سبور 24

Accounting Mcq16

a flexible budget is appropriate for

Thus, variances between actual costs and budgeted costs are adjusted for volume ups and downs before differences due retained earnings to price and quantity factors are computed. Determine what costs will be incurred at different levels of activity.

  • Income taxes are budgeted as 40% of income before income taxes.
  • Manufacturing companies rely on product cost data to set product sales prices and determine if products are producing profits.
  • It might be a price increase or an effort to find cost savings in manufacturing expenses.
  • Usage in variable cost environment.
  • Applicant Tracking Choosing the best applicant tracking system is crucial to having a smooth recruitment process that saves you time and money.
  • What is the most common treatment of the fixed-overhead budget variance at the end of the accounting period?

Sum of the spending, efficiency, budget, and volume variances. Analyze cost behaviour patterns in response to past levels of activity. Favorable direct-labor efficiency variance, due to increased automation and lower labor-time requirements. Bear in mind that variable expenses typically go up as revenue increases and go down as revenue decreases. Find the historical average of variable expenses as a percentage of historical revenue and apply this ratio to your projected period. You can choose to build your budget based on a percentage of revenue or using actual values.

Managers and investors might use flexible budget variance to measure the performance of not only the company, but also of different managers. A static budget is a type of budget that incorporates anticipated values about inputs and outputs that are conceived before the period in question begins. A static budget–which is a forecast ofrevenueandexpensesover a specific period–remains unchanged even with increases or decreases in sales and production volumes. However, when compared to the actual results that are received after the fact, the numbers from static budgets can be quite different from the actual results. Static budgets are used by accountants, finance professionals, and the management teams of companies looking to gauge the financial performance of a company over time. A flexible budget is designed to change based on revenue or production levels.

How To Prepare A Flexible Budget

Budgeted variable overhead cost per unit + budgeted fixed overhead cost. For a flexible budget variance to work, a company must first have a static or fixed budget. The static budget plans for a certain amount of income and a certain amount of expenses, based on management’s predictions of market conditions and the company’s performance. When looking at the variance, managers or investors still use the same fixed cost and income values as were set in the static budget. If a cost or income values were variable in the static budget, then the flexible budget must use variable figures for those costs or income values as well. A company must first have a fixed budget in order for a flexible budget variance to work.

a flexible budget is appropriate for

Sometimes the budgeted and actual numbers differ greatly. For instance, the company in our example budgeted to have $10,000,000 in monthly sales. Suppose that the demand for the company products increased dramatically during the second month of calendar year 20X6 and sales were $20,000,000.

Advantages Of Flexible Budgeting

A flexible budget allows a company to see when changes to certain costs should be made. While even a static budget is better than no budget at all, creating a flexible budget provides a much clearer picture of revenues and production costs.

Appropriate for control of direct materials and direct labor but not for control of factory overhead. Not appropriate when costs and expenses are affected by the fluctuations in volume limits. Appropriate for any level of activity. BusinessAccountingQ&A LibraryA flexible budget is Appropriate for control of factory overhead but not for control of direct materials and direct labor. Which of the following mathematical expressions is found in a typical flexible-budget formula for overhead? Total activity units + budgeted fixed overhead cost per unit.

The nature of the variance would be unknown based on the facts presented. The variance would be the same amount as the labor efficiency variance. Steven Symes A flexible budget variance can mean that earnings exceeded the amount projected while cost did not exceed the amount projected, or vice versa. A flexible budget variance is the difference between the amount a company plans to spend or earn during a specified period of time and the amount that is actually spends or earns.

a flexible budget is appropriate for

In order to accurately predict the changes in costs, management has to identify thefixed costsand thevariable costs. Fixed costs will be constant within relevant range of operations where the variable costs will continue to increase as production increases. Notice that all cost variances are unfavorable , as compared to the favorable cost variances on the performance report based on the static budget approach.

Emphasis On Flexible Budgets

When actual variable cost per unit equals standard variable cost per unit, the difference between actual and budgeted contribution margin is explained by a combination of which two variances? The sales-volume variance and the fixed-overhead volume variance. The sales-volume variance and the fixed-overhead budget variance. The sales-price variance and the fixed-overhead volume variance. The sales-price variance and sales-volume variance.

Mooster’s July budget versus actual expense analysis reveals unfavorable variances for materials, labor, and variable factory overhead. Does this mean the production manager has done a poor job in controlling costs? Remember that actual production volume exceeded plan.

A flexible budget is very useful for purposes of budgetary control because it corresponds with changes in the level of activity. The genesis of the problem is that variable costs will tend to track volume. If the company produces and retained earnings sells more products than anticipated, one would expect to see more variable costs . Presumably, it is a good thing to produce and sell more than planned, but the variances resulting from the higher costs can appear as a bad thing!

James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company’s operational, financial and business management issues. James has been writing business and finance related topics for work.chron, bizfluent.com, smallbusiness.chron.com and e-commerce websites since 2007. He graduated from cash flow Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University. Determine the extent to which all variable costs change as activity measures change. In the past, variances were reported only at month-end, but often a particular job already would have been off the shop floor for three or more weeks. When management questioned the variances, it was too late to review the job.

Situations For Preferring A Flexible Budget

A typical budget is usually formatted with five columns. The first column lists the sales and expense categories for the company. The second column lists the variable costs as a percentage or unit rate and the total fixed costs. The next three columns list different levels of output and the changes in variable costs based on the a flexible budget is appropriate for increased or decreased sales. Evaluating an individual manager’s performance using a flexible budget variance only works well if the appropriate information is used for the evaluation. Any budgetary information, whether from the static or flexible budgets, must be under the scope of responsibility of the manager being evaluated.

Increased Cost Controls

Fixed costs do not change each month, i.e., they remain the same. Insurance premiums and rent, for example, are fixed costs. The company also knows that the depreciation, supervision, and other fixed costs come to about $35,000 per month. Unfavorable variance is an accounting term that describes instances where actual costs are greater than the standard or expected costs. A static budget incorporates expected values about inputs and outputs that are conceived prior to the start of a period.

This flexibility to adapt to change is useful to owners and managers. Which of the following elements are needed in a straightforward calculation of the variable-overhead spending variance? Variable overhead incurred during the period. Budgeted variable overhead based on actual hours worked.

There are so many types of media. Have you ever wondered how a company chooses? This lesson takes you through the process of media planning and looks at some examples. Many companies use some form of zero-based budgeting, which is a budgeting process where no amounts carry over from prior years and no programs are considered pre-approved. In this lesson, we’ll learn why companies do this and how the process works.

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