(BQ) Part 2 book "Managerial accounting" has contents: Standard costs and the balanced scorecard, flexible budgets and overhead analysis, segment reporting and decentralization, capital budgeting decisions, “How well am I doing?” statement of cash flows,.and other contents. | Confirming Pages Chapter Flexible Budgets and Performance Analysis 9 The Inevitability of Forecasting Errors While companies derive numerous benefits from planning for the future, they must be able to respond when actual results deviate from the plan. For example, just two months after telling Wall Street analysts that it would break even for the first quarter of 2005, General Motors (GM) acknowledged that its actual sales were far less than its original forecast and the company would lose $850 million in the quarter. For the year, GM acknowledged that projected earnings would be 80% lower than previously indicated. The company’s stock price dropped by $. When a company’s plans deviate from its actual results, managers need to understand the reasons for the deviations. How much is caused by the fact that actual sales differ from budgeted sales? How much is caused by the actions of managers? In the case of GM, the actual level of sales is far less than the budget, so some actual costs are likely to be less than originally budgeted. These lower costs do not signal managerial effectiveness. This chapter explains how to analyze the sources of discrepancies between budgeted and actual results. ■ LEARNING OBJECTIVES After studying Chapter 9, you should be able to: BU SI NE SS FOCU S Prepare a flexible budget. LO2 Prepare a report showing activity variances. LO3 Prepare a report showing revenue and spending variances. LO4 Prepare a performance report that combines activity variances and revenue and spending variances. LO5 Prepare a flexible budget with more than one cost driver. LO6 Source: Alex Taylor III, “GM Hits the Skids,” Fortune, April 4, 2005, pp. 71–74. LO1 Understand common errors made in preparing performance reports based on budgets and actual results. 383 383 19/11/10 7:40 PM Confirming Pages 384 Chapter 9 n the last chapter we explored how budgets are developed before a period begins. Budgeting .
