a. A budget report is prepared to show how actual results compare to the budgeted numbers. O Standard prices and costs are used in preparing a flexible budget. Question: What budgeted amounts appear on the flexible budget report? d. flexible budget. Administrative and marketing expenses for the month are projected to be $10,000 paid by EFT during the month. The flexible budget for income before income taxes is $20,625, and 40% of that balance is $8,250. 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 _____. There are three variable costs. A flexible budget is developed using budgeted revenues or cost amounts based on the actual output level in the budget period. What budgeted amounts appear on the flexible budget? 14. The flexible budget is created from formulas that represent assumptions made when the planning budget was created. First, a flexible budget is a budget in which some amounts will increase or decrease when the level of activity changes. A budget variance is the difference between the amount budgeted for revenue and expenses and the actual amount received or expended. c. the valuation of inventories. The flexible budget uses the same selling price and cost assumptions as the original budget. Prepare a flexible budget performance report for July at activity level of 7,500 units. A variance from the budgeted amounts that has a negative effect on your . (Round unit costs to 2 decimal places, e.g. What is the primary difference between a static budget and a flexible budget? Enter the email address you signed up with and we'll email you a reset link. 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 . It has columns for the actual and budgeted amounts and the differences, or variances, between these amounts. 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. CHAPTER 7 FLEXIBLE BUDGETS, DIRECT-COST VARIANCES, AND MANAGEMENT CONTROL. d. approval of the budget by the stockholders. . Actual costs for the estimated activity level. 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. The actual level of output is not known until the end of the budget period. Waterways produced 127,000 units in March rather than the budgeted number of units. It is also called a variable budget because it adjusts with the change in cost driver activities. They remain unchanged from the amounts established at the time that the static budget was prepared and approved.) $320,000 b. Show variances between budgeted and actual amounts. $ 332,000 Budget variances can be favorable (more revenue) or unfavorable . O A flexible budget is used to compare actual to budgeted amounts. Flexible Budgeting In An Activity. Denny Hahn. 13. 13. 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. Flexible budget variances are the differences between line items on actual financial . 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 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 . (Hint: Indirect materials, indirect labor, utilitites, and maintenance are variable costs. The use of budgets in controlling operations A major element in budgetary control is a. the preparation of long-term plans. According to standards, each pole requires 4.6 machine- hours. 12. The budgeted income statement is extremely useful for testing whether the projected financial results of a company appear to be reasonable. Nina Company prepared the following fixed budget for July using 7,800 units for budgeted sales. However, actual production may fall between the levels shown in the flexible budget. What amounts should appear on the flexible budget? 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. The budgeted indirect labor is $5.40 per machine-hour. 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 . c. What is a flexible budget? 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. A flexible budget is prepared before the master budget. $412,000c. . In the most recent month, the company budgeted production of 3,500 poles. The actual machine-hours for the month were 17,800 machine-hours. Another name for the static budget is a. master budget. As shown in the above table, the accurate allowance is computed to be $8,880. 1 Full PDF related to this paper. Match the comparisons made on the performance report. We have noticed that the recovery rate (Budgeted hrs/Total expenses) at the activity level of 70 % is $0.61 per hr. The actual level of output is not known until the end of the budget period. A flexible budget adjusts for changes in the volume of output. b. @ $16.00 per hour VOH 0.5 hr. Actual sales were 7,500 units and actual costs are shown below. b. A flexible budget adjusts based on changes in actual revenue or other activities. Actual expenses are lower because the income before income taxes was lower. The steps to developing a flexible budget are: Step 1: Identify the activity index and the relevant range of activity. 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. It is the most commonly-used type of budget, because it is easier to construct than a flexible budget. Select the incorrect statement . The other budgeted costs are fixed costs.) The budget is then compared to actual expenses for control purposes. Managers use a technique known as flexible budgeting to deal with budgetary adjustments. Multiple Choice Question 60 What budgeted amounts appear on the flexible budget? Step 2: Identify the variable costs, and determine the budgeted variable cost per unit of activity for each cost. The original budget assumed 17,000 Pickup Trucks would be sold at $15 each. The flexible budget performance report compares the company's actual results with the predicted results from the flexible budget. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels. O A flexible budget is also known as a master budget. proportionately increase variable costs; keeppp fixed costs the same and compute flexible-budget variances . Original budgeted amounts at the static budget activity level. Does flexible budget include fixed costs? However, some businesses use flexible budgets, which vary the expense level with the dollar amount of sales. A budget that adjusts with a change in volume and activity is a flexible budget. 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. a. a. master budget . If so, the company can find the budgeted amounts at that level of . A flexible budget is a budget that adjusts to the activity or volume levels of a company. 40. (Round unit costs to 2 decimal places, e.g. Variance analysis is a tool for comparing some measures of performance to a plan, budget, or standard for that measure. A short summary of this paper. flexible-budget variance, the fixed overhead spending variance, and the fixed overhead production-volume variance 5. Student review 100% (1 rating) Thorough explanation Definition of Flexible Budget and Flexible Budget Variance. $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. Variance analysis is used for planning and control purposes, and can be used to evaluate revenues and costs. A flexible budget is developed using budgeted revenues or cost amounts based on the actual output level in the budget period. Download Full PDF Package. The variable amounts are recalculated using the actual level of activity, which in the case of the income statement is sales units. A fixed budget is a financial plan that is not modified for variations in actual activity. (Hint: Indirect materials, indirect labor, utilitites, and maintenance are variable costs. Waterways produced 127,000 units in March rather than the budgeted number of units. Question: Select the incorrect statement regarding flexible budgets. A flexible budget adjusts to changes in actual revenue levels. A variance is usually considered favorable if it improves net income and unfavorable if it decreases income. Learning Objective 2: Develop a flexible budget. The activity index used in preparing a flexible budget should not influence the variable costs that are being budgeted. The candles cost $5 and sell for $12. The budget will change if there are more or fewer units sold. O Actual costs for the estimated activity level. A flexible budget variance is the difference between 1) an actual amount, and 2) the amount allowed by the flexible budget. Download Download PDF. Using the following information, prepare a flexible budget for the production of 80% and 100% activity. Pros And Cons Of Flexible Budgets. 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. >>$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. A favorable budget variance is any actual amount differing from the budgeted amount that is good for the company. It calculates different expenditure levels for variable costs, depending upon changes in actual revenue. Go via every competency and aim listed, and fee your performance. b. the comparison of actual results with planned objectives. Prepare a monthly flexible manufacturing overhead budget for the expected range of activity, using increments of 1,000 direct labor hours. However, actual production may fall between the levels shown in the flexible budget. The budget is then compared to actual expenses for control purposes. In other words, the result is a budget that varies and… What is the primary difference between a static budget and a flexible budget? 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. c. $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 ______. Flexible budgets use standard costs. The activity index is direct labor hours. The variance that exists now is simply due to price. 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. Multiple Choice Flexible budgets often show the estimated revenues and costs at multiple . Favorable vs. unfavorable budget variances. a. is prepared before the master budget. A fixed cost flexible budget variance is the variance between the actual and budgeted amounts for a fixed cost in a flexible budget. Flexible budgets separate variable costs from fixed costs; the variable costs put the flex in the flexible budget. The processing department has monthly budgeted manufacturing overhead of $180,000 plus $3.00 per machine hour. Jack's report would list flexible budget costs of $200,000 and actual costs of $250,000. 7.9 Flexible Budgets. 7-5 A flexible-budget analysis enables a manager to distinguish how much of the difference . 56,000 machine hours. Flexible Budget: Importance and Methods of Preparation! The $262,500 is 17,500 trucks times $15 per truck. permanent budget. Actual costs for the budgeted activity level. 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. Flexible Budgets. The static budget contains only fixed costs, while the flexible budget contains only variable costs. 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. Look at Beta Company's flexible budget below. 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 . . The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels. 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. This problem has been solved! 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. 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. Expert Answer 100% (50 ratings) . Read Paper. 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 . This Paper. Download Download PDF. For example, (Figure) shows a static quarterly budget for 1,500 trainers sold by Big Bad Bikes. In the original budget, making 100,000 units resulted in total variable costs of $130,000. How much is budgeted total manufacturing costs in March?a. 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. A flexible budget variance is the difference between 1) an actual amount, and 2) the amount allowed by the flexible budget. 116,000 machine hours. 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. o Original budgeted amounts at the static budget activity level. Actual costs for the budgeted activity level. 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. Comparison of actual results to the annual business plan is the first and most basic level of control and evaluation of operations. (The static budget amounts do not change. A flexible budget is a recalculated master budget depending on the actual activity level attained within a certain period of time. Higher costs create unfavorable variance. To compute the value of the flexible budget, multiply the variable . 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. It is more useful than a static budget which remains at one amount regardless of the volume of output. 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? 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. 2.25 . A variance may be favorable or unfavorable. Actual production was 3,800 poles. A flexible budget summarizes revenues and expenses for various levels of sales volume within a relevant range. The production-volume variance is $2,400 F. Budgeted amounts for the actual activity level achieved. The static budget contains only fixed costs, while the flexible budget contains only variable costs. The other budgeted costs are fixed costs.) management by exception Select all that apply A flexible budget shows what budgeted amounts should have been at the actual level of activity. The flexible budget is more sophisticated and useful than a static budget. Performance Report: (Step 1: Budget . Flexible Budget Variance: The difference between actual and flexible budget amounts for revenues and expenses. Explain the relationship between the sales-volume variance and the production-volume . A flexible budget is also known as a master budget. A flexible budget is used to compare actual to budgeted amounts. 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