Flexible Budgets, Standard Costs, and Variance Analysis

Vocabulary terms and definitions related to flexible budgeting, standard costs, and material variances based on the MGA 202 Chapter 9 lecture at the University at Buffalo.

Planning Budget

A budget based on a planned level of activity where the budgeted level of activity may be different from the actual level of activity.

Flexible Budget

A budget based on the actual level of activity where the budgeted level of activity is exactly the same as the actual level of activity, utilizing cost formulas and the actual level of activity.

Variance

The difference between the actual amount and the budgeted amount, calculated as:
Actual Amount − Budgeted Amount

FAVORABLE (Revenue Variance)

Occurs when actual revenues are greater than budgeted revenues.

Actual Revenues > Budgeted Revenues

UNFAVORABLE (Revenue Variance)

A result that occurs when actual revenues are less than budgeted revenues ( ext{actual revenues} < ext{budgeted revenues}).

FAVORABLE (Expense Variance)

A result that occurs when actual expenses are less than budgeted expenses ( ext{actual expenses} < ext{budgeted expenses}).

UNFAVORABLE (Expense Variance)

A result that occurs when actual expenses are greater than budgeted expenses ( ext{actual expenses} > ext{budgeted expenses}).

Materials Quantity Variance

The difference between how much of an input was actually used and how much should have been used, while price stays consistent at the standard price. It is calculated as $(AQ imes SP) - (SQ imes SP)$.

AQ

Actual Quantity of input used or purchased.

SQ

Standard Quantity allowed for the actual output produced.

SP

Standard Price per unit of input.

Materials Price Variance

Based on the amount actually purchased, it is the difference between how much was actually paid and how much should have been paid. It is calculated as $(AQ imes AP) - (AQ imes SP)$.

AP

Actual Price paid per unit of input.

Spending Variance

The total difference between actual costs and standard costs.

(Actual Quantity × Actual Price) − (Standard Quantity × Standard Price)