ACC 406 Chapter 11: Chapter 11 - Flexible Budgets and Overhead Analysis
10 Apr 2012
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Document Summary
Budgets are useful for both planning and control. They are often used as a benchmark for performance evaluation. Performance report compares actual costs with budgeted costs. 2 possibilities exist for making this comparison: comparison of actual costs with the budgeted costs for the budgeted level of activity, comparison of actual costs with the actual level of activity. First choice is a report based on static budgets, whereas the second choice is for a report based on flexible budgets. Static budget is a budget for a particular level of activity usually prepared at the beginning of the period. Master budgets are generally created for a particular level of activity. One way to prepare a performance report is to compare the actual costs with the budgeted costs from the master budget. Enables a firm to compute expected costs for a range of activity levels. The key to flexible budgeting is knowledge of fixed and variable costs.
