Accounting Chapter 9

Performance Variance

The difference between the standard and actual performance

Master Budget

Consists of a number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals. Culminates in a cash budget, a budgeted income statement, and a budgeted balance sheet.

Favorable Variance

Difference in actual revenues or expenses from the budgeted amount that contributes to a higher income.

Unfavorable Variance

Difference in revenues or costs, when the actual amount is compared to the budgeted amount, that contributes to a lower income, A variance that causes operating income to be lower than budgeted.

Revenue Variance

The difference between how much the revenue should have been, given the actual level of activity, and the actual revenue for the period. A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for the period.

Spending Variance

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost. A favorable (unfavorable) spending variance occurs because the cost is lower (higher) than expected, given the actual level of activity for the period.

Planning Budget

a budget created at the beginning of the budgeting period that is valid only for the planned level of activity

Static Budget

a projection of budget data at one level of activity (doesn't consider data for different levels of activity)

Flexible Budget

a report showing estimates of what revenues and costs should have been, given the actual level of activity for the period

Activity Variance

the difference between a revenue or cost item in the static planning budget and the same item in the flexible budget. An activity variance is due solely to the difference between the level of activity assumed in the planning budget and the actual level of activity used in the flexible budget.