Lecture Fundamental accounting principles - Chapter 23: Flexible budgets and standard costs. The learning objectives for this chapter include: Define standard costs and explain how standard cost information is useful for management by exception, describe variances and what they reveal about performance, analyze changes in sales from expected amounts, prepare a flexible budget and interpret a flexible budget performance report. | Chapter 23 Flexible Budgets and Standard Costs PowerPoint Editor: Anna Boulware Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 1 Chapter 23: Flexible Budgets and Standard Costs Budgetary Control and Reporting Revise objectives and prepare a new budget. Management uses budgets to monitor and control operations. Develop the budget from planned objectives. Compare actual to budget and analyze any differences. Take corrective and strategic actions. 2 Budgets are an important cost control tool. Actual results are compared with budgets and differences are investigated and analyzed. Budgets are an important cost control tool. Actual results are compared with budgets and differences are investigated and analyzed. This process may result in corrective action to restore progress toward budgeted objectives. If the operating environment has changed the investigation and analysis may lead to budget revisions. Budget reports are sometimes viewed as progress reports, or report cards, on management’s performance in achieving planned objectives. These reports can be prepared at any time and for any period. The budgetary control process involves at least four steps: (1) develop the budget from planned objectives, (2) compare actual results to budgeted amounts and analyze any differences, (3) take corrective and strategic actions, and (4) establish new planned objectives and prepare a new budget. U = Unfavorable variance Actual cost is greater than budgeted cost. F = Favorable variance Actual revenue and income are greater than budgeted revenue and income. If unit sales are higher, should we expect costs to be higher? How much of the higher costs are because of higher unit sales? Fixed Budget Performance Report 3 A fixed budget, also called a static budget, is based on a single predicted amount of sales or other activity measure. Optel’s fixed budget was prepared for January at | Chapter 23 Flexible Budgets and Standard Costs PowerPoint Editor: Anna Boulware Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 1 Chapter 23: Flexible Budgets and Standard Costs Budgetary Control and Reporting Revise objectives and prepare a new budget. Management uses budgets to monitor and control operations. Develop the budget from planned objectives. Compare actual to budget and analyze any differences. Take corrective and strategic actions. 2 Budgets are an important cost control tool. Actual results are compared with budgets and differences are investigated and analyzed. Budgets are an important cost control tool. Actual results are compared with budgets and differences are investigated and analyzed. This process may result in corrective action to restore progress toward budgeted objectives. If the operating environment has changed the investigation and analysis may lead to
