c Flexible Budget Variance and Sales Volume Variance 1 The static budget

C flexible budget variance and sales volume variance

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c. Flexible Budget Variance and Sales-Volume Variance 1) The static budget variance consists of a flexible budget variance and a sales-volume variance. 2) The flexible budget variance is the difference between the actual results and the budgeted amount for the actual activity level . It may be analyzed in terms of variances related to selling prices, input costs, and input quantities. a) A flexible budget must be based on per-unit variable costs (costs that vary with activity) and total fixed costs (costs incurred regardless of activity). Thus, it consists of the costs that should have been incurred given the actual level of production. i) Actual production is actual output, but variable costs are measured using the standard level of inputs (e.g., direct labor hours, machine hours, etc.). b) Standard costs alert management to cost problems, permit management by exception, and may increase the efficiency of employees who participate in setting standards. Standards costs also facilitate flexible budgeting, performance evaluation, and setting employee goals. c) Standard costs should be established for direct materials, direct labor, and overhead. These standards can then be used to calculate variances. i) Standard costs exclude inefficiencies and reflect expected changes. Their emphasis is on current performance and potential improvement. 3) The sales-volume variance is the difference between the flexible budget and static budget amounts if selling prices and costs are constant. 4) These concepts are explained more fully in Study Unit 5, Subunit 4, item 4. Figure 11-2 d. Components of the Flexible Budget Variance 1) The flexible budget variance consists of the following variances, which are depicted in Figure 11-3. Figure 11-3
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SU 11: Cost and Variance Measures 5 Copyright © 2019 Gleim Publications, Inc. All rights reserved. Duplication prohibited. Reward for information exposing violators. Contact [email protected] . 2) A direct materials variance includes a a) Price variance b) Quantity or usage variance (an efficiency variance for direct materials) i) When a product has more than one input, the (a) materials mix variance and (b) materials yield variance can be calculated. 3)A direct labor varianceincludes a(n) a)Rate variance (a price variance for direct labor)b)Efficiency variancei)When labor rates vary, the (a) labor mix variance and (b) labor yieldvariance can be calculated.
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