Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting, second edition, by Banks & Giliberti Slides prepared by Mya Aronfeld 7-1 Chapter 7 Flexible budgets

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting, second edition, by Banks & Giliberti Slides prepared by Mya Aronfeld 7-2 Flexible budgets  Static budget: prepared for one level of planned activity.  Flexible budget: covers a range of activity within a business.  Fixed costs: in total remain constant in the short run within a given range of activity.  Variable costs: in total vary as the level of activity changes.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting, second edition, by Banks & Giliberti Slides prepared by Mya Aronfeld 7-3 Cost behavior: The more knowledge of cost behavior, the more accurate the budgeting process.  Fixed costs: in total remain constant in the short run within a given range of activity.  Variable costs: in total vary as the level of activity changes.  Semi-variable costs: have a fixed and a variable component.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting, second edition, by Banks & Giliberti Slides prepared by Mya Aronfeld 7-4 Flexible budget equation

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting, second edition, by Banks & Giliberti Slides prepared by Mya Aronfeld 7-5 Statement of financial performance (applying cost behavior principles) (p. 159) Anshar Manufacturing $$$ Sales Less variable costs Contribution margin Less fixed costs Net profit Anshar Manufacturing

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting, second edition, by Banks & Giliberti Slides prepared by Mya Aronfeld 7-6 Flexible budget analysis  Activity volume variance: shows what portion of the variance was due to the actual volume being different from the desired volume as per master budget.  Volume levels may be based on:  Number of units sold  Professional hours  Machine hours  Student contact hours  Flexible budget variance: shows the variance when the actual volume achieved is used to recalculate the budget figures (refer p. 163)

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting, second edition, by Banks & Giliberti Slides prepared by Mya Aronfeld 7-7 Summary  Static budget variance:  Difference between actual results and master budget figures.  Activity volume variance:  Difference between master budget figures and budgeted figures recalculated for actual volume achieved.  Flexible budget variance:  Difference between actual results and budgeted figures recalculated for actual volume achieved.