BUAD 281 Lecture 20: Class 20

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Business Administration
BUAD 281
Vance Marshall

BUAD 281 Week 12 1/10/17 9:03:00 PM The Flexible Budget & Variance Analysis • Budgetary Control o A major function of management is to control operations § Managers analyze differences between actual and planned results and determine causes. ú Provides management with feedback on operations ú Allows managers to update the assumptions used in their planning models o Reports can be prepared as frequently as needed. • Flexible budget— based on a number that is changing, constructed using CVP tools. o o Activity Variances & Flexible Budget Variances § The difference between the planning (static) budget and the flexible budget is called an “activity variance” or a “planning variance.” ú The difference between the flexible budget and actual results is called a flexible budget variance. • For the profit plan (i.e., the budgeted income statement), there are two types of flexible budget variances: o Revenue variances o Spending variances o Combining Activity & Revenue/Spending Variances à we are much more interested in the revenue/spending variances relative to the activity variances o Budgeted and Actual Results § o Activity & Spending/Revenue Variance § o Key: quantity of output is held fixed • Practice: Activity variance vs. Revenue/Spending variance o o Variance Analysis • Revenue and Spending Variances o What causes unfavorable “gasoline and supplies” spending variances? o Were the prices of the gas and supplies higher than expected (i.e., was there an unfavorable price variance?) o Or, for a given level of output, did we consume more inputs (i.e., gas and supplies) than we though we’d consume (i.e., was there an unfavorable quantity variance?) • Why do w
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