Flexed Budgets
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Budgeted Profit + Favourable variances - Adverse variances = Actual Profit | Budgeted Profit + Favourable variances - Adverse variances = Actual Profit | ||
| − | == | + | ==Sales Variances== |
Sales Volume variance = Difference between Original and Flexed Budget Profit or contribution e.g. 20k-16k =4k adverse (Don't Flex the Budget for Fixed Overheads) | Sales Volume variance = Difference between Original and Flexed Budget Profit or contribution e.g. 20k-16k =4k adverse (Don't Flex the Budget for Fixed Overheads) | ||
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Sales Price Variance = Difference between Actual Revenue and Flexed Revenue 92k - 90k = 2k favourable. Higher prices were obtained | Sales Price Variance = Difference between Actual Revenue and Flexed Revenue 92k - 90k = 2k favourable. Higher prices were obtained | ||
| − | == | + | ==Material Variances== |
Total Material Variance = Difference between Actual Cost and Flexed Cost, 36.9k-36 = .9 adverse. This is made up of | Total Material Variance = Difference between Actual Cost and Flexed Cost, 36.9k-36 = .9 adverse. This is made up of | ||
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or (SQ-AQ)*SP | or (SQ-AQ)*SP | ||
| − | == | + | ==Labor Vaiances== |
Total Material Variance Actual labour cost - Flexed labour cost 17.5k - 18k = $0.5k favourable | Total Material Variance Actual labour cost - Flexed labour cost 17.5k - 18k = $0.5k favourable | ||
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| − | == | + | ==Fixed Overhead Variance== |
Total Overhead Var is Act oh - Flexed o/h = 20.7k - 20K = 0.7k adverse | Total Overhead Var is Act oh - Flexed o/h = 20.7k - 20K = 0.7k adverse | ||
Revision as of 21:29, 23 September 2012
Evaluate the budget based upon the actual not the budgeted volume. Thereby determining if the div met its labour, material and overheads budget
| Original | Flexed | Actual | |
| O/P | 1000 | 900 | 900 |
| Sales | 100,000 | 90,000 | 92,000 |
| Raw Material | (40,000) | (36,000)36k m | (36,900) 37k m |
| Labor | (20,000) | (18,000) 2,250hr | (17,500) 2,150hr |
| Contribution | 40,000.4/unit | 36,000.4/unit | 37,600 |
| Fixed Overhead | (20,000) | (20,000) | (20,700) |
| Operating Profit | 20,000 | 16,000 | 16,900 |
Remember to Flex only those items that vary with output
Budgeted Profit + Favourable variances - Adverse variances = Actual Profit
Contents |
Sales Variances
Sales Volume variance = Difference between Original and Flexed Budget Profit or contribution e.g. 20k-16k =4k adverse (Don't Flex the Budget for Fixed Overheads)
For all other variances the Original Budget is ignored
Sales Price Variance = Difference between Actual Revenue and Flexed Revenue 92k - 90k = 2k favourable. Higher prices were obtained
Material Variances
Total Material Variance = Difference between Actual Cost and Flexed Cost, 36.9k-36 = .9 adverse. This is made up of
- Material Usage Variance = Diff between the Actual qty * Std Price and Flex qty budgeted * Budgeted Price = 37km*1-36km*1 = $1k Adverse
or (SP-AP)*qty
- Material Price Variance = Diff between the Actual Qty * Act Price and material Cost budgeted (actual qty * Budgeted cost) 36.9k - 37k*1 = .1 favour
or (SQ-AQ)*SP
Labor Vaiances
Total Material Variance Actual labour cost - Flexed labour cost 17.5k - 18k = $0.5k favourable
Labor Efficiency Variance Diff between Actual lab hrs * std lab cost/hr and Flex lab hrs * std lab cost/hr = 2150*8 (18k/2250) = 17.2-18k =.8k For (SR-AR)*AH
Labor Price Variance Diff between Act lab hrs * actual lab cost and Act hrs * std lab cost = 17,5k - (2150*8) = 0.3 adverse or (SH-AH)*SR
Fixed Overhead Variance
Total Overhead Var is Act oh - Flexed o/h = 20.7k - 20K = 0.7k adverse
If there had been Variable Overheads
O/H efficiency rate Then Actual hrs * Standard Rate - Standard Hours * Standard Rates
O/H expenditure variance Actual hours * Actual rate - Actual hours * Standard Rate
Reconciliation of Variances
Budgeted Profit.........................................20,000 -SVV.........................................................(4000) (diff between Flexed and actual sales) + SP Variance............................................2,000 - MUV.......................................................(1,000) +MPV...........................................................100 +LEV............................................................800 -LPV............................................................(300) -FOV...........................................................(700) Actual Profit..............................................16,900
Actual Units sold Market* Actual Market Share(this is what the actually sold) - Actual Units * Expected Share(This is what they should have sold given their mkt share - Expected units sold * Expected share(THIS IS NOT THE FLEXED #) X Contribution 92000*10%*4=37600 diff 90000*10%*4=36000
= Market Share Variance...................................................Market Size Variance
Things to think about
- Is it significant - what is the trigger for investigation
- Investigate Favorable and Adverse variances
- Use management by exception - spend managing the problems
- Are they normal fluctuations - are you looking over a long enough time period
- Do something about it when you find them
- Is the standard unattainable - basic, ideal and attainable see Standard Costs
