{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

costacctg13_sm_ch07

# costacctg13_sm_ch07 - CHAPTER 7 FLEXIBLE BUDGETS...

This preview shows pages 1–3. Sign up to view the full content.

7-1 CHAPTER 7 FLEXIBLE BUDGETS, DIRECT-COST VARIANCES, AND MANAGEMENT CONTROL 7-1 Managementbyexception is the practice of concentrating on areas not operating as expected and giving less attention to areas operating as expected. Variance analysis helps managers identify areas not operating as expected. The larger the variance, the more likely an area is not operating as expected. 7-2 7-2 Two sources of information about budgeted amounts are (a) past amounts and (b) detailed engineering studies. 7-3 A favorablevariance ––denoted F––is a variance that has the effect of increasing operating income relative to the budgeted amount. An unfavorablevariance ––denoted U––is a variance that has the effect of decreasing operating income relative to the budgeted amount. 7-4 The key difference is the output level used to set the budget. A staticbudget is based on the level of output planned at the startofthebudgetperiod . A flexiblebudget is developed using budgeted revenues or cost amounts based on the actual output level in the budget period. The actual level of output is not known until the endofthebudgetperiod . 7-5 7-5 A flexible-budget analysis enables a manager to distinguish how much of the difference between an actual result and a budgeted amount is due to (a) the difference between actual and budgeted output levels, and (b) the difference between actual and budgeted selling prices, variable costs, and fixed costs. 7-6 The steps in developing a flexible budget are: Step 1: Identify the actual quantity of output. Step 2: Calculate the flexible budget for revenues based on budgeted selling price and actual quantity of output. Step 3: Calculate the flexible budget for costs based on budgeted variable cost per output unit, actual quantity of output, and budgeted fixed costs. 7-7 7-7 Four reasons for using standard costs are: (i) cost management, (ii) pricing decisions, (iii) budgetary planning and control, and (iv) financial statement preparation. 7-8 A manager should subdivide the flexible-budget variance for direct materials into a price variance (that reflects the difference between actual and budgeted prices of direct materials) and an efficiency variance (that reflects the difference between the actual and budgeted quantities of direct materials used to produce actual output). The individual causes of these variances can then be investigated, recognizing possible interdependencies across these individual causes.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
7-2 7-9 Possible causes of a favorable direct materials price variance are: purchasing officer negotiated more skillfully than was planned in the budget, purchasing manager bought in larger lot sizes than budgeted, thus obtaining quantity discounts, materials prices decreased unexpectedly due to, say, industry oversupply, budgeted purchase prices were set without careful analysis of the market, and purchasing manager received unfavorable terms on nonpurchase price factors (such as lower quality materials).
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 45

costacctg13_sm_ch07 - CHAPTER 7 FLEXIBLE BUDGETS...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online