Chapter7-1

Chapter7-1 - CHAPTER 7 Flexible Budgets, Direct-Cost...

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CHAPTER 7 Flexible Budgets, Direct-Cost Variances, and Management Control
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Chapter Map 2
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Basic Concepts Variance – difference between an actual and an expected (budgeted) amount Management by Exception – the practice of focusing attention on areas not operating as expected (budgeted) Static (Master) Budget – is based on the output planned at the start of the budget period 3
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Static-Budget Variances 4
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Static-Budget Variances Static-Budget Variance– the difference between the actual result and the corresponding static budget amount Favorable Variance (F) – has the effect of increasing operating income relative to the budget amount Unfavorable Variance (U) – has the effect of decreasing operating income relative to the budget amount 5
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Evaluation of Static-Budget Variances The variances at this level, however, are nothing more than the difference between actual and static-budget operating income. They answer “How much were we off?” and “Where were we off?” Do not tell the user “Why were we off?” 6
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Flexible Budget 7
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Flexible Budget – shifts budgeted revenues and costs up and down based on actual operating results (activities) This allows management to compare actual results with budgeted results for that activity level. Allows for preparation of variances in more depth
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This note was uploaded on 11/10/2011 for the course ACCT 4121 taught by Professor Liu during the Fall '10 term at LSU.

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Chapter7-1 - CHAPTER 7 Flexible Budgets, Direct-Cost...

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