L9/10/11/12: Budgeting and Variance Flashcards
(22 cards)
What is a budget?
A comprehensive financial plan setting out the expected route for achieving the financial operational goals of an organisation
What are responsibility centres?
Term given to teams in accounting process responsible for certain areas of the budget I.E: Cost centres, revenue centres, profit centres etc
What is the 6 step budgeting process?
1) Budget committee:
Decide structuring and timing of budget, who will be involved, who makes final decision
2) Choose budget period:
How long will be forecast?
3) Establish budget amounts
4) Negotiate budget targets
5) review and agree budget
6) Monitor
What is the structure of a master budget?
A budget consisting of 3 different budgets: Operating budget, capital expenditure budget and financial budgets
What are standard costs?
pre-set costs per unit
What are some causes of variances in standard costing systems?
Inefficiency in operation
Interdependence of departments
Incorrect standards
Market changes
Poor communication
What is is a flexed budget?
A recording of the actual volume at the STANDARD COSTS (so budgeted costs)
SO when thinking about a flexible budget, what 3 types of budget/costs anlaysis things do we look at?
Master budget: Budgeted volume @ budgeted (standard) costs
Flexed budget: Actual volume @ standard costs
Actual performance: Actual volume @ actual costs
How do you workout sales volume variance?
Difference in total profit (between flexed budget and master budget)
(Standard Q - Actual Q) x standard contribution / unit
How do you workout price variance?
(actual P - standard P) x Actual Q
How do you workout quantity variance?
(actual Q - standard Q) standard Price
How do you workout material usage variance?
(Standard Q materials - Actual) X standard price
How do you workout labour price variance?
(Standard rate - actual) X actual hours
How do you calculate Labour efficiency variance?
(Standard hours - Actual) x Standard rate
How do you calculate variable overhead rate variance?
(Standard rate - actual rate) X actual hours
Standard rate = Budget variable overhead cost per unit / budget processing hours per unit
Actual rate = Actual variable overhead cost per unit / actual processing hours per unit
How do you calculate variable overhead efficiency variance?
(Standard hours - Actual hours) X standard rate
How do you calculate fixed overhead variance?
Budget fixed overhead - Actual fixed overhead
How do you reconcile the variances (list them all)?
Create a table of each variance, recording the positive or negative differnce in either favourable or unfavourable column. Here are the row titles:
-Sales Volume
-Sales price
-Mat’ls price
-Mat’ls Q
-Labour price
-Labour efficiency
-Volume overhead
-Volume overhead efficiency
-Fixed overhead
-Net variances
-Actual profit
What are some benefits of standard costing?
-Aids management control
-Points to possible explanations
-Highlights differences to be investigatged
What are some limitations to standard costing?
-Variance analysis is only as good as the standards
-Poor standards lead to poor planning and control
-Revise standards when conditions change
What are the 3 rules for remembering variances?
1) Wherever you want to find PRICE/RATE variance, use actual Q as multiplier
2) Finding efficiency/USAGE variance, use standard rate as multiplier
AND
Actual units produces to calculate the standard quantity in brackets
What is the layout of an incomke statement in contribution margin format?
Two columns
Revenue
(Less variable expenses)
-Material
-Labour
-Marketing and commision
-Admin
(Less fixed costs)
-Manufacturing
-Non-manufacturing
Profit
