Flexible Budgets and Performance Analysis

9-1 The think work out is prepargond for the planned direct of exertion. It is noneffervescent because it is not adjusted still if the take of natural action subsequently changes.9-2 A ductile reckon can be adjusted to reflect any take of useincluding the literal take of activity. By contrast, a static planning cypher is prepared for a single level of activity and is not subsequently adjusted. 9-3 real(a) results can differ from the budget for many another(prenominal) reasons. Very broadly speaking, the battles are normally due(p) to a change in the level of activity, changes in prices, and changes in how in effect resources are managed.9-4 As noted in 9-3 above, a difference surrounded by the budget and true(a) results can be due to many factors. Most importantly, the level of activity can have a really big impact on costs. From a managers perspective, a variation that is due to a change in activity is very contrastive from a sectionalisation that is due to c hanges in prices and changes in how effectively resources are managed. A magnetic variation of the first kind requires very different actions from a dissension of the second kind. Consequently, these both kinds of dissensions should be clearly separated from for each one other. When the budget is instantly compared to the substantial results, these 2 kinds of divisions are lumped together.9-5 An activity magnetic variation is the difference among a tax or cost point in time in the static planning budget and the same item in the ductile budget. An activity variance is due solely to the difference in the level of activity assumed in the planning budget and the developed level of activity used in the flexible budget. Caution should be exercised in translation an activity variance. The favorable and unfavorable labels are perhaps misleading for activity variances that complicate costs. A favorable activity variance for a cost occurs because the cost has somewhat versa tile component and the unquestionable level of activity is less than the planned level of activity. An unfavorable activity variance for a cost occurs because the cost has some variable component and the actual level of activity is greater than the planned level of activity.9-6 A revenue variance is the difference between how much the revenue should have been, prone the actual level of activity, and the actual revenue for theperiod. A revenue variance is calorie-free to interpret. A favorable revenue variance occurs because the revenue is greater than judge for the actual level of activity. An unfavorable revenue variance occurs because the revenue is less than anticipate for the actual level of activity.9-7 A outgo variance is the difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost. want the revenue variance, the interpretation of a spending variance is straight-forward. A favorable spending variance oc curs because the cost is lower than expected for the actual level of activity. An unfavorable spending variance occurs because the cost is higher than expected for the actual level of activity.9-8 In a flexible budget performance report, the static planning budget is not directly compared to actual results. The flexible budget is interposed between the static planning budget and actual results. The differences between the static planning budget and the flexible budget are activity variances. The differences between the flexible budget and the actual results are the revenue and spending variances. The flexible budget performance report orderly separates the