ch7 - Chapter 7 Flexible Budgets Direct-Cost Variances and...

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Unformatted text preview: Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control A variance is the difference between actual results and expected performance. The expected performance is also called budgeted performance . Management by exception is the practice of focusing management attention on areas that are not operating as expected and devoting less time to areas operating as expected. Static budget , or master budget, is based on the level of output planned at the start of the budget period. The master budget is called a static budget because the budget for the period is developed around a single (static) planned output level. The static-budget variance (SBV) is the difference between the actual result and the corresponding budgeted amount in the static budget. A favorable variance – denoted F – has the effect, when considered in isolation, of increasing operating income relative to the budgeted amount. Rev Up = F Cost Down = F An unfavorable variance – denoted U – has the effect, when viewed in isolation, of decreasing operating income relative to the budgeted amount. Rev Down = U Cost Up = U Example : Static-budget variance for operating income = Actual result - Static-budget...
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ch7 - Chapter 7 Flexible Budgets Direct-Cost Variances and...

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