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Flexible Budgets

Flexible Budgets. Static Budget Based on estimate of sales and production levels Compare costs associated with actual production to costs for budgeted production Budget for production of 100,000 units Actual production: 85,414 units What type of variances???. Flexible Budgets.

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Flexible Budgets

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  1. Flexible Budgets • Static Budget • Based on estimate of sales and production levels • Compare costs associated with actual production to costs for budgeted production • Budget for production of 100,000 units • Actual production: 85,414 units • What type of variances???

  2. Flexible Budgets • Flexible Budget • Compare costs associated with actual production to expected costs for actual production • Before start of period: • Estimated production: 100,000 units • Budget for production of 80,000; 100,000 and 120,000 units • After end of period: • Actual production: 89,315 units • Budget for production of 89,315 units

  3. Overhead Analysis • Variable Overhead Spending (Price) Variance • Assuming labor hours used to apply overhead… • VO Spending Variance: AH x (AVO Rate – SVO Rate) • AVO Rate = Actual VO / Actual Hours • Variable Overhead Efficiency (Volume) Variance • VO Spending Variance: (AH – SH) x SVO Rate

  4. Overhead Analysis • Fixed Overhead Variance • Actual Fixed Overhead – Applied Fixed Overhead • Applied Fixed Overhead = SH x SFO Rate • SH for actual production • Fixed Overhead Spending (Price) Variance • FO Spending Variance: Actual Fixed Overhead – Budgeted Overhead • Budgeted Overhead = SFO Rate x Expected Hours • Expected Hours for budgeted production • Fixed Overhead Volume Variance • FO Volume Variance: Budgeted Overhead – Applied Overhead

  5. Overhead Analysis • Fixed Overhead Variance • What if actual production < budgeted production • Will be under applied

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