Flexible Budgets

Flexible Budgets - expenses cause an unfavorable variance....

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Flexible Budgets budget report  is prepared to show how actual results compare to the budgeted numbers. It has  columns for the actual and budgeted amounts and the differences, or variances, between these  amounts. A variance may be favorable or unfavorable. On an income statement budget report, think  of how the variance affects net income, and you will know if it is a favorable or unfavorable variance.  If the actual results cause net income to be higher than budgeted net income (such as more  revenues than budgeted or lower than budgeted costs), the variance is favorable. If actual net  income is lower than planned (lower revenues than planned and/or higher costs than planned), the  variance is unfavorable. So higher revenues cause a favorable variance, while higher costs and 
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Unformatted text preview: expenses cause an unfavorable variance. Although the budget report shows variances, it does not explain the reasons for the variance. The budget report is used by management to identify the sales or expenses whose amounts are not what were expected so management can find out why the variances occurred. By understanding the variances, management can decide whether any action is needed. Favorable variances are usually positive amounts, and unfavorable variances are usually negative amounts. Some textbooks show budget reports with F for favorable and U for unfavorable after the variances to further highlight the type of variance being reported....
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This note was uploaded on 11/16/2011 for the course ACCT 2310 taught by Professor Staff during the Spring '09 term at Texas State.

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