Flexible Budgets and Standard Cost Systems

Budget performance report

Is a report that summarizes the actual results, budgeted amounts, and the differences.

Variance

Is the difference between an actual amount and the budgeted amount.

Static budget variance

Is the difference between actual results and the expected results in the static budget.

Flexible budget variance

The difference between actual results and the expected results in the flexible budget for the actual units sold.

Standard

A price, cost, or quantity that is expected under normal conditions.

Standard cost system

An accounting system that uses standards for product costs—direct materials, direct labor, and manufacturing overhead.

Cost Variance

Measures how well the business keeps unit costs of material and labor inputs within standards. (Actual Cost - Standard Cost) x Actual Quantity

Efficiency variance

Measures how well the business uses its materials or Human Resources. (Actual Quantity - Standard Quantity Allowed) x Standard Cost

Direct materials cost variance

The difference between the amount actually paid for direct materials (actual cost) and the amount that should’ve been paid (standard cost). (AC - SC) x AQ

Direct materials efficiency variance

The difference between the direct materials actually used (actual quantity) and the direct materials that should have been used for the actual output (standard quantity allowed). (AQ - SQA) x SC

Direct labor cost variance

The difference between the actual amount paid for direct labor (actual cost) and the amount that should have been paid (standard cost). (AC - SC) x AQ

The direct labor efficiency variance

The difference between the actual labor hours (actual quantity) and the labor hours that should have been used (standard quantity allowed). (AQ - SQA) x SC

Variable overhead cost variance

The difference between the actual variable overhead (actual cost) and the standard variable overhead for the actual allocation base incurred (standard cost). (AC - SC) x AQ

Variable overhead efficiency variance

The difference in the actual allocation base (actual quantity) and the amount of the allocation base that should have been used (standard quality allowed). (AQ - SQA) x SC

Fixed overhead cost variance

Determines the cost associated with the difference between actual fixed overhead and budgeted fixed overhead. Actual fixed overhead - Budgeted fixed overhead

Fixed overhead volume variance

Determines the cost associated with the difference between budgeted fixed overhead and the amount of fixed overhead allocated to actual output. Budgeted fixed overhead - Allocated fixed overhead