ch 7 powerpoint
TRANSCRIPT
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CHAPTER 7Flexible Budgets,
Direct-Cost Variances,
and Management Control
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Why conduct variance analysis
Part o! the control !unction
Pro"otes organi#ational learning
$a%es res&onsi'ility accounting &ossi'le
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Ter"s
(ariance ) di!!erence 'et*een actual and 'udgeted a"ount
$anage"ent 'y e+ce&tion ) !ocusing attention on areas noto&erating as e+&ected ,'udgeted-
tatic ,$aster- /udget ) a &oint esti"ate 'ased on out&ut&lanned at the start o! the 'udget &eriod
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Ter"s continued
tatic 'udget variance ,1evel 0- ) di!!erence 'et*een actual
results and the static 'udget a"ount
avora'le variance ,- ) increases o&erating inco"e co"&ared
to the 'udgeted a"ount
3n!avora'le variance ,3- ) decreases o&erating inco"e
co"&ared to the 'udgeted a"ount
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(ariances
1evel 0 variance analysis ) the total variance !ro" 'udget
1evel 4 variance analysis ) disaggregates total variance into lineite" variances
1evels 2 and 5 variance analysis 6 Progressively !inerdisaggregation o! the total variance
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1evel 4 Analysis llustrated
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le+i'le /udget
le+i'le /udget ) sho*s 'udgeted revenues and costs ad8usted!or actual volu"e
le+i'le 'udget variance ,level 2- ) Actual results co"&ared to!le+i'le 'udget a"ounts
ales volu"e variance ,level 2- ) le+i'le 'udget a"ountsco"&ared to static 'udget a"ounts
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1evel 2 Analysis llustrated
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Price and E!!iciency (ariances ,level 5-
A disaggregation o! the !le+i'le 'udget ,level 2- variance
Can 'e calculated !or direct "aterials direct la'or !i+ed
$H varia'le $H
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1evel 5 Analysis llustrated
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(ariance u""ary
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1evel 5 (ariances
: Price (ariance !or"ula;
: E!!iciency (ariance !or"ula;
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tandard Costing
/udgeted a"ounts and rates are actually 'oo%ed
?i!!erences 'et*een 'udgeted and actual a"ounts give rise to
variance accounts.
tandard costing is used 'ecause;
: "&roved so!t*are syste"s allo* it
: (ariance in!or"ation is e+tre"ely use!ul
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3ses o! (ariances
Hel&s e+&lain underlying causes o! de&artures !ro" 'udget
Per!or"ance "easure"ent ) Hel&s evaluate e!!ectiveness and
e!!iciency o! e"&loyees
Pro"otes organi#ational learning
$a%es continuous i"&rove"ent initiatives &ossi'le
Variances are interrelated and have multiple causes
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Activity6/ased Costing and (ariances
/udgeting and variance analysis can 'e used *ith A/C
n such cases 'udgeting is not conducted on thede&art"ental6*ide 'asis ,or other "acro a&&roaches-
nstead 'udgets are 'uilt !ro" the 'otto"6u& *ith activitiesserving as the 'uilding 'loc%s o! the &rocess
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/ench"ar%ing
/ench"ar%ing ) &rocess o! co"å &er!or"ance
against 'est &er!or"ance in co"&eting co"&anies
(ariances can 'e e+tended to include co"&arison to other
entities
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/ench"ar%ing E+a" Airlines