Flexed Budgets

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Evaluate the budget based upon the actual not the budgeted volume. Thereby determining if the div met its labour, material and overheads budget
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Evaluate the budget based upon the actual not the budgeted volume. Thereby determining if the division met its labour, material and overheads budget
  
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{|class=wikitable
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{| class="wikitable sortable" border="1" cellpadding="5" cellspacing="0" align="center"
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|-Original||Flexed||Actual
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|+ '''Flexed Budget'''
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|-O/P||1000||900||900
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|-
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|-sales||100,000||90,000||92,000
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|-RM||(40,000)||(36,000)||36k M||(36900) 37k m
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|-lab||(20,000)||(18,000) 2,250hr||(17,500) 2,150hr
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|-contribution||40,000.4/unit||36,000.4/unit||37,600
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|-Foh||(20,000)||(20,000)||(20,700)
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|-OP profit||20,000||16,000||16,900
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}
+
  
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Remember to Flex only those items that vary with o/p
+
|
 +
|Original
 +
|Flexed
 +
|Actual
 +
|-
 +
|Output
 +
|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
 
Budgeted Profit + Favourable variances - Adverse variances = Actual Profit
  
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==SALES VARIANCES==
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==Sales Variances==
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Sales Volume variance = Difference between Original and Flexed Budget Profit or contribution e.g. 20k-16k =4k adverse (Dont Frx 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)
  
 
For all other variances the Original Budget is ignored
 
For all other variances the Original Budget is ignored
Line 23: Line 57:
 
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
  
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==MATERIAL VARIANCES==
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==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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Material Usage Variance = Diff between the Actual qty * Std Price and Flex qty budgeted * Budgeted Price = 37km*1-36km*1 = $1k Adverse
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*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
 
or (SP-AP)*qty
  
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Material Price Variance = Diff between the Actual Qty * Act Price and material Cost budgeted (actual qty * Budgeted cost) 36.9k - 37k*1 = .1 favour
+
*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  
 
or (SQ-AQ)*SP  
  
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==LABOUR VARIANCES==
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==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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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 F
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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
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or (SR-AR)*AH
+
  
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Lab Price var Diff between Act lab hrs * actual lab cost and Act hrs * std lab cost = 17,5k - (2150*8) = 0.3 adverse  
+
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
 
or (SH-AH)*SR
  
  
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==FIXED OVERHEAD VARIANCE==
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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
  
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lf there had been Variable Overheads
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If there had been Variable Overheads
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+
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O/H efficiency rate
+
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Then Actual hrs * standard rate - Standard hours * std rates
+
−
 
+
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O/H expenditure var
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Actual hours * Actual rate - Actual hours * std rate
+
  
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Reconciliation of Variances
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O/H efficiency rate
 +
Then Actual hrs * Standard Rate - Standard Hours * Standard Rates
  
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Budgeted Profit.........................................20,000
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O/H expenditure variance
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-SVV.........................................................(4000) (diff between Flexed and actual sales)
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Actual hours * Actual rate - Actual hours * Standard Rate
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+ SP Variance............................................2,000
+
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- MUV.......................................................(1,000)
+
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+MPV...........................................................100
+
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+LEV............................................................800
+
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-LPV............................................................(300)
+
−
-FOV...........................................................(700)
+
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Actual Profit..............................................16,900
+
  
 +
==Reconciliation of Variances==
 +
{| class="wikitable sortable" border="1" cellpadding="5" cellspacing="0" align="center"
 +
|+ Reconciliation of Variances'''
 +
|-
  
 +
|Budgeted Profit
 +
|20,000
 +
|
 +
|-
 +
|Less Sales Volume Variance
 +
|(4,000)
 +
|Difference between Flexed and Actual Sales
 +
|-
 +
|Plus Sales Price Variance
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|2,000
 +
|
 +
|-
 +
|Less Material Usage Variance
 +
|(1,000)
 +
|
 +
|-
 +
|Plus Material Price Variance
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|100
 +
|
 +
|-
 +
|Plus Labor Efficiency Variance
 +
|800
 +
|
 +
|-
 +
|Less Labor Price Variance
 +
|(300)
 +
|
 +
|-
 +
|Less Fixed Overheads
 +
|(700)
 +
|
 +
|-
 +
|Actual Profit
 +
|16,900
 +
|
 +
|}
  
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Market Share and Market Size Variances (sales voume variance)
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==Market Share and Market Size Variances (Sales Volume Variance)==
  
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Actual Units sold Mkt* Actual Mkt 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 #)
+
Actual Units sold Market* Actual Market Share(this is what the actually sold)  
−
X
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*- Actual Units * Expected Share(This is what they should have sold given their marketkt share  
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Contribution
+
*- Expected units sold  
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92000*10%*4=37600 diff 90000*10%*4=36000
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*X Expected share(THIS IS NOT THE FLEXED #)
 +
*X Contribution 92000*10%*4=37600 diff 90000*10%*4=36000
  
  
 
= Market Share Variance...................................................Market Size Variance
 
= Market Share Variance...................................................Market Size Variance
  
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Things to thinks about  
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==Things to think about==
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* is it significant - what is the trigger for investigation
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* Is it significant - what is the trigger for investigation
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* investigate F and Adverse variances
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* Investigate Favorable and Adverse variances
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* use management by exception - spend managing the problems
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* Use management by exception - spend managing the problems
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* are they normal fluctuations - are you looking over a long enough time period
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* Are they normal fluctuations - are you looking over a long enough time period
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* do something about it when you find them
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* Do something about it when you find them
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* is the standard unattainable - basic, ideal and attainable see [[Standard Costs]]
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* Is the standard unattainable - basic, ideal and attainable see [[Standard Costing]]
  
 
[[Category:Finance]]
 
[[Category:Finance]]
 +
[[category:Pages Needing Improvement]]

Latest revision as of 14:46, 17 December 2012

Evaluate the budget based upon the actual not the budgeted volume. Thereby determining if the division met its labour, material and overheads budget

Flexed Budget
Original Flexed Actual
Output 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

[edit] 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

[edit] 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

[edit] 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


[edit] 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

[edit] Reconciliation of Variances

Reconciliation of Variances
Budgeted Profit 20,000
Less Sales Volume Variance (4,000) Difference between Flexed and Actual Sales
Plus Sales Price Variance 2,000
Less Material Usage Variance (1,000)
Plus Material Price Variance 100
Plus Labor Efficiency Variance 800
Less Labor Price Variance (300)
Less Fixed Overheads (700)
Actual Profit 16,900

[edit] Market Share and Market Size Variances (Sales Volume Variance)

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 marketkt share
  • - Expected units sold
  • X Expected share(THIS IS NOT THE FLEXED #)
  • X Contribution 92000*10%*4=37600 diff 90000*10%*4=36000


= Market Share Variance...................................................Market Size Variance

[edit] 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 Costing
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