PowerPoint Authors:Susan Coomer Galbreath,Ph.D.,CPAJon A.Booker,Ph.D.,CPA,CIACynthia J.Rooney,Ph.D.,CPAPowerPoint Authors:Susan Coomer Galbreath,Ph.D.,CPAJon A.Booker,Ph.D.,CPA,CIACynthia J.Rooney,Ph.D.,CPAMcGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Flexible Budgets andPerformance AnalysisCHAPTER 99-2McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Variance Analysis Cycle9-3McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Learning Objective 1Prepare a planning budget Prepare a planning budget and a flexible budget and and a flexible budget and understand how they differ understand how they differ from one another.from one another.9-4McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Characteristics of Flexible Budgets Part 1 Planning budgets are prepared for a single,planned level of activity.Performance evaluation is difficult when actual activity differs from the planned level of activity.9-5McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Lets look at Larrys Lawn Service.Characteristics of Flexible Budgets Part 21.May be prepared for any activity level in the relevant range.2.Show costs that should have been incurred at the actual level of activity,enabling“apples to apples”cost comparison.3.Help managers control costs.4.Improve performance evaluation.9-6McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Larrys Lawn Service provides lawn care in a planned community where all lawns are approximately the same size.At the end of May,Larry prepared his June budget based onmowing 500 lawns.Since all of the lawns are similar in size,Larry felt that the number of lawns mowed in a month wouldbe the best way to measure overall activity for his business.Deficiencies of the Static Planning Budget Part 19-7McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Deficiencies of the Static Planning Budget Part 2Larrys Planning Budget9-8McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Deficiencies of the Static Planning Budget Part 3Larrys Actual Results9-9McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Deficiencies of the Static Planning Budget Part 4Larrys Actual Results Compared with the Planning Budget9-10McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Larrys Actual Results Compared with the Planning BudgetDeficiencies of the Static Planning Budget Part 5F=Favorable variance that occurs when actual costs are less than budgeted costs.U=Unfavorable variance that occurs when actual costs are greater than budgeted costs.F=Favorable variance that occurs when actual revenue is greater than budgeted revenue.9-11McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Deficiencies of the Static Planning Budget Part 6Larrys Actual Results Compared with the Planning BudgetSince these variances are favorable,has Larry done a good job controlling costs?Since these variances are unfavorable,has Larry done a poor job controlling costs?Since these variances are unfavorable,has Larry done a poor job controlling costs?9-12McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.NoreproductionorfurtherdistributionpermittedwithoutthepriorwrittenconsentofMcGraw-HillEducation.Deficiencies of the Static Planning Budget Part 7 At this point,we cannot answer this question because the actual level of activity is greater than the planned level of activity.Therefore,actual variable costs are likely to be higher than planned variable costs regardless of Larrys managerial efficiency.9-13McGraw-HillEducation.Allrightsreserved.Authorizedonlyforinstructoruseintheclassroom.Noreproductionorfurtherdistributionpermittedwit