Lecture 13

Question 1

What’s the purpose of variance analysis?

Answer 1

• compares actual performance versus budgeted or flex performance
• Identifies what went wrong, or right ?
• informed decision-making in future planning 

Question 2

What’s a flexed budget?

Answer 2

• flex budget adjust the original budget to match the actual activity level
• they give a fair comparison against the actual results 

Question 3

Sales revenue variance = formula and meaning 

Answer 3

Actual - flexed
If positive = favourable

Question 4

Cost variance - formula and meaning

Answer 4

Flexed - actual

If positive = favourable

Question 5

Operating profit variance - formula and meaning

Answer 5

Actual profit - budgeted profit
Indicates total performance difference

Question 6

What does a favourable variance mean?

Answer 6

Actual performance was better than expected

Question 7

What’s the point of flexing a budget?

Answer 7

To make an accurate comparison between planned and actual results at the same volume level

Question 8

What is operating profit variance?

Answer 8

The difference between actual and budgeted profit

Question 9

In real life, where the variance numbers come from

Answer 9

Automated systems using accounting software

Question 10

Why is understanding variance useful?

Answer 10

Identifies root causes of performance differences

Question 11

How would a 10% revenue rent affect breakeven analysis?

Answer 11

It introduces a semi variable element that reduces contribution per unit