Flexible Budgets, Standards Costs, and Variance Analysis

Flexible Budgets, Standards Costs, and Variance Analysis -...

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Flexible Budget, Standards Costs, and Variance Analysis I. The variance analysis cycle a. b. Management by exception b.i. Is a management system that compares actual results to a budget so that significant deviations can be flagged as exceptions and investigated further; enables to focus on the most important variances while bypassing trivial discrepancies between budget and actual results II. Flexible budgets a. The characteristics of a flexible budget a.i. Planning budget a.i.1. Prepared before the period begins and is valid for only the planned level of activity a.ii. Flexible budget a.ii.1. An estimate of what revenues and costs should have been, given the actual level of activity for the period; takes into account how changes in activity affects are compared to what the costs should have been for the actual level of activity during the period rather than to the static planning budget III. Deficiencies of the Static Planning Budget a. Planning Budget Example Budgeted: client visits (9) 1000 Revenue ($180.00 * 9) $180,000 Expense -Wages and salaries ($65,000 + $37 * q) 102,000 Hairstyling supplies ($1.50 * q) 1,500 Client Gratuities ($4.10 * q) 4,100 -Electricity ($1,500 + 0.10q) 1,600 -Rent ($28,500) 28,500 -Liability Insurance ($2,800) 2,800 -Employee Health Insurance 21,300 -Misc. 1,400 Total Expense
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