Chapter_11_Flexible_Budgets_and_Overheads - Chapter 11...

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Chapter 11 Lecture Notes I. Chapter theme: This chapter expands the study of overhead variances that was started in Chapter 10. It also explains how flexible budgets can be used to control variable and fixed overhead costs. II. Flexible budgets A. A static budget is prepared at the beginning of the budgeting period and is valid for only the planned level of activity. It is suitable for planning, but it is inadequate for evaluating how well costs are controlled because: 1. Actual level of activity is unlikely to equal the planned level of activity 2. Major deficiency: Actual costs at one activity level are compared to budgeted costs at a different activity level (“apples to oranges” analogy) B. A flexible budget provides estimates of what costs should be for any level of activity within a specified range. When used for performance evaluation purposes, actual costs are compared to what the costs should have been for the actual level of activity during the period. III.
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Chapter_11_Flexible_Budgets_and_Overheads - Chapter 11...

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