 (actual output) = $108,000($50,000/5) x 6 (actual output) = $60,000FC 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 = $18,000o 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


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UGA ACCT 2102 - Performance Evaluation, Part II (Chapter 10)

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