Chapter 12: Flexible budgets and Variance analysis

static budget

a budget prepared for only one level of sales volume

performance report

a report that summarized the actual results, budgeted amounts, and the differences

variance

the difference between an actual amount and a budgeted amount

* favorable : increases operating income
* unfavorable : decreases operating income

static budget variances

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

flexible budget

a budget prepared for various levels of sales volume

efficiency

the degree to which the use of resources is minimized to achieve an objective

effectiveness

the degree to which a goal, objective, or target is met

standard

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

price standards

specify how much should be paid for each unit of input

quantity standards

specify how much of an input should be used to make a product or provide a service

price variance

measures how well the business keeps unit costs of material and labor inputs within standards

quantity variance

measures how well the business uses it materials or human resources

management by exception

when managers concentrate on results that are outside of the accepted parameters. exceptions can be expressed as:

* a percentage of a budgeted amount
* a dollar amount

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