Acct+315+Chap+7+Flex+Budget+DC+_2

Acct+315+Chap+7+Flex+Budget+DC+_2 - Flexible Budgets,...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Flexible Budgets, Variances, and Management Control: I
Background image of page 1

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

View Full DocumentRight Arrow Icon
Static and Flexible Budgets Static Budget Planned level of output at start of the budget period Based on Flexible Budget Budgeted revenues and cost based on actual level of output Based on
Background image of page 2
Static Budget Example Assume that Pasadena Co. manufactures and sells dress suits. Budgeted variable costs per suit are as follows: Direct materials cost $ 65 Direct manufacturing labor 26 Variable manufacturing overhead 24 Total variable costs $115
Background image of page 3

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

View Full DocumentRight Arrow Icon
Static Budget Example Budgeted selling price is $155 per suit. Fixed manufacturing costs are expected to be $286,000 within a relevant range between 9,000 and 13,500 suits. Variable and fixed period costs are ignored. The static budget for year 2004 is based on selling 13,000 suits. What is the static-budget operating income?
Background image of page 4
Static Budget Example Revenues (13,000 × $155) $2,015,000 Less Expenses: Variable (13,000 × $115) 1,495,000 Fixed 286,000 Budgeted operating income $ 234,000 Assume that Pasadena Co. produced and sold 10,000 suits at $160 each with actual variable costs of $120 per suit and fixed manufacturing costs of $300,000.
Background image of page 5

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

View Full DocumentRight Arrow Icon
Static Budget Example Revenues (10,000 × $160) $1,600,000 Less Expenses: Variable (10,000 × $120) 1,200,000 Fixed 300,000 Actual operating income $ 100,000 What was the actual operating income?
Background image of page 6
Static-Budget Variance Example What is the static-budget variance of operating income? Actual operating income $100,000 Budgeted operating income 234,000 Static-budget variance of operating income $134,000 U This is a Level 0 variance analysis.
Background image of page 7

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

View Full DocumentRight Arrow Icon
Static-Budget Variance Example Static-Budget Based Variance Analysis (Level 1) in (000) Static Budget Actual Variance Suits 13 10 3 U Revenue $2,015 $1,600 $415 U Variable costs 1,495 1,200 296 F Contribution margin $ 520 $ 400 $120 U Fixed costs 286 300 14 U Operating income $ 234 $ 100 $134 U
Background image of page 8
Steps in Developing Flexible Budgets Step 1: Determine budgeted selling price, variable cost per unit, and budgeted fixed cost. Budgeted selling price is $155, variable cost is $115 per suit, and the budgeted fixed cost is $286,000.
Background image of page 9

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

View Full DocumentRight Arrow Icon
Flexible Budgets Step 2: Determine the actual quantity of output. In the year 2004, 10,000 suits were produced and sold. Step 3:
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/10/2009 for the course ACCT 315 taught by Professor Siebert during the Fall '09 term at Saginaw Valley.

Page1 / 48

Acct+315+Chap+7+Flex+Budget+DC+_2 - Flexible Budgets,...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online