ACC 406 Chapter Notes - Chapter 11: Stabilisation Force In Bosnia And Herzegovina

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12 Nov 2012
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ACC406 - Chapter 11
Using Budgets for Performance Evaluation
oStatic Budgets vs. Flexible Budgets
Performance Report = Compares actual costs with budgeted
costs
Two possibilities exist for making this comparison
o1) Comparison of actual costs with the budgeted
costs for the budgeted level of activity
Report based on Static Budgets
o2) Comparison of actual costs with the actual level
of activity
Report based on Flexible Budgets
Static Budget = Budget for a particular level of activity
Master budgets generally created for a particular level of
activity
One way to prepare performance reports is to compare
the actual costs with the budgeted costs from the master
budget
Flexible Budget = Enables a firm to compute expected costs for
a range of activity levels
Two types of Flexible Budgets
o1) Before-The-Fact
Helps managers deal with uncertainty by
allowing them to see the expected outcomes
for a range of activity levels
Used to generate financial results for a
number of plausible scenarios
o2) After-The-Fact
Used to compute what costs should have
been for the actual level of activity
Then compared with the actual costs in order
to assess performance
Sometimes referred to as Variable Budgets
Powerful control tool because they allow management to
compute what the costs should be for the LEVEL OF
OUTPUT THAT ACTUALLY OCCURED
Flexible Budget Variance = Difference between the actual
amount and the flexible budget amount
Variable Overhead Analysis
oOverhead is divided into fixed and variable categories
Two variances calculated for each category
oTotal Variable Overhead Variance
Difference between the total ACTUAL VARIABLE OVERHEAD
and APLLIED VARIABLE OVERHEAD
Variable Overhead is applied by using hours allowed in a
standard cost system
Can be divided into spending and efficiency variances
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