ADM 2304 Lecture Notes - Lecture 10: Income Statement, Earnings Before Interest And Taxes

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> after we complete the cash budget, we can prepare the budgeted income statement and budgeted balance sheet for royal. A static budget is prepared only for the planned or budgeted level of activity. These budgets are suitable for planning, however they can be inadequate for control if the actual level of activity during the period differs signi cantly from the budgeted level. Therefore an alternative approach is needed to restore the usefulness of budgets as a control tool. May be prepared for any activity level in the relevant range. Show costs that should have been incurred at the actual level of activity, enabling apples to apples cost comparisons. Reveal variances related to cost control: improve performance evaluation. To ex a budget we need to know that: Total variable costs change in direct proportion to changes in activity. Total xed costs remain unchanged within the relevant range.

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