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SMG AC 222 (24)
Lecture 9

SMG AC 222 Lecture 9: AC Notes Chapter 9

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Boston University
SMG AC 222
Greg Sabin

Peters 1 Chapter 9: Flexible Budgeting Static Budget One level of activity Master budget: planning budget Suitable for planning, less useful for control Flexible Budget Recognizes how costs change at different volumes o Budgets cost for the actual level of output (sales) achieves o ** CM format to distinguish variable costs from fixed costs (because only the VARIABLE costs should change) ** o Output Volume: First step in converting the master budget into a FLEXIBLE budget: actual volume achieved (master budget is the volume you expected to achieve) Actual Volume = denominator volume or flexible budget volume basis for flexible budget Flexible Budget Cost Formula o Cost Formula: budgeted cost per unit (remember this is VARIABLE cost) o Master Budget: divided by the number of units in the master budget o Flexible budget for fixed costs equals the master budget Works because volume should not affect the level of fixed cost o Variances differences Activity Variance: actual activity differs from budgeted activity Client based Causes more or less income If you sold more units, this SHOULD affect both revenues and SOME costs Shows what should have happened SOLELY because the actual level of activity differed from what was expected Revenue Variance: actual revenue versus flexible budget revenue
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