Ch 7 Powerpoint

7/26/2019 Ch 7 Powerpoint

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2009 Pearson Prentice Hall. All rights reserved. 2009 Pearson Prentice Hall. All rights reserved.

CHAPTER 7Flexible Budgets,

Direct-Cost Variances,

and Management Control


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2009 Pearson Prentice Hall. All rights reserved.

Why conduct variance analysis

Part o! the control !unction

Pro"otes organi#ational learning

$a%es res&onsi'ility accounting &ossi'le


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Ter"s

(ariance ) di!!erence 'et*een actual and 'udgeted a"ount

$anage"ent 'y e+ce&tion ) !ocusing attention on areas noto&erating as e+&ected ,'udgeted-

tatic ,$aster- /udget ) a &oint esti"ate 'ased on out&ut&lanned at the start o! the 'udget &eriod


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Ter"s continued

tatic 'udget variance ,1evel 0- ) di!!erence 'et*een actual

results and the static 'udget a"ount

avora'le variance ,- ) increases o&erating inco"e co"&ared

to the 'udgeted a"ount

3n!avora'le variance ,3- ) decreases o&erating inco"e

co"&ared to the 'udgeted a"ount


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(ariances

1evel 0 variance analysis ) the total variance !ro" 'udget

1evel 4 variance analysis ) disaggregates total variance into lineite" variances

1evels 2 and 5 variance analysis 6 Progressively !inerdisaggregation o! the total variance


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1evel 4 Analysis llustrated


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le+i'le /udget

le+i'le /udget ) sho*s 'udgeted revenues and costs ad8usted!or actual volu"e

le+i'le 'udget variance ,level 2- ) Actual results co"&ared to!le+i'le 'udget a"ounts

ales volu"e variance ,level 2- ) le+i'le 'udget a"ountsco"&ared to static 'udget a"ounts


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Price and E!!iciency (ariances ,level 5-

A disaggregation o! the !le+i'le 'udget ,level 2- variance

Can 'e calculated !or direct "aterials direct la'or !i+ed

$H varia'le $H


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(ariance u""ary


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,c- 2009 Pearson Prentice Hall. All rights reserved.

1evel 5 (ariances

: Price (ariance !or"ula;

: E!!iciency (ariance !or"ula;


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tandard Costing

/udgeted a"ounts and rates are actually 'oo%ed

?i!!erences 'et*een 'udgeted and actual a"ounts give rise to

variance accounts.

tandard costing is used 'ecause;

: "&roved so!t*are syste"s allo* it

: (ariance in!or"ation is e+tre"ely use!ul


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3ses o! (ariances

Hel&s e+&lain underlying causes o! de&artures !ro" 'udget

Per!or"ance "easure"ent ) Hel&s evaluate e!!ectiveness and

e!!iciency o! e"&loyees

Pro"otes organi#ational learning

$a%es continuous i"&rove"ent initiatives &ossi'le

Variances are interrelated and have multiple causes


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Activity6/ased Costing and (ariances

/udgeting and variance analysis can 'e used *ith A/C

n such cases 'udgeting is not conducted on thede&art"ental6*ide 'asis ,or other "acro a&&roaches-

nstead 'udgets are 'uilt !ro" the 'otto"6u& *ith activitiesserving as the 'uilding 'loc%s o! the &rocess


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/ench"ar%ing

/ench"ar%ing ) &rocess o! co"&aring &er!or"ance

against 'est &er!or"ance in co"&eting co"&anies

(ariances can 'e e+tended to include co"&arison to other

entities


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/ench"ar%ing E+a" Airlines

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