BU467 Lecture Notes - Lecture 4: Pro Forma
Document Summary
Static (master) budget based on one level of output, is not altered after it is issued even if circumstances change. Level 1: a(cid:374)swe(cid:396)s the (cid:395)uestio(cid:374): (cid:862)whe(cid:396)e we(cid:396)e we off? (cid:863, gives user a little more information: it shows which line items led to the total level 0 variance. Level 2 and 3: a(cid:374)swe(cid:396)s the (cid:395)uestio(cid:374): (cid:862)why we(cid:396)e we off? (cid:863) Level 1 static budget variance: static budget variance = actual results static budget. Level 2 flexible budget variance: flexible budget variance = actual results flexible budget amount, sales volume variance = flexible budget amount static budget amount. Budgets are built from the bottom-up with activities serving as the building blocks of the processes. Managerial uses of variance analysis: effectiveness: the degree to which a predetermined objective is met, efficiency: the amount of input used to achieve a given level of output.
