Managerial Ch 10

Spending and Revenue variance

flexible budget - actual results

A favorable activity variance for a cost may not indicate good performance because a favorable activity variance;

for a variable cost will occur because the actual level of activity is less than the budgeted level.

Unfavorable activity variances may not indicate bad performance because;

increased activity should result in higher variable costs.

Variances are more accurate when using:

multiple cost drivers

Static planning budget

only considers the planned level of activity

Activity variance

planning budget - flexible budget

Non profit orgs usually receive a significant amount of funding from sources other than

sales.

Flexible budget

takes into account changes in level of activity

Expect total variable costs to be higher in the flexible budget if;

the activity level for a period is higher than expected.

When a static planning budget is compared to actual results at a different activity level:

-increases or decreases in net income are not adequately explained. -changes in costs are expected due to changes in activity.

Comparing the static planning budget to actual results only makes sense when;

-the actual activity level is the same and the budgeted activity level. -all costs are fixed.

Flexible Budget

Shows what costs and revenue should be for the actual level of activity.

Performance reports for cost centers:

do not include revenues or net income.