Prepare a monthly flexible manufacturing overhead budget for the expected range of activity, using increments of 1,000 direct labor hours. The flexible budget performance report takes the budgeted amount per unit and multiplies it by the actual number of units produced ($200 x 1,000) and compares this budgeted amount to the actual amount. Question: Select the incorrect statement regarding flexible budgets. a. is prepared before the master budget. $4,700 net income $4,200 net income $1,300 in total costs $800 in total costs $4,700 net income $1,300 in total costs The concept that focuses on important variances and ignores trivial ones is ______. We have noticed that the recovery rate (Budgeted hrs/Total expenses) at the activity level of 70 % is $0.61 per hr. A flexible budget is also known as a master budget. Comparison of actual results to the annual business plan is the first and most basic level of control and evaluation of operations. 13. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels. Administrative and marketing expenses for the month are projected to be $10,000 paid by EFT during the month. O A flexible budget is used to compare actual to budgeted amounts. The static budget contains only fixed costs, while the flexible budget contains only variable costs. Learning Objective 2: Develop a flexible budget. 56,000 machine hours. The activity index used in preparing a flexible budget should not influence the variable costs that are being budgeted. $412,000c. Flexible Budget: Importance and Methods of Preparation! A budget that adjusts with a change in volume and activity is a flexible budget. In a simple flexible budget, fixed costs stay constant whereas variable and semi-variable costs change according to a standard predetermined at the beginning of an accounting period. 12. . Early in the chapter, you learned that a budget should be adjusted for changes in assumptions or variations in the level of operations. In the most recent month, the company budgeted production of 3,500 poles. The Chartered Institute of Management Accountants, England, defines a flexible budget (also called sliding scale budget) as a budget which, by recognizing the difference in behaviour between fixed and variable costs in relation to fluctuations in output, turnover, or other variable factors such as number of employees, is designed to . b. Expert Answer 100% (50 ratings) What is the primary difference between a static budget and a flexible budget? However, actual production may fall between the levels shown in the flexible budget. Activity variance: Subtract planning budget from flexible budget. @ $16.00 per hour VOH 0.5 hr. Budgeted amounts for the actual activity level achieved. $ 332,000 Select the incorrect statement . Flexible budget is budget typically in the form of an income statement that is adjustable to any level of activity such as units produced or units sold. o Original budgeted amounts at the static budget activity level. The master budget is prepared before to the start of the period, and the flexible budget is established at the conclusion of the term for control and review. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels. When the costs vary with the volume of activity, a flexible budget can be stretched as it includes a variable rate per unit of activity. O A flexible budget is also known as a master budget. a. However, actual production may fall between the levels shown in the flexible budget. (The static budget amounts do not change. Standard prices and costs are used in preparing a flexible budget. A flexible budget is prepared before the master budget. 7-5 A flexible-budget analysis enables a manager to distinguish how much of the difference Student review 100% (1 rating) Thorough explanation A flexible budget is a budget that adjusts or flexes with changes in volume or activity. Multiple Choice Question 60 What budgeted amounts appear on the flexible budget? Flexible Budgets. permanent budget. The flexible budget uses the same selling price and cost assumptions as the original budget. Step 2: Identify the variable costs, and determine the budgeted variable cost per unit of activity for each cost. 2.25 . A flexible budget summarizes revenues and expenses for various levels of sales volume within a relevant range. A) Prepare a flexible overhead budget based on the following amounts produced. It has columns for the actual and budgeted amounts and the differences, or variances, between these amounts. A flexible budget is prepared before the master budget. The goal of this train is not to campaign for good ratings, but somewhat to share your notion of your efficiency together with your supervisor earlier than . How much is budgeted total manufacturing costs in March?a. Favorable vs. unfavorable budget variances. 116,000 machine hours. b. Actual sales were 7,500 units and actual costs are shown below. Flexible Budgeting In An Activity. If the factory works 16000 hrs in a particular month, the allowances @ $0.61 will come put to be $9,760, which is not correct. A flexible budget is developed using budgeted revenues or cost amounts based on the actual output level in the budget period. One of the benefits of flexible budgeting is that it helps you to understand the reasons for your company's variances , the differences between actual and budgeted amounts. A) a budget which starts from a zero base B) based on the level of expected output at the start of the budget period C A flexible budget variance can be calculated by comparing a company's actual costs and revenue to corresponding figures in a flexible budget. Explain the relationship between the sales-volume variance and the production-volume . First, a flexible budget is a budget in which some amounts will increase or decrease when the level of activity changes. . What amounts should appear on the flexible budget? The budget is then compared to actual expenses for control purposes. A variance may be favorable or unfavorable. b. overhead budget.c. A flexible budget is developed using budgeted revenues or cost amounts based on the actual output level in the budget period. A flexible budget is a budget that adjusts to the activity or volume levels of a company. The production-volume variance is $2,400 F. A flexible budget created each period allows for a comparison of apples to apples because it will calculate budgeted costs based on the actual sales activity. @ $2.20 FOH: Materials handling $6,200 Depreciation $2,600 Required: Prepare a flexible budget for 2,500 units, 3,000 . 1 Full PDF related to this paper. The activity index is direct labor hours. Nina Company prepared the following fixed budget for July using 7,800 units for budgeted sales. 7-5 Why might managers find a flexible-budget analysis more informative than a static-bud- get analysis? TrueMasons' budgeted costs for 25,000 linear metres of block are: Fixed manufacturing costs $12,000 per monthVariable manufacturing costs $16.00 per linear metre True Masons installed 20,000 linear metres of block during March. A fixed budget is a financial plan that is not modified for variations in actual activity. The budgeted income statement is extremely useful for testing whether the projected financial results of a company appear to be reasonable. The actual level of output is not known until the end of the budget period. The flexible budget performance report compares the company's actual results with the predicted results from the flexible budget. Download Download PDF. A flexible budget adjusts for changes in the volume of output. . Pros And Cons Of Flexible Budgets. d. flexible budget. O Actual costs for the estimated activity level. On-screen Show Company: UofW Other titles: Times New Roman Monotype Sorts BlankHO Direct Input Variances, and Management Control: I Overview Standard = Budget Variances Static and Flexible Budgets Example Useful Format to Calculate DM and DL Variances Price Variance: material Price Variance: labor Efficiency Variance: DM Efficiency Variance . Full PDF Package Download Full PDF Package. Show variances between budgeted and actual amounts. Question: Question 14 3 pts 14. a. In the original budget, making 100,000 units resulted in total variable costs of $130,000. This Paper. A fixed cost flexible budget variance is the variance between the actual and budgeted amounts for a fixed cost in a flexible budget. Performance Report: (Step 1: Budget . Actual costs for the budgeted activity level. flexible-budget variance Æthe difference between an actual result and a flexible-budget amount… sales-volume variances Æeach sales-volume variance is the difference See the answer c. proportionately increase variable costs; keeppp fixed costs the same and compute flexible-budget variances . The static budget contains only fixed costs, while the flexible budget contains only variable costs. c. the valuation of inventories. Flexible Budget: The basic idea of the flexible budget approach is that the budget is adjusted to show what revenues and costs should be for a specific level of activity. CHAPTER 7 FLEXIBLE BUDGETS, DIRECT-COST VARIANCES, AND MANAGEMENT CONTROL. The processing department has monthly budgeted manufacturing overhead of $180,000 plus $3.00 per machine hour. $320,000 b. Match the comparisons made on the performance report. In other words, the result is a budget that varies and… d. approval of the budget by the stockholders. 40. A budget report is prepared to show how actual results compare to the budgeted numbers. The original budget assumed 17,000 Pickup Trucks would be sold at $15 each. a. 7.9 Flexible Budgets. Managers use a technique known as flexible budgeting to deal with budgetary adjustments. b. the comparison of actual results with planned objectives. Any unexpected market shifts may find a material essential to your production line suddenly costing more than three times the original budgeted amount. Flexible-budget variance Production-volume variance The fixed manufacturing overhead spending variance and the fixed manufacturing flexible budget variance are the same--$1,516 U. Esquire spent $1,516 more than the $62,400 budgeted amount for June 2014. If a flexible budget report shows $348,000 for total budgeted manufacturing overhead costs for the month, what was the actual level of activity achieved during the month? The steps to developing a flexible budget are: Step 1: Identify the activity index and the relevant range of activity. Original budgeted amounts at the static budget activity level. What budgeted amounts appear on the flexible budget? The other budgeted costs are fixed costs.) Show how the 4-variance analysis approach reconciles the actual overhead incurred with the over-head amounts allocated during the period 6. Prepare a flexible budget performance report for July at activity level of 7,500 units. A flexible budget variance is the difference between 1) an actual amount, and 2) the amount allowed by the flexible budget. A flexible budget is a recalculated master budget depending on the actual activity level attained within a certain period of time. The actual indirect labor cost for the month was $96,712. Actual results were 1,100 candles, gross revenues of $12,100, cost of goods sold of $3,850, and SGA of $8,200 resulting in an overall flexible (price and cost) variance of . The variance that exists now is simply due to price. What is a flexible budget? Actual costs for the budgeted activity level. A short summary of this paper. If so, the company can find the budgeted amounts at that level of . To compute the value of the flexible budget, multiply the variable . Flexible budget is budget typically in the form of an income statement that is adjustable to any level of activity such as units produced or units sold. The candles cost $5 and sell for $12. management by exception Select all that apply A flexible budget shows what budgeted amounts should have been at the actual level of activity. Flexible budgets often show the estimated revenues and costs at multiple volume levels. Another name for the static budget is a. master budget. Waterways produced 127,000 units in March rather than the budgeted number of units. O Standard prices and costs are used in preparing a flexible budget. 13. It is the most commonly-used type of budget, because it is easier to construct than a flexible budget. Download Download PDF. Actual costs for the estimated activity level. However, a static budget remains at the original budgeted amount, regardless of any changes in revenue activity, production, or volume, while a flexible budget is designed to adjust budget totals . Flexible budgets use standard costs. Actual revenues or other activity measures are entered into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs. The flexible budget is created from formulas that represent assumptions made when the planning budget was created. This problem has been solved! flexible-budget variance, the fixed overhead spending variance, and the fixed overhead production-volume variance 5. Budget variances can be favorable (more revenue) or unfavorable . Flexible budgets often show budgeted amounts for every 10 per cent change in the level of operations, such as at the 70 per cent, 80 per cent, 90 per cent, and 100 per cent levels of capacity. The use of budgets in controlling operations A major element in budgetary control is a. the preparation of long-term plans. >>$28,800 revenue >>$7,500 for supplies A flexible budget variance is the difference between the actual amount and the planned amount at the actual level of activity. The actual level of output is not known until the end of the budget period. 14. Go via every competency and aim listed, and fee your performance. Most businesses use budgets with fixed estimates for revenues and expenses, by category or sub-category. A) Prepare a flexible overhead budget based on the following amounts produced. It is also called a variable budget because it adjusts with the change in cost driver activities. A flexible budget is used to compare actual to budgeted amounts. For example, (Figure) shows a static quarterly budget for 1,500 trainers sold by Big Bad Bikes. A flexible budget variance is the difference between 1) an actual amount, and 2) the amount allowed by the flexible budget. a. master budget . Multiple Choice Flexible budgets often show the estimated revenues and costs at multiple . The flexible budget for income before income taxes is $20,625, and 40% of that balance is $8,250. . A flexible operating budget is a special kind of budget that provides detailed information about . Flexible budgets separate variable costs from fixed costs; the variable costs put the flex in the flexible budget. Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master budget. b. the comparison of actual results with planned objectives. A flexible budget of the company is used to prepare the budgets that are the sales budget, direct materials budget, and the factory overhead budget that comprises or includes the master budget, among others. The budgeted indirect labor is $5.40 per machine-hour. Denny Hahn. As shown in the above table, the accurate allowance is computed to be $8,880. Flexible budgets often show budgeted amounts for every 10 per cent change in the level of operations, such as at the 70 per cent, 80 per cent, 90 per cent, and 100 per cent levels of capacity. Does flexible budget include fixed costs? A flexible budget adjusts based on changes in actual revenue or other activities. However, some businesses use flexible budgets, which vary the expense level with the dollar amount of sales. 14. (Hint: Indirect materials, indirect labor, utilitites, and maintenance are variable costs. Using the following information, prepare a flexible budget for the production of 80% and 100% activity. b. Dividing total cost of each category by the budgeted production level results in variable cost per unit of $0.50 for indirect materials, $0.40 for indirect labor, and $0.40 for utilities. . The other budgeted costs are fixed costs.) Actual production was 3,800 poles. 2.25 . The flexible budget is more sophisticated and useful than a static budget. Flexible Budget Variance: The difference between actual and flexible budget amounts for revenues and expenses. However, a static budget remains at the original budgeted amount, regardless of any changes in revenue activity, production, or volume, while a flexible budget is designed to adjust budget totals . Read Paper. Flexible Budget with Different Levels of Production Bowling Company budgeted the following amounts: Variable costs of production: Direct materials 3 pounds @ $0.60 per pound Direct labor 0.5 hr. Variance analysis is used for planning and control purposes, and can be used to evaluate revenues and costs. (Hint: Indirect materials, indirect labor, utilitites, and maintenance are variable costs. The budget will change if there are more or fewer units sold. A variance from the budgeted amounts that has a negative effect on your . This means their costs were $50,000 over what they . Meaning actual revenue that was more than expected, or actual expenses or costs that were less than expected.. An unfavorable budget variance is, well, the opposite. It is more useful than a static budget which remains at one amount regardless of the volume of output. Variance analysis is a tool for comparing some measures of performance to a plan, budget, or standard for that measure. Question: What budgeted amounts appear on the flexible budget report? If the company had planned to spend $8,300 on equipment but actually spent $10,200 because of breakdowns, the flex budget would show the latter. 61. Actual revenues or other activity measures are entered into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs. The actual machine-hours for the month were 17,800 machine-hours. Licenses and Attributions The budget is then compared to actual expenses for control purposes. It calculates different expenditure levels for variable costs, depending upon changes in actual revenue. Unlike a static budget, which does not change from the amounts established when the budget was created, a flexible budget continuously "flexes" with a business's variations in costs. (Round unit costs to 2 decimal places, e.g. c. A flexible budget adjusts to changes in actual revenue levels. There are three variable costs. Enter the email address you signed up with and we'll email you a reset link. The $262,500 is 17,500 trucks times $15 per truck. Actual expenses are lower because the income before income taxes was lower. They remain unchanged from the amounts established at the time that the static budget was prepared and approved.) Always indicate whether a variance is favorable or unfavorable. What is the primary difference between a static budget and a flexible budget? According to standards, each pole requires 4.6 machine- hours. Jack's report would list flexible budget costs of $200,000 and actual costs of $250,000. A flexible budget adjusts to changes in actual revenue levels. A flexible budget is a budget prepared for various levels of sales volume. A variance is usually considered favorable if it improves net income and unfavorable if it decreases income. Prepare a flexible budget report for Glenda for the month of July and provide possible reasons for the difference between the budgeted amount and the actual amount. $400,000 d. $332,000 d . A favorable budget variance is any actual amount differing from the budgeted amount that is good for the company. The variable amounts are recalculated using the actual level of activity, which in the case of the income statement is sales units. Look at Beta Company's flexible budget below. (Round unit costs to 2 decimal places, e.g. Download Full PDF Package. Definition of Flexible Budget and Flexible Budget Variance. To prepare the flexible budget, the units will change to 17,500 trucks, and the actual sales level and the selling price will remain the same. $960,000 of sales in the flexible budget vs. $972,000 in actual sales is a $12,000 favorable variance, as additional sales increase net income. Waterways produced 127,000 units in March rather than the budgeted number of units. 41. Budgeted amounts for the actual activity level achieved. A.actual costs for the estimated activity level B.budgeted amounts for the actual activity level achieved C.actual costs for the budgeted activity level D.original budgeted amounts at the static budget activity level Accounting Business Managerial Accounting ADMS 1500 Answer & Explanation Higher costs create unfavorable variance. A budget variance is the difference between the amount budgeted for revenue and expenses and the actual amount received or expended. Flexible budget variances are the differences between line items on actual financial . In a simple flexible budget, fixed costs stay constant whereas variable and semi-variable costs change according to a standard predetermined at the beginning of an accounting period. When used in combination with the budgeted balance sheet, it also reveals scenarios that are not financially supportable (such as requiring large amounts of debt), which management can remedy by altering . Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master budget. Chapter 7 Flexible Budgets, Direct-Cost Variances, and Management Control Solution Cost Accounting: A Managerial Emphasis, 16e (Horngren) 7.1 Objective 7.1 1) A master budget is _____. Note that Beta's flexible budget shows the variable and fixed manufacturing overhead costs expected to be incurred at three levels of activity: 9,000 units, 10,000 units, and 11,000 units. Flexible budgets show the budgeted amount of manufacturing overhead for various levels of output.
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