ACCT2102 Lecture Notes - Lecture 11: Indium Phosphide, Industrial Engineering, Historical Cost
What you need to understand for lecture 10 and 11:
-Level 0, 1, 2 (flexible), 3 (standard) Analysis. How does different levels add value to the organisation?
-Standard costing
-Static Budget Variance, Flexible Budget Variance, Sales Volume Variance
-Price variance: MPV, LRV, VSV, Fixed BV
-Quantity variances: MQV, LEV, VEV, PVV
-Causes and responsibilities of different variances. Should they be investigated?
-Actions to remedy variances
-Definition of unfavourable and favourable
- Journal entries of variances
STATIC BUDGET = the master budget
only prepared for one level of activity
based on a PLANNED output at the start of the budget period.
only measure effectiveness. Not efficiency, eg it doesn’t tell us the cause of deviation, corrective
actions we can take.
Static-budget variance = Actual Profit vs Master Budget Profit
Level 0 analysis: Compares purely Actual OI vs MB OI
Actual Master Budget
Actual OI <—Static budget variance —-> MB OI
Level 1 analysis: Compares the components (Rev, VC, CM, FC) that make up OI
Actual Master Budget
Rev AQ*AP<——Static budget variance—-> BQ*BP
-VC AQ*ACost<—-Static budget variance—> BQ*BCost
= CM
-FC Actual FC <—-Static budget variance—> Fixed FC
= OI Actual OI <—--Static budget variance—> Fixed OI
FLEXIBLE BUDGET
Level 2 analysis: Introduces Flexible Budget.
valid for a range of activities
based on the level of actual output achieved in the budget period using budgeted revenue/cost
starts to measure efficiency because it just changes one factor at a time.
Flexible’s relevant question: “How much of the favourable variable cost is due to lower quantity level and how much is due to good cost control)
Actual budget <—-flexible budget variance—>Flexible Budget <—sales volume variance —- > Static Budget
Rev AQ*AP<———-flexible budget variance—> AQ*BP <—sales volume variance —- > BQ*BP
-VC AQ*ACost<———-flexible budget variance—> AQ*BCost<—sales volume variance —- > BQ*BCost
= CM
-FC Actual Sum <—flexible budget variance—> Budgeted lump sum<—never a variance— >Budgeted lump sum
= OI Actual Profit <—-—Total FBV—— —> FB Profit <———Total SVV— ——> Master Budgeted Profit
^—-Total FBV+ Total SVV = Static Budget Variance—^
Flexible budget variance = the difference in revenues and costs at the
Actual vs Flexible
Sales-Volume Variance = the difference in revenues and costs at the actual sales volume and budgeted sales volume.
Flexible budget (based on actual output) vs Static budget (prepared at the planned output)
The difference is caused by a volume change only.
find more resources at oneclass.com
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Document Summary
What you need to understand for lecture 10 and 11: Level 0, 1, 2 ( exible), 3 (standard) analysis. Static budget variance, flexible budget variance, sales volume variance. Price variance: mpv, lrv, vsv, fixed bv. Static budget = the master budget only prepared for one level of activity based on a planned output at the start of the budget period. only measure effectiveness. Not ef ciency, eg it doesn"t tell us the cause of deviation, corrective actions we can take. Static-budget variance = actual pro t vs master budget pro t. Level 0 analysis: compares purely actual oi vs mb oi. Actual oi < static budget variance -> mb oi. Level 1 analysis: compares the components (rev, vc, cm, fc) that make up oi. Fc actual fc < -static budget variance > fixed fc. Flexible"s relevant question: how much of the favourable variable cost is due to lower quantity level and how much is due to good cost control)
