Flexed Budgets

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

Flexed|Actual
1000|900|900
(40,000)|(36,000)|36k M|(36900) 37k m
(20,000)|(18,000) 2,250hr|(17,500) 2,150hr
40,000.4/unit|36,000.4/unit|37,600
(20,000)|(20,000)|(20,700)
20,000|16,000|16,900

Remember to Flex only those items that vary with o/p

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 (Dont Frx 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

LABOUR VARIANCES

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 F or (SR-AR)*AH

Lab Price var 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

lf there had been Variable Overheads

O/H efficiency rate

Then Actual hrs * standard rate - Standard hours * std rates

O/H expenditure var Actual hours * Actual rate - Actual hours * std 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

Market Share and Market Size Variances (sales voume variance)

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 #) X Contribution 92000*10%*4=37600 diff 90000*10%*4=36000

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

Things to thinks about

• is it significant - what is the trigger for investigation
• investigate F 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