Chapter 8 Learning Objective 1 Characteristics of Flexible Budgets Characteristics of Flexible Budgets Deficiencies of the Static Planning Budget

Chapter 8 Learning Objective 1 Characteristics of Flexible Budgets Characteristics of Flexible Budgets Deficiencies of the Static Planning Budget www.phwiki.com

Chapter 8 Learning Objective 1 Characteristics of Flexible Budgets Characteristics of Flexible Budgets Deficiencies of the Static Planning Budget

Lisaius, Som, Investigative Reporter has reference to this Academic Journal, PHwiki organized this Journal Chapter 8 Flexible Budgets in addition to Per as long as mance Analysis Learning Objective 1 Prepare a flexible budget. 8- Characteristics of Flexible Budgets Planning budgets are prepared as long as a single, planned level of activity. Per as long as mance evaluation is difficult when actual activity differs from the planned level of activity. 8-

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Characteristics of Flexible Budgets 8- Larry’s Lawn Service provides lawn care in a planned community where all lawns are approximately the same size. At the end of May, Larry prepared his June budget based on mowing 500 lawns. Since all of the lawns are similar in size, Larry felt that the number of lawns mowed in a month would be the best way to measure overall activity as long as his business. Deficiencies of the Static Planning Budget 8- Deficiencies of the Static Planning Budget Larry’s Planning Budget 8-

Deficiencies of the Static Planning Budget Larry’s Actual Results 8- Deficiencies of the Static Planning Budget Larry’s Actual Results Compared with the Planning Budget 8- Deficiencies of the Static Planning Budget Larry’s Actual Results Compared with the Planning Budget F = Favorable variance that occurs when actual costs are less than budgeted costs. U = Unfavorable variance that occurs when actual costs are greater than budgeted costs. F = Favorable variance that occurs when actual revenue is greater than budgeted revenue. 8-

Larry’s Actual Results Compared with the Planning Budget Deficiencies of the Static Planning Budget Since these variances are favorable, has Larry done a good job controlling costs Since these variances are unfavorable, has Larry done a poor job controlling costs 8- Deficiencies of the Static Planning Budget 8- The relevant question is “How much of the cost variances is due to higher activity, in addition to how much is due to cost control” To answer the question, we must the budget to the actual level of activity. Deficiencies of the Static Planning Budget 8-

How a Flexible Budget Works To a budget we need to know that: Total variable costs change in direct proportion to changes in activity. Total fixed costs remain unchanged within the relevant range. Fixed Variable 8- Let’s prepare a budget as long as Larry’s Lawn Service. How a Flexible Budget Works 8- Preparing a Flexible Budget Larry’s Flexible Budget 8-

Quick Check What should the total wages in addition to salaries cost be in a flexible budget as long as 600 lawns a. $18,000. b. $20,000. c. $23,000. d. $25,000. 8- Quick Check What should be the total wages in addition to salaries cost in a flexible budget as long as 600 lawns a. $18,000 b. $20,000. c. $23,000. d. $25,000. Total wages in addition to salaries cost = $5,000 + ($30 per lawn 600 lawns) = $5,000 + $18,000 = $23,000 What should the total wages in addition to salaries cost be in a flexible budget as long as 600 lawns a. $18,000. b. $20,000. c. $23,000. d. $25,000. 8- Learning Objective 2 Prepare a report showing activity variances. 8-

Activity Variances Planning budget revenues in addition to expenses Flexible budget revenues in addition to expenses The differences between the budget amounts are called activity variances. 8- Let’s use budgeting concepts to compute activity variances as long as Larry’s Lawn Service. Activity Variances 8- Activity Variances Larry’s Flexible Budget Compared with the Planning Budget 8-

Activity Variances Larry’s Flexible Budget Compared with the Planning Budget Activity in addition to revenue increase by 10 percent, but net operating income increases by more than 10 percent due to the presence of fixed costs. 8- Learning Objective 3 Prepare a report showing revenue in addition to spending variances. 8- Revenue in addition to Spending Variances Flexible budget revenue Actual revenue The difference is a revenue variance. Flexible budget cost Actual cost The difference is a spending variance. 8-

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Now, let’s use budgeting concepts to compute revenue in addition to spending variances as long as Larry’s Lawn Service. Revenue in addition to Spending Variances 8- Revenue in addition to Spending Variances Larry’s Flexible Budget Compared with the Actual Results $1,750 favorable revenue variance 8- Larry’s Flexible Budget Compared with the Actual Results Revenue in addition to Spending Variances Spending variances 8-

Learning Objective 4 Prepare a per as long as mance report that combines activity variances in addition to revenue in addition to spending variances. 8- Now, let’s use budgeting concepts to combine the revenue in addition to spending variances reports as long as Larry’s Lawn Service. Activity in addition to Revenue in addition to Spending Variances 8- A Per as long as mance Report Combining Activity in addition to Revenue in addition to Spending Variances 8-

End of Chapter 8 8-

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