Studied by 7 people
Looks like no one added any tags here yet for you.
What are budgets prepared to do?
Plan and Control
How do people use a budget?
As a reference point (benchmark) to evaluate actual performance
What are the comparisons among budgets called?
Variances
What do variances provides managers with?
A basis for strategy evaluation
Early warning of problems
A basis for performance evaluation
Where can performance be benchmarked?
At various levels
What should managers be held responsible for?
Items and decisions they can significantly control
What can performance in relation to the budget impact?
Retention, promotion, bonus, etc.
What is Variance Analysis?
The comparison of budget expectations and actual performance
What is the purpose of variance analysis?
To evaluate and improve performance
What are the steps of the Variance Analysis Cycle?
Prepare performance report
Analyze variances
Raise questions
Identify root causes
Take actions
Conduct next period’s operations
What are variances labeled as?
Favorable or Unfavorable
What is a Favorable Variance?
Exceeded expected results (increased profit)
What is an Unfavorable Variance?
Did not meet expected results (decreases profit)
What makes a variance favorable for revenues?
Actual > Budget
What make a variance unfavorable for revenues?
Actual < Budget
What makes a variance favorable for expenses?
Actual < Budget
What makes a variance unfavorable for expenses?
Actual > Budget
What are all the terms used to reference a Master Budget?
Planning Budget
Static Budget
What is Profit Variance?
Master Budget Profit - Actual Profit
What is the goal of a variance analysis?
To explain any differences between the master budget profit and the actual profit
How do you explain the impact of the variables of price and quantity?
Need to hold one constant to find the impact of the other
What can you use to explain the impact of price and quantity?
Flexible Budget
Do fixed expenses stay the same on the flexible budget and the master budget?
Yes because they do not change with volume
What is multiplied together on the Master Budget?
Budget Quantity * Budget Price
What is multiplied together on the Flexible Budget?
Actual Quantity * Budget Price
What is multiplied together on the Actual Report?
Actual Quantity * Actual Price
What do Activity Variances compare?
Master Budget
Flexible Budget
What do Revenue/Spending Variances compare?
Flexible Budget
Actual Report
What varies in the Activity Variances?
Quantity
What varies in the Revenue/Spending Variances?
Price
How do you find Activity Variances?
(Budget Quantity - Actual Quantity) * Budget Price
What is Sales Volume Variances?
Total of all activity variances
What kind of question does Sales Volume Variance answer?
What is the impact to NOI if we sell 1 more/or 200 fewer goods?
How do you find Sales Volume Variances?
(Budget Quantity - Actual Quantity) * Budgeted Unit Contribution Margin
How do you find Sales Price Variance/Revenue Variance?
(Budget Price - Actual Price) * Actual Quantity
What kind of question does Sales Price Variance/Revenue Variance answer?
Using the actual activity (units), what is the impact to revenue if the actual selling price is different from what we expected?
What can cause a Sales Price Variance?
Thing that impact selling price:
Price discounts
Low quality products
Price war with competition
How do you find Material/Labor/VMOH/VS&A Spending Variance (Variable Cost Spending Variance)?
(Budget Price - Actual Price) * Actual Quantity
What kind of question does Variable Cost Spending Variance answer?
Using the actual activity (units), what is the impact to variable costs if the actual cost is different from what we expected?
What can cause Variable Cost Spending Variances?
Anything that impacts variable costs
How do you find FMOH/FS&A Spending Variances (Fixed Cost Spending Variances)?
(Fixed Cost per Flexible Budget - Actual Fixed Cost)
What kind of question does Fixed Cost Spending Variance answer?
What is the impact to fixed costs if the actual cost is different from what we expected?
What is another way to calculate Fixed Cost Spending Variance?
By comparing the master budget to the actual budget
What can cause Fixed Cost Spending Variances?
Increases in utilities, new equipment, more security, etc.
What variances are a part of Activity Variances?
Sales volume variance
What variances are a part of Revenue/Spending Variances?
Sales Price Variance
Material Spending Variance
Labor Spending Variance
VMOH Spending Variance
VS&A Spending Variance
FC Spending Variance
Note
Flashcard