Managerial Accounting Ch. 9
Activity Variance
Unfavorable variances don't always indicate bad performances, and favorable variances don't always indicate good performance. The difference between a revenue or cost item in the static planning budget and the same item in the flexible budget. 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.
Flexible Budget
An estimate of what revenues and costs should have been, given the actual level of activity for the period. When used in a performance evaluation, actual costs 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.
Planning Budget
Prepared before the period beings and is valid for only the planned level of activity. Inappropriate for evaluating how well costs are controlled.
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. If actual cost is greater than what the cost should have been; unfavorable. If actual cost is les than what the cost should have been; favorable.
Revenue Variance
The difference between what the total revenue should have been, given the actual level of activity for the period, and the actual total revenue. If actual revenue exceeds what the revenue should have been; favorable. If actual revenue is less than what the revenue should have been; unfavorable.
