Flexible Budgets and Performance Analysis

9-1 The prep figure is prep bed for the plotted take of military action. It is static because it is not familiarised even if the train of application by and by transforms.9-2 A flexible cypher screw be adjusted to reflect each train of actionincluding the developed train of activity. By contrast, a static readying budget is prep ared for a sensation level of activity and is not afterward adjusted. 9-3Actual results can differ from the budget for many reasons. Very broadly speaking, the dissimilaritys are usually due to a flip in the level of activity, changes in prices, and changes in how effectively resources are managed.9-4 As observe in 9-3 above, a inconsistency mingled with the budget and material results can be due to many factors. Most importantly, the level of activity can aim a genuinely big impact on salutes. From a managers perspective, a class that is due to a change in activity is very contrary from a departure that is due to changes in pric es and changes in how effectively resources are managed. A mutant of the first kind requires very different actions from a variance of the imprimatur kind. Consequently, these two kinds of variances should be clearly detached from each other. When the budget is directly compared to the tangible results, these two kinds of variances are lumped together.9-5 An activity variance is the difference between a tax receipts or cost item in the static planning budget and the kindred item in the flexible budget. An activity variance is due solely to the difference in the level of activity sour in the planning budget and the substantial level of activity used in the flexible budget. Caution should be exercised in interpreting an activity variance. The fortunate and negative labels are perhaps misleading for activity variances that involve costs. A favorable activity variance for a cost occurs because the cost has most variable component and the actual level of activity is less than the be after level of activity. An disapproving activity variance for a cost occurs because the cost has some variable component and the actual level of activity is greater than the planned level of activity.9-6 A tax income variance is the difference between how practically the revenue should have been, inclined the actual level of activity, and the actual revenue for theperiod. A revenue variance is easy to interpret. A favorable revenue variance occurs because the revenue is greater than anticipate for the actual level of activity. An unfavorable revenue variance occurs because the revenue is less than expect for the actual level of activity.9-7 A expenditure variance is the difference between how much a cost should have been, given the actual level of activity, and the actual fall of the cost. Like the revenue variance, the interpretation of a disbursal variance is straight-forward. A favorable spending variance occurs because the cost is start out than expected for t he actual level of activity. An unfavorable spending variance occurs because the cost is high than expected for the actual level of activity.9-8 In a flexible budget carrying into action bailiwick, the static planning budget is not directly compared to actual results. The flexible budget is interposed between the static planning budget and actual results. The differences between the static planning budget and the flexible budget are activity variances. The differences between the flexible budget and the actual results are the revenue and spending variances. The flexible budget performance report cleanly separates the